would permit Viacom-UPN deal
Staff : Drop ban on dual network ownership
By Dave Lindorff
In their bid to gain approval to acquire UPN, Viacom's Sumner Redstone and CBS's Mel Karmazin now have the support of the Federal Communications Commission staff, and there's a growing belief that the commissioners will follow the staff recommendation.
An FCC staff report recommending that the merging Viacom-CBS be allowed to operate the struggling network comes as part of a wide-ranging review of rules governing the broadcast industry.
The report calls for reversing a longstanding FCC rule forbidding one network from acquiring another.
While it could takes months for the FCC to formally implement such a rule change, should they approve it at their upcoming meeting, it would certainly ease the way for the FCC to grant a waiver in time for the close of the deal next month. Viacom, having acquired CBS last year, agreed earlier this week to acquire the remaining 50 percent of UPN it did not already own from Chris Craft.
That said, however, there's little evidence to suggest the FCC intends to ease a number of other rules affecting the broadcast industry, say longtime FCC observers.
While there is certainly mounting pressure on the part of key congressional leaders for a wholesale lifting of cross-ownership restrictions, such as the 35-percent ownership cap for local stations owned by television networks, observers see few other rule changes in the near future.
Without such a rule change, Viacom, which acquired CBS in September, would be forced to sell off a number of stations.
"There has been a steady relaxation of the rules for the past 20 years," says Andy Schwartzman, president and CEO of Media Access Project, a Washington-based watchdog group that opposes easing the rules.
"But aside from buckling with respect to the dual network rule to allow Viacom to buy both CBS and UPN, I don't see them changing any more rules about ownership in this review."
Ken Johnson, an aide to Representative Billy Tauzin (R-Louisiana), who heads the telecommunications subcommittee of the House of Representatives, says, "It's hard to tell what will happen, and every time you try to second guess the FCC they throw you a curve, but I think they are likely to allow Viacom to own CBS and UPN."
A spokesman at the National Association of Broadcasters suggests that there is also "a remote possibility that they might do away with the restrictions on dual newspaper and television station ownership in the same city." But he says this is not likely.
Such a rule change would benefit the Tribune Co. in its recent purchase of Times Mirror, parent of the Los Angeles Times. That merged company will own 11 newspapers and 22 television stations, many in major markets.
No one expects the FCC to make any more than minor changes in the 35-percent ownership cap for local stations owned by television networks.
That is an issue which has bitterly divided the networks and local broadcasters. All the broadcast networks have criticized the NAB--which is dominated by local broadcasters--for its support of a continued 35-percent cap.
But as one congressional staffer is quick to note, "That's a family food fight. Neither Congress nor the FCC is going to take any action on that until the networks and the local stations come to some agreement on what should be done."
The cap has made network consolidations difficult, both for cable and broadcast nets, which have to divest local stations in order for merger deals to go through without exceeding the cap. It also prevents the networks, which all have trouble turning a profit, from buying up more local stations, with their high margins and strong cash flow.
The FCC has been taking considerable heat from both Congress and liberal critics as a series of huge mergers has been attempted among and between telecom and media companies--deals like MCI-Sprint, AOL-Time Warner, Viacom-CBS, and AT&T-MediaOne.
Critics of such mega-mergers say that the FCC, and the Justice Department along with it, which oversees anti-trust issues, have essentially thrown in the towel and are letting everything go through.
On the other side, FCC critics in Congress, like Rep. Tauzin, say that the agency drags its feet and needlessly delays merger approvals, sometimes for years, impeding the deregulation of the media.
"The FCC is like a fish out of water," says Johnson. "It's an agency formed half a century ago, patterned on the old Interstate Commerce Commission back when there were still horse and buggies on the road. But, hey, now we have satellites. We have a regulatory agency overseeing a deregulated marketplace, and they've got to change--to become more of an enforcement agency, not a regulatory agency. They should be going after the bad guys, not the companies that are law-abiding."
Some agency critics say that there is what one calls "an awakening at the staff level," at the FCC. They suggest that, whether for reasons of economic theory or because of political and market pressure, commission staffers increasingly are making recommendations to the commissioners to deal more leniently with mergers and other ownership issues.
"I think it's a mater of self-preservation instinct," says one congressional staffer. "There's an awareness at the staff level that the FCC needs to remake itself or become irrelevant."
But John Kamp, a lobbyist with the Washington office of the American Association of Advertising Agencies, says, "On the big issues like merger rules and ownership caps, the commissioners make the decisions, not the staff, and these kinds of decisions are purely political. " He adds, "The FCC commissioners are going to pay close attention to these mergers."
-Dave Lindorff is a staff writer for Media Life.
