10-01-03 | Printable Version

Consequences of Putting Proposed Media Ownership Rules on Hold

By Thomas J. Buono, Chairman and CEO, BIAfn

Uncertainty again reigns throughout the media industry. On September 3, the 3rd Circuit Court of Appeals put significant business plans, financing discussions and operating strategies for the nation’s three most significant media industries on hold, when it issued a stay order on the new ownership rules after months of uncertainty related to the proposed rule changes.

This new uncertainty greatly affects television stations, many in medium and small markets across the nation whose recent financial position is deteriorating and whose future may appear bleak. A soft advertising environment, coupled with declining viewership, has slowed growth for many stations. In most cases, the station has lost, or will lose, much (if not all) of the compensation it receives from its network, dramatically reducing the cash available to pay expenses and service debt. Additionally, all stations are required to invest heavily in capital expenditures to broadcast digitally. Stations fighting for survival have little alternative but to cut expenses, including programming and news costs. The public is not better served when weaker TV operators feel pressured to reduce their local news coverage, a phenomenon happening across the country.

The last time a medium was in this shape was in the early 1990s when radio was on the ropes. New ownership rules then allowed for survival of many struggling stations and resulted in the creation of strong in-market clusters and large national groups. In many markets three to four groups now control the radio stations that account for the majority of listening and revenues. While fewer opportunities currently exist for entrepreneurs, the ability of the industry to survive and invest in itself has been greatly strengthened.

If government representatives think the largest broadcasters are doing something wrong, they should impose rules to curb that behavior. They should not strike down the rules that can help weaker stations survive and improve the quality and amount of local news or rules that would potentially create more competition in many radio markets.

Given the financial situation at many TV stations, it is critical to allow flexibility in order to guarantee survival and encourage investment. Many of these rules would encourage combinations that would foster investment and could maintain and increase local news and better service to the public.

The proposed TV duopoly rule, increased national TV ownership cap, and cross-media ownership rules would all encourage stronger financial companies to acquire weaker financial companies. In small and medium market TV this is critical. Although this may eliminate potential acquisitions by small groups, television was never really an entrepreneurial play. It is hard to argue that the public interest will be negatively impacted if the acquiring company runs the local newspaper (typically with a news staff larger than all the TV stations combined), a network (which is by design committed to news coverage) or another TV operator in the market that would then be able to operate under improved economies.

The longer the rules dispute takes, the longer stations’ future remains in limbo. Weaker owners may need to revisit their survival strategies, financing sources will be hesitant to consider additional investment in the industries and the financial markets will look at media companies with caution. The Court should understand that with its decision there will be real consequences for investors, operators, their employees and the public as a whole.