FCC Rule-Change Rerun Spurs
Interest in Smaller Broadcasters
By MARTIN PEERS and JOE FLINT
Staff Reporters of THE WALL STREET JOURNAL
Federal regulators relax TV-station ownership rules. Analysts predict a feeding frenzy of deals as broadcasters race to take advantage of liberalized ownership rules. Paxson Communications chief Bud Paxson says he feels like the "prettiest girl" at the dance.
Sound like headlines from this week? No. That was the story in August 1999, the last time the Federal Communications Commission changed the television-ownership rules. With the FCC preparing to further deregulate the industry, the market seems to be following the same script. In an interview Wednesday, Mr. Paxson even repeated his "prettiest girl" description of his company.
Some investors in small broadcasting companies are pulling out their rabbit-ear antennae, hoping to hear signals from the big networks. Indeed, stocks of independent station groups like Sinclair Broadcasting Group, Hearst-Argyle Television and Granite Broadcasting have made gains in recent weeks in anticipation of the changes.
Buyers might be getting ahead of themselves, however. The frenzy didn't materialize in 1999, and there is no guarantee it will happen this time around, either. Hearst-Argyle, for instance, was expected to be a buyer after the 1999 changes. It ended up adding just two stations, including one it already managed. Its current station count is 27 (including stations it manages but doesn't own).
The general consensus is that the 1999 rule changes didn't go far enough to prompt more sweeping consolidation, and while the expected changes this time will create some activity, just how much won't be clear until the details of the new rules are clarified in several weeks.
The proposals now under discussion at the FCC appear to be more far-reaching than those in 1999. FCC Chairman Michael Powell wants to raise to 45% the national ownership cap that now limits broadcasters to owning stations reaching 35% of television households. Also proposed is a relaxation of the ban on a company owning a newspaper and a TV station in the same market, at least for bigger markets. And he wants to extend changes in 1999 that allowed broadcasters to own two stations in a market, known as a "duopoly." Most dramatically, a company could own as many as three stations in really big markets -- as long as only one is among the top four.
Here's the problem, however: News Corp. and Viacom, among those pushing for the changes, already have been the most aggressive in acquiring TV stations. Both are already over the existing station-ownership cap, with stations reaching close to 40% of the country, so the higher limit would simply legitimatize what they already own (and have been operating under a waiver of the existing cap, pending changes to the rules).
That isn't stopping some big investors from thinking lightning can strike again, however. "We think there is going to be a lot of activity," says Mario Gabelli, chairman and CEO of Gabelli Asset Management, a big investor in broadcasting stocks.
To be sure, Mr. Gabelli has made money on a similar bet before. His Gabelli-managed funds were big shareholders in Chris-Craft Industries, the TV station group bought by News Corp. after the 1999 changes, which News Corp. used to establish duopolies in some big markets like New York.
Big broadcasters are interested in buying stations in major markets, Mr. Gabelli says. He points to Granite Broadcasting, Young Broadcasting and Fisher Communications as having stations in major markets. Clients of Gabelli Asset Management own shares of several broadcasters, including more than 20% of Young. Young shares were up six cents at $19.11 at 4 p.m. Wednesday in Nasdaq Stock Market trading, up sharply from their 52-week low of $6.30 last August.
Granite is looking to sell or swap its two big-market stations in Detroit and San Francisco so it can expand in smaller markets where its other six stations are. "We might be able to hit a home run now in the larger markets," says Stuart Beck, Granite's president. Granite stock has almost doubled from around $1.50 in April to $2.67 earlier this week. The shares were at $2.35, down 32 cents, or 12%, at 4 p.m. Wednesday in Nasdaq trading.
So far, however, the big companies aren't likely to go on major acquisition tears. General Electric's NBC television unit, for instance, took advantage of the duopoly changes to buy Spanish-language broadcaster Telemundo last year, which gave it a second station in markets like Los Angeles. But NBC isn't likely now to seek out big purchases, people with knowledge of the company's thinking say. ABC's parent, Walt Disney, is well below the cap but long has been reluctant to do big TV-station acquisitions in a market it deems too expensive. Now Disney is facing debt pressures and isn't in a position to spend up big.
"It is hard to believe that raising the cap will create a slew of deals," says Alan Bell, president and chief executive of Freedom Communications, which owns several smaller-market television stations and newspapers including the Orange County Register.
In any case, the big companies aren't making a lot of noises about snapping up properties, no doubt partly to avoid inflaming political sentiment against the changes.
"We do not see ourselves going out on a buying binge of television stations," said News Corp. Chairman Rupert Murdoch on a conference call with analysts earlier this week. Furthermore, with News Corp. expecting to face heavy government scrutiny over the purchase of Hughes Electronics' satellite broadcaster, DirecTV, this may not be the best time for Mr. Murdoch to try to buy more stations. |
