If you think the media is biased now, just wait, it's going to get a lot worse. However, this is also going to be good investments I think.
dallasnews.com
Rule change might set off flurry of TV deals, execs say
More station sales, swaps expected in large markets
08/07/99
By Jennifer Files and Catalina Camia / The Dallas Morning News
Television broadcasters are expected to become more aggressive buyers after a federal rule change this week that allows a single company to own two stations in many large cities.
The new rules apply to about 50 large U.S. markets - including Dallas-Fort Worth - that have more than eight TV stations.
In smaller markets, broadcasters could buy a second station only if it is financially troubled, according to the new Federal Communications Commission rule.
Companies still can't own more than one of the four largest stations, based on ratings, but smaller independent stations could become acquisition targets.
Television networks and other media companies have been growing in recent years by adding markets.
In allowing them to consolidate holdings for the first time, the new rule could set off a flurry of sales and swaps, media executives said.
One local combination has already been decided.
Fox Television, which owns KDFW-TV (Channel 4), plans to purchase KDFI-TV (Channel 27), its partner through a local marketing agreement since 1994.
"In this situtation, Fox programs the station, buys the programming for the station, pays the employees. They're in our building," said Kathy Saunders, vice president and general manager of KDFW. "The only thing that Fox and the staff of KDFW did not do was own it."
Ms. Saunders wouldn't discuss financial terms but said a deal could close within two months.
Belo Corp., which owns top-ranked WFAA-TV (Channel 8), may be prohibited from buying a second station because it also owns The Dallas Morning News.
A federal rule generally bars companies from owning television stations and newspapers in the same market. Belo owned both properties before the rule went into effect and was allowed to keep them.
"It would appear that the newspaper cross-ownership rule would be a bar to us owning a second television station in the market for the time being..ö.ö..but we want to read the full report in order to make that determination," said Michael J. McCarthy, executive vice president and general counsel at Belo.
Belo would consider purchases in other sizable markets, such as Houston, where it already owns CBS affiliate KHOU-TV, he said. "Houston is a great market. It has a great future. That's something we're looking at very seriously."
From a broadcaster's point of view, there are a number of reasons two stations can be better than one.
A second station could carry programs that a media company already owns - while generating new advertising revenue. Companies can share programming, employees and other costs.
Prices for smaller stations are likely to rise.
A television station in Dallas might sell for 10 to 12 times cash flow, said Norman Fischer, an Austin media broker. That could increase to a multiple of 12 to 15 - though prices sometimes skyrocket if a purchase has a particularly strategic motive.
The new rules also affect local marketing agreements, or LMAs, in which a company with one station in a market buys the right to control programming on a second station.
The new rules allow agreements entered into before Nov. 5, 1996, to continue until 2004. With newer deals, companies have two years to either buy the second station or terminate the agreement.
Many companies will choose to buy their LMA stations, experts said.
"It's kind of like buying a house or leasing a house. You're building equity into that property. That enhances the value of your facilities," said Mr. Fischer.
In addition, "there's always concern that when the station is owned by someone else, someday the arrangement could end," said David D. Oxenford, a partner at the law firm Fisher Wayland Cooper Leader & Zaragoza LLP in Washington.
The FCC also allows companies that own television stations in midsize and large markets to own six radio stations - or seven if the company owns just one television station. Previously, companies were required to get government waivers to own television and radio stations in the same market.
The decision "removes what we think is a whole lot of uncertainty that has been in the market," said Bill Banowsky, executive vice president and general counsel for AMFM Inc., a Dallas-based radio company that has been the industry's most active buyer. AMFM exceeds the cap in only two markets.
"We do believe that the rules will continue to move in the direction of less regulation," he said.
The government originally limited media ownership to ensure a range of sources of information in U.S. media markets. In making the change, the FCC said that broadcasters face increasing competition from cable and satellite companies.
The commission also said duopolies could keep some stations from going off the air altogether and help the public by offering more news or public affairs programs.
Consumer groups said consolidation could hurt communities by limiting the number of media voices.
"They clarified rules, which is very good," said Andrew Schwartzman, president of the Media Access Project, a public-interest group in Washington. "But there will be fewer owners. It increases concerns and reduces diversity. Ownership impacts content.
"It will deplete the gene pools of democracy by having control of sources of information in fewer hands."
Still, the industry - and some influential members of Congress - will continue to fight for an end to ownership limits.
A spokeswoman for Sen. John McCain, R-Ariz., said the chairman of the Senate Commerce Committee, which oversees telecommunications, was pleased by the FCC ruling.
"Senator McCain believes the FCC is going in the right direction," said Pia Pialorsi, the committee press secretary. "But he thinks all ownership restrictions should be lifted."
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