FCC's New Ruling Could Create A Fuzzy Picture For TV Stocks

The major U.S. television network companies have been providing a static picture for investors. Now, new media ownership rules proposed by the Federal Communications Commission could make it even worse.

According to media reports, FCC Chairman Kevin Martin last week proposed modest changes to the media ownership rules – for example, the new rules would prohibit further local TV or local radio consolidation. Martin’s one proposed change is to relax (but not eliminate) the ban on newspaper-TV combinations in local markets. The other FCC Commissioners have not signed off on this rule change, and in fact the two FCC Democrats have signaled displeasure with Martin’s proposal. While Martin still has a 3-2 Republican majority and probably could outvote the Democrats, he is seeking at least partial Democratic support on this polarizing issue. Martin wants a December 18 vote on the new rules, but FCC and congressional Democrats want more time for public input before voting.

How Martin’s rule would work: In the 20 largest U.S. markets, the FCC would presume that a proposed newspaper-broadcast combination is fine, but the companies would still need FCC approval. In all markets below 20 (21-210), combos would be disfavored, but the companies could still seek FCC approval. In evaluating all TV-paper combo requests, the FCC would look at whether (1) there are enough other local media outlets to offset the additional market concentration of the TV-paper combo; (2) the combo would preserve separate editorial control for the TV and paper; (3) the combo would help a struggling newspaper; (4) the combo would increase total news output.

Investors for years have kept the stocks --- including Media General, publisher of the Richmond Times-Dispatch and Tampa Tribune, and Gannett, the nation's largest newspaper publisher --- aloft under the expectation that the highly politicized process will go away, writes Nat Worden of TheStreet.com.

“That could challenge Wall Street valuations that give broadcast assets a premium over newspapers. In so doing, it weakens the argument for media conglomerates to split print assets away from TV in order to win a higher stock price.
Both the newspaper industry and the broadcast TV business epitomize Wall Street's definition of a mature industry with little opportunity for growth left. Usually, companies in mature industries pursue a strategy of consolidation to keep their stock prices moving, but TV companies that own newspapers have been largely barred from such moves due to longstanding ownership restrictions prescribed by bureaucrats in Washington,” Worden said.

If adopted, this liberalized newspaper-TV rule is unlikely to revolutionize the industry and lead to more deals in the making. The deals still seem cumbersome to achieve when the government says you are unlikely to obtain the needed government approvals (as would be the case for transactions in markets below #20). Also, it seems unlikely that media companies would be seeking more opportunities in the already-struggling newspaper and broadcast industries. Any potential acquisitions would most likely be in new media.