When a high school chaperone relaxes the rules, there’s a lot of pairing up.
The same thing is happening in the TV broadcast world. After the Federal Communications Commission loosened curbs on ownership in major markets in August 1999, six big TV station group owners started getting cozy.
Predictable? Yes. And with the chaperone still looking the other way, other broadcasters may turn bold. Keep an eye on Walt Disney Co.’s ABC, Barry Diller’s USA Networks Inc. and the Tribune Co. Each owns stations in the coveted New York and Los Angeles markets and could want more.
If nothing else, these companies might feel the need to catch up. Viacom Inc. paid $50 billion to waltz off with CBS Corp. in April. Two weeks ago, News Corp. agreed to pay $5.35 billion for Chris-Craft Industries Inc. and two affiliated companies.
General Electric Co.’s NBC found a cheaper date in Paxson Communications Corp., paying just $415 million last September for a 32 percent stake. Paxson, which owns 66 lesser-known TV stations, has begun running some NBC programming along with its “family-friendly” network fare.
Consolidation looks good to shareholders, but TV viewers may be irked by changes. Some local newscasts have been disappearing. In Jacksonville, Fla., viewers see the same local newscast on the ABC and NBC affiliates because Gannett Co. now owns both stations and can economize.
Viacom may shut down the United Paramount Network if it loses the affiliation of eight Chris-Craft stations in the News Corp. sale. That would displease fans of “Moesha,” “The Parkers” and “Smackdown!”
Prior to last August, broadcasters were limited to owning one TV station in a given market. The FCC decided to allow common ownership of two TV stations, if eight other stations continued to operate in the market under separate ownership.
But the sweetest break for the big broadcasters came with the FCC’s decision not to count a second station in a local market toward the broadcaster’s national audience cap, which is set at 35 percent. The FCC decision sparked the merger between Viacom and CBS, which owned TV stations in six of the same markets.
News Corp. said its bid for Chris-Craft was prompted by overlap in four cities, including New York and Los Angeles, the top two markets. In a conference call with analysts and reporters, News Corp. executives said they expect to reap savings from combined engineering and administrative functions, and gain leverage with program suppliers and advertisers.
“You’re just going to have to deal with us,” said Mitchell Stern, chairman and chief executive of News Corp.’s Fox Television Stations Inc. unit.
Fox is particularly strong in Los Angeles, where it already owns a TV station and two regional sports networks for cable TV. Richard Bilotti, an analyst with Morgan Stanley Dean Witter & Co., dubbed the combination “the first quadopoly in history.”
With the Chris-Craft deal, News Corp. Chairman Rupert Murdoch might eliminate UPN as a competitor to his own Fox network, simply by ending Chris-Craft’s affiliation with the money-losing UPN. Eight of Chris-Craft’s 10 stations are UPN affiliates in key markets.
Until March, Chris-Craft owned 50 percent of the network, but it sold its stake to Viacom after losing a bitter court fight between the partners.
Viacom recently made efforts to buy Chris-Craft, because an outright purchase could have resolved the uncertainty about UPN’s future: the affiliation agreements with Chris-Craft expire in January.
But “duopoly” provided an equal, if not better, incentive for a Viacom bid, because its newly acquired CBS stations overlap with Chris-Craft in six markets, including New York, Los Angeles and San Francisco.
Indeed, the strategic fit is so good that some Wall Street investors hope Viacom will make a higher bid. Unlike many recent media deals, News Corp. and Chris-Craft did not negotiate a “break-up” fee.
News Corp. President Peter Chernin said in a conference call last week that UPN’s fate is of little concern to him, but he remarked that Viacom Chairman Sumner Redstone and President Mel Karmazin have lobbied hard in Washington for FCC approval to keep both UPN and CBS. “I would assume they’ll keep it going if they’re true to their word,” Chernin said.
No doubt News Corp. enjoys seeing Viacom over a barrel. In Washington, Viacom made much of the fact that UPN hired minorities for many of its shows and has gained popularity with black viewers. Shutting down UPN might be politically awkward.
Who knows? Maybe News Corp. will accept a princely sum from Viacom to extend the Chris-Craft stations’ affiliation with UPN.
One thing is certain: The moguls play for bigger stakes than the game shows they’re airing for you and me.
