From the Chicago Sun-Times
Ruling on FCC changes will be important to Tribune Co.
January 8, 2004
BY ERIC HERMAN Business Reporter
Executives at Tribune Co. expect 2004 to produce a court ruling with vast implications
for the company's future.
A federal appeals court in Philadelphia will hear arguments next month on whether
the Federal Communications Commission should relax its "cross-ownership"
ban, which since 1975 has barred a newspaper publisher from owning a television
station in the same city.
Tribune's WGN-Channel 9 is exempt from the rule. But Tribune owns newspapers
and TV stations in Los Angeles; New York; Hartford, Conn., and south Florida,
too. The company has finessed the ban in those places through deft legal maneuvering.
But if the ban stays in place, Tribune Co. could be forced to sell properties
when the broadcast licenses start expiring in 2007.
A continued ban on cross-ownership would foul up Tribune's game plan for the
future -- owning multiple media outlets in key cities. Uncertainty about cross-ownership
kept Tribune stock in a "holding pattern" for most of 2003, according
to media analyst Robin Diedrich of Edward Jones.
Those factors make a repeal of the cross-ownership rule crucial to Tribune.
"It would lift the lingering cloud over Los Angeles and New York -- in
Chicago we're grandfathered -- Hartford and south Florida," said Tribune
vice president Shaun Sheehan, the company's lobbyist in Washington, D.C. "I
want to get rid of this puppy."
In June 2003, the FCC proposed changes in several rules governing media ownership,
including the cross-ownership ban. Rather than lifting the ban entirely, the
agency loosened it. In large markets such as New York and L.A., for example,
companies could own a newspaper and a TV station, but in smaller markets the
ban would still apply.
Congress tried to stop the FCC but has not taken final votes on the various
limits. Meanwhile, a Philadelphia group called the Prometheus Radio Project,
with roots in the pirate radio movement, filed a lawsuit to stop the FCC from
changing the rules. In September, the Third U.S. Circuit Court of Appeals issued
a stay, halting the changes until the court could hear arguments.
"The Third Circuit review marks a potential turning of the tide" for
Tribune and other large media companies, said Leland Westerfield, a media analyst
with Jefferies & Co. "The court can render permanency to things that
Congress only moved on for a one-year basis."
Editorial pages of Tribune newspapers supported the new rules proposed by the
FCC or said they didn't go far enough. In its brief to the court, the company
took the latter tack. Instead of relaxing the cross-ownership ban, the FCC should
have repealed it altogether, its lawyers wrote. It called the proposed changes
"an unsupportable, political compromise."
Chairman and CEO Dennis FitzSimons struck a more conciliatory tone in December,
when he told an analysts' conference, "We think the FCC got it right, and
the federal court in Philadelphia will confirm that in first quarter of 2004."
But FitzSimons also made his impatience plain. "We just don't need any
further delay. Give us clarity, establish the rules and let us compete,"
he said.
Andrew Schwartzman, president of the Media Access Project and Prometheus' lawyer
in the case, sees "danger" in what the FCC wants to do. Under the
proposed changes, one media company could control the flow of information in
a given city, he said, giving it power to mold opinion on local issues.
"It will place the power to populate local and state political offices
in one or two companies' hands," Schwartzman said.
The cross-ownership ban cuts to the heart of Tribune's growth strategy. In 2000,
the company spent $8 billion to buy Times Mirror, the owner of the Los Angeles
Times as well as Long Island's Newsday, the Hartford Courant and the Baltimore
Sun. Potential for bigger profits in cities where they already owned television
stations made the deal enticing to Tribune execs -- and to members of the Chandler
family, who controlled Times Mirror.
Tribune already owned KTLA in Los Angeles, WTIC in Hartford and WPIX in New
York City, and executives believed the FCC would permit Tribune Co. to hang
onto those stations at least until the licenses started coming up for renewal
in 2007.
"We were very aggressive, knowing full well we'd be all right for several
years going forward," said Sheehan, the Tribune lobbyist.
Four years before the Times Mirror deal, Tribune challenged the FCC to let it
hold onto WBZL in Miami. It also owned the South Florida Sun-Sentinel in Ft.
Lauderdale, considered by the agency to be part of the Miami market. The two
sides reached a compromise allowing Tribune to hang onto both. In Chicago, the
ban does not apply to WGN, since Tribune owned the station before the 1975 ban.
"Tribune has built their entire strategic business model around the assumption
that they would be able to continue to hold the newspaper-broadcast combinations
in the cities where they have them," Schwartzman said.
Some analysts say it is only a matter of time before the cross-ownership rule
is lifted permanently, and Sheehan agrees. One thing is clear: Owning newspapers
and TV stations in the same city is central to FitzSimons' vision of the future.
At the December conference he said, "As the only media company with television
stations, newspapers, and Web sites in the nation's top three markets -- New
York L.A. and Chicago -- we also have a unique edge which we think enables us
to compete better. We share content, cross-promote and cross-sell our advertising
among our businesses."
A court ruling could come at any time after the oral arguments. If Tribune does
not like the outcome -- if, for example, the Third Circuit tells the FCC to
come up with other compromise restrictions on cross-ownership -- the company
is prepared to fight.
"We would try to take it to the Supreme Court," Sheehan said. "We
would stay in court to try to take it up another notch."
TRIBUNE CO.'S JOINT NEWSPAPER/TV MARKETS Tribune businesses governed by FCC's
newspaper/broadcast cross-ownership rule: NEW YORK
Newsday
(580,000 circulation)
WPIX (television station) LOS ANGELES
Los Angeles Times
(1.0 million circulation)
KTLA (television station) FT. LAUDERDALE/MIAMI
South Florida Sun-Sentinel
(248,000 circulation )
WBZL (television station) HARTFORD, CONN.
The Hartford Courant
(201,000 circulation)
WTIC (television station)
WTXX (television station)