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As FCC Digs Into Ownership, Big Media No Longer Cares

By Frank Ahrens
Washington Post Staff Writer
Thursday, June 29, 2006

When the government's attempt to relax media ownership rules was defeated in court two years ago, some hailed it as a victory against putting too much power in the hands of too few media lords.

Now, the government is taking up the issue again, but the media landscape is radically different.

Since 2003, the media giants have greatly expanded their presence on the Internet, buying successful Web sites or redoubling their own efforts. The continued rollout of high-speed Internet, the improvement in online content and an explosion of handheld devices have combined to give Big Media much greater reach and potentially greater influence than it would have had, were companies allowed to buy a few more television stations each.

Last week, the Federal Communications Commission voted to re-tackle the sticky issue of media ownership. This time, the agency plans to loosen some rules, allowing big media companies to expand. For instance, a newspaper will -- for the first time since 1975 -- probably be allowed to buy the most popular television station in the same city.

But the times, technology and media marketplace have changed so much since the FCC began its ownership review last time, in 2002, that some of the same media giants that lobbied for changes before -- such as Tribune Co. -- may take little advantage of changes this time.

In 2002, the media giants had already been burned by the Internet. The newly merged AOL Time Warner Inc. took a $10 billion write-down, thanks to bad deals and falling revenue at America Online. Walt Disney Co. lost millions on its Go.com Internet portal.

IPods were still on the drawing board at Apple Computer Inc. Almost all Internet users had dial-up connections, which made online video about as watchable as the Zapruder film. Yahoo Inc. was not the multimedia powerhouse it is today. YouTube and its vault of 70 million videos did not exist. Neither did MySpace and its global community of users. And Google was merely the Internet's most popular search engine, not yet the revenue-generating monster whose advertising model is being emulated by everyone in traditional media.

In May 2003, Mel Karmazin told a Senate panel that his Viacom Inc. -- then the parent of CBS -- absolutely, positively had to be allowed to buy more television stations. It was essential to the company's future, he said.

Karmazin's pleas came to nothing. While the FCC relaxed ownership rules that year, the court struck those down in 2004, and Congress passed a law preventing CBS from buying any more stations.

As it turned out, CBS not only survived but became the top-rated network. The company sees its future not in owning more television stations but in expanding a revenue stream that was an afterthought in 2003: the Internet and its various iterations of digital downloading and streaming, channels that give CBS a far bigger footprint than local television stations.

"CBS's challenge is how to monetize its content, and since we are precluded from doing that through buying more stations, we're doing it in other ways," said Martin D. Franks, CBS Corp.'s executive vice president of government relations. "We have had to adapt to what the regulatory regime has dealt us."

To help spread out the enormous cost of the network's contract with the NCAA to carry the men's college basketball tournament each March ($6 billion over 11 years), CBS this year bought CSTV Networks Inc., which broadcasts live sports on the Internet and on cable television. The Web site averages more than 8 million monthly users, and the cable network is in more than 15 million households -- far more than any metropolitan television station reaches.

This month, CBS began selling episodes of its top-rated "CSI," "Survivor" and other shows via Apple's iTunes, following ABC's lead, for $1.99 each. Also, the network launched the ad-supported Web site ShowBuzz, with celebrity and entertainment news.

Circumstances have also changed for Tribune Co. In 2003, Tribune was a 13-newspaper, 26-television-station chain that wanted to buy more television stations in cities where it owned newspapers, in hopes of reaping big advertising rewards.

Now, the company is selling off television stations, is facing a shareholder revolt over its direction and is unable to figure out how to combine local television and newspaper advertising to its advantage.

Tribune owns a stake in CareerBuilder, the Internet job site, and is working to expand the online impact of its newspapers. If the FCC lifts the newspaper-television cross-ownership ban, Tribune probably will not purchase additional television stations, according to a source knowledgeable about the company who spoke on condition of anonymity because of the sensitive nature of the ongoing shareholder struggle.

Rupert Murdoch's News Corp. was one of the first media giants to change tack after the last rules were tossed out in 2004.

News Corp. had strived to create "duopolies" -- two-station television groups -- in as many cities as it could. In Washington, for instance, News Corp. owns WTTG (Channel 5) and WDCA (Channel 20). Such duopolies combine resources to save costs and make station ownership an even better moneymaker than it already is: Typically, a television station returns annual profit margins of 25 to 50 percent.

But duopolies were permitted in only the largest cities. The 2003 FCC rules would have allowed them in smaller cities and created the possibility of three-station groups, or "triopolies," in the largest cities, which interested News Corp.

But when the hope of triopolies died in 2004, News Corp. looked to the Internet.

In July, News Corp. formed Fox Interactive Media, an umbrella for the company's many Web sites, such as FoxSports.com. Days later, it announced the $580 million purchase of MySpace, the Web's most popular social-networking site. Users post profiles, find dates, listen to music, watch video and click on ads that send revenue to News Corp. At the time of the purchase, MySpace had about 16 million monthly users.

That number is up to 85 million around the globe and growing. It takes Fox 35 television stations to reach 134 million viewers in the United States.

Further, News Corp. is looking to unload some of its stations. The company and Liberty Media Corp. Chairman John C. Malone are close to a deal in which News Corp. would buy back Malone's voting stake in News Corp. in exchange for some of the company's mid-market television stations.

Likewise, radio giant Clear Channel Communications Inc. changed direction after the 2004 defeat of the media rules and "expanded its horizons," said Andy Levin, executive vice president for the company's government affairs.

Clear Channel grew by massive acquisitions in the late 1990s to become the nation's largest radio chain. In 2003, the company sought to raise limits on how many stations it could own in many cities. Thwarted, the company turned to the Internet.

Clear Channel hired Evan Harrison, head of America Online's music and radio unit, in 2004 to spearhead the radio giant's online forays. Under his leadership, the digital music division has become Clear Channel's fastest-growing segment. Clear-Channel-produced podcasts outsell all others on iTunes.

"This is radio today, as we see it," Harrison wrote, via BlackBerry. "We have to work every day to create better programming than MTV, VH-1 to build our audience. The notion that a radio company would be competing with a cable network just didn't exist six years ago."

And though Clear Channel would like radio ownership limits raised in the largest cities, the company's acquisition ambitions are not what they were three years ago, mirroring the media industry in general.

"I'm not sure there is pent-up demand for more consolidation," said Mark Fratrik, vice president of BIA Financial Network Inc. media researchers. "I think in 2006 . . . the media environment is much more crowded, much more competitive. Radio groups are looking for opportunities where they can bring added value, not just get big for bigness sake."

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