Federal rules that limit media ownership will require Capital Cities Communications Inc. and American Broadcasting Cos. to divest hundreds of millions of dollars worth of radio, television, cable television and perhaps newspaper properties if their merger plan goes through, according to communications attorneys and industry sources.
The media holdings of the two companies would put the merged company in conflict with numerous Federal Communications Commission "multiple ownership" regulations designed to restrict the concentration of media ownership on both the local and national levels. The FCC would enforce its ownership limits through its power to block the transfer of radio and TV broadcast licenses that would have to be transfered in the transaction.
"There's going to be the damnedest bit of deconcentration of the media that there's been in some time," according to a lawyer close to both companies.
Even though FCC regulations will force the companies to sell off many assets prior to completing the merger, it does not appear that the FCC will block the proposed transfer of control of the ABC Network.
Lawyers for ABC and Capital Cities are expected to meet with FCC commissioners today to discuss the regulatory issues involved in the merger. However, a top ABC executive said "there is no formal plan at this point" for dete"
ABC also owns FM stations in Dallas and Houston. Capital Cities has a TV station in Houston and radio stations in Fort Worth, and owns the Fort Worth Star-Telegram newspaper. The FCC cross-ownership rules would prevent those new combinations as well.
Capital Cities owns newspapers in Pontiac, Mich., and suburban New Jersey that might also bring it into conflict with the FCC's cross-ownership rules. Similarly, investor Warren Buffett, who will hold 20 percent of Capital Cities, owns a newspaper in Buffalo, N.Y. Since Capital Cities has a television station there, it is possible that one or the other will have to be divested.
Capital Cities owns 50 cable television systems in 16 states that reach more than 350,000 subscribers. FCC rules prohibit a television network from owning a cable system -- although CBS was granted a waiver permitting it to own a small cable system in California.
"There are going to be a lot of spin-offs," says Roy Russo, a broadcast attorney with the Washington firm of Cohen and Marks, pointing out that the numerous regulatory conflicts will require numerous divestitures.
The FCC has had limits on broadcast ownership since the early 1940s. Companies that owned radio and a television station in the same market before the rules were adopted have been allowed to keep both by virtue of "grandfathering" provisions in the FCC regulations. It is primarily new media combinations that are forbidden. For example, ABC has radio and television stations in New York, Los Angeles and Chicago that it has held for many years.
However, because Capital Cities would be the new owner of ABC, these grandfather provisions would no longer apply and the new company might be forced to sell either the radio or the television station in those markets.
"The grandfather exemptions expire upon change of control," says one attorney.
The radio stations in major markets could fetch tens of millions of dollars. The television stations could be worth hundreds of millions of dollars, according to broadcasting sources.
The companies could file waivers with the FCC seeking permission to keep its ownership of stations in conflict with FCC rules. However, broadcast attorneys point out that this commission has taken a hard line on the cross-ownership provisions and on the ownership of more than one television or radio station per market.
As yet, no papers have been filed with the FCC. Once papers are filed, the FCC is not allowed to act pending a 30-day period for comment and objections.