Nov. 13 (Bloomberg) -- Federal Communications Commission Chairman Kevin Martin proposed easing a 32-year ban on companies owning a newspaper and a television station in the same market, a rule change that would benefit Tribune Co. and News Corp.

The proposal would relax the rules in the 20 largest U.S. markets, letting newspaper publishers there own either a TV or radio station, Martin said today on a conference call. The plan would bar such a company from owning a TV station that ranks among the top four in a market, he said.

Martin's plan would make it easier for Tribune to be acquired for $8.2 billion by a group led by billionaire Sam Zell. Tribune, as part of its buyout, is seeking a waiver of FCC rules barring its ownership of both TV stations and newspapers in four of the top-20 markets. The new policy wouldn't apply to Hartford, Connecticut, a fifth market where Tribune owns a newspaper and two TV stations.

``We will seek an expansion of cross-ownership relief beyond that contained in Chairman Martin's proposal'' by filing public comments with the FCC, Tribune Chief Executive Officer Dennis FitzSimons told employees today in a letter obtained by Bloomberg News.

Martin, who set a Dec. 11 deadline for comments, said newspapers have faced ``significant challenges'' and financial difficulties. ``It's important to do all we can to ensure that we still have a vibrant newspaper industry,'' he said.

`Moderate' Proposal

The FCC has been reviewing ownership rules since a U.S. appeals court threw out revisions the agency adopted in 2003. Martin said he kept the plan ``moderate'' because he recognizes ``how strongly so many people feel about this issue.''

Hundreds of media-consolidation critics urged the FCC not to ease its ownership rules during six hearings the agency held throughout the U.S. over the past 13 months. Lawmakers including Senators Byron Dorgan, a North Dakota Democrat, and Trent Lott, a Mississippi Republican, are fighting Martin's plan for a Dec. 18 vote on the rules.

The FCC chairman said his cross-ownership proposal is ``significantly more modest'' than the 2003 rule changes, which would have allowed newspapers to own TV stations in 170 markets. The new plan also wouldn't modify broader limits on the nationwide ownership of TV and radio stations.

Martin said Chicago-based Tribune would probably have to divest stations in Hartford if the new rules are adopted. He said there would be a ``strong presumption'' against a waiver for Tribune there if the new rules are in place.

Democrats' Opposition

Democratic commissioners Michael Copps and Jonathan Adelstein denounced Martin's plan, saying it may ``propel a frenzy of competition-stifling mergers'' by loosening standards for waiving cross-ownership rules in smaller markets.

The FCC should grant Tribune's waiver requests this year, rather than rushing to adopt new cross-ownership rules, Copps and Adelstein said in a joint statement. Martin has ``refused to act'' on the company's waiver requests, they said.

Martin shouldn't hold the Tribune sale ``hostage'' to force a media-ownership vote by year-end, the Democrats said.

If Tribune fails to secure cross-ownership waivers or a rule change by Jan. 1, the price to purchase the remaining shares will increase at an annual rate of 8 percent.

Martin said his plan isn't motivated by any particular transaction. ``It's important for us to try to adopt rules, as opposed to trying to do everything on a case-by-case basis.''

`Extremely Limited'

Newspaper Association of America President John Sturm called Martin's proposal ``extremely limited,'' adding it ``does not go nearly far enough to deal with'' economic pressures on the industry. Sturm called on the FCC to support its earlier position of ``full and complete repeal of this outdated rule.''

Gary Weitman, a Tribune spokesman, declined to comment.

Limiting cross-ownership to the top 20 markets won't have a major impact on the financial health of newspaper and television companies, said Lauren Rich Fine, a former Merrill Lynch & Co. newspaper analyst and a researcher at Kent State University.

``It might be too little too late,'' Rich Fine said.

Martin's plan ``has a good chance of being approved by the FCC in whole or in large part,'' Stifel Nicolaus & Co. analyst Blair Levin said today in a note. Still, Martin will face ``continued pressure'' to delay the vote past Dec. 18, he said.

Tribune shares rose 62 cents to $28.53 at 4:04 p.m. in New York Stock Exchange composite trading. They have declined 7.3 percent this year. Class A shares of News Corp., which owns a newspaper and TV station in New York, rose 76 cents to $21.14.

Lawmakers' Resistance

Dorgan said he and Lott will urge Congress to force the FCC to wait at least three months before voting on the rules.

Martin is ``relying on an assumption that newspapers are doomed and that cross-ownership is necessary to save them,'' Dorgan said in an e-mail. ``I believe this is not the case.''

The proposal may reduce media diversity and local programming while offering ``corporate welfare'' to big media companies, said Ben Scott, policy director of Washington-based Free Press, a consumer advocacy group.

Martin said his plan would protect diversity by barring companies from owning a newspaper and a broadcast station in a top-20 market where fewer than eight other media outlets are independently owned.

To contact the reporters on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net; Leon Lazaroff in New York at llazaroff@bloomberg.net.

Last Updated: November 13, 2007 19:07 EST