Commentary: Media Mergers: Why Powell Is on the Right Track

By Catherine Yang

The sparks have been flying inside the Federal Communications Commission. In February, Republican Commissioner Kevin J. Martin led a revolt against Chairman Michael K. Powell's telecom deregulation plan. Now, as the FCC heads for a June 2 vote to liberalize rules that restrict the size of media companies, the two are sparring again. This time, in a bit of a role reversal, Powell is seeking a more measured approach, while Martin wants more deregulation.

The FCC must tread carefully. Media mergers involve access to information, a bedrock of democracy. Current rules help keep the media from the control of a few owners. Powell and Martin agree that, in a world of 500-channel satellite TV and the Web, those rules are outdated. What's more, recent court rulings require regulators to take into account the new technologies that now compete for readers' and viewers' attention. Powell's approach, more than Martin's, would leave in place a system that allows for scrutiny of each new media deal.

That's why this time, Powell is on the right track. At stake is a critical aspect of a vibrant press: a multitude of differing voices and opinions. A handful of rules, adopted between 1941 and 1975, prohibit newspaper, radio, and broadcast TV companies from consolidating. Newspapers, for instance, can't merge with local TV stations, and TV networks can't own stations covering more than 35% of the national audience. Now the courts are forcing a thorough overhaul of that old order.

The problem is that new media outlets, many of the most popular of which are controlled by a few big companies, don't always expand the array of news. To strike the right balance, Powell is pushing a new measure called the "diversity index" to determine whether a merger might quash competing perspectives. The index would count the number of local media outlets and weight each by its importance as an original source of news. Martin, on the other hand, wants more predictable cutoffs, such as letting networks buy local TV stations as long as their combined U.S. market share doesn't exceed, say, 50%. Martin would also allow newspapers to merge with local TV stations.

Under Powell's idea, mergers wouldn't be quite so easy. His diversity index would work something like this: If a TV station owner wants to buy a local newspaper, regulators would calculate the combined market share in an attempt to determine whether remaining news outlets could provide strong alternatives. Ideally, experts say, healthy competition exists when a market has at least 10 rivals.

But because not all media wield equal influence, the FCC would weight each outlet by its importance to consumers. According to a September, 2002, Nielsen Media Research Inc. survey commissioned by the FCC, 56% of those polled rely on TV as their main news source, vs. 23% who rely on newspapers.

So if the only newspaper in town wants to merge with one of four local TV stations, the newspaper would provide 23% of the news in that market, according to Nielsen. And if the local station has 25% of the viewers, the FCC would assume a contribution of 14% -- one-fourth of the 56% that TV got overall in the Nielsen survey. By adding the two figures, their combined market clout comes to 37%. Bottom line: Such a deal would be questionable, because most trustbusters look askance at one company dominating more than a third of a market.

Critics are already deriding Powell's index as too complex. But Powell's plan ensures the FCC a role in reviewing every media deal, while Martin's simpler rules give many a pass. The FCC will likely opt for a compromise between the two. And, no doubt, big media deals will continue. "Looking back, we're going to say this is when the media map started to be redrawn," says regulatory analyst Blair Levin of Legg Mason (LM ) Wood Walker Inc.

Even so, a well-crafted diversity index will help fend off bad deals. Without such safeguards, the risk to a thriving and varied press would be too high.

Yang covers the FCC from Washington.

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