Media Merger Mania: The First Wave

If the FCC eases its rules, look for deals between local newspapers and TV stations

Body After June 2, when the Federal Communications Commission is expected to lift decades-old restrictions on the size of media companies, Media General Inc., in Richmond, Va., will be raring to go on a shopping spree. With 25 daily newspapers in the Southeast, the regional powerhouse is seeking TV stations where it publishes its leading papers, including the Richmond Times-Dispatch. But the company's ambitions don't stop there. "Wherever we have a newspaper, we want a television station," says CEO J. Stewart Bryan III.

Multiply Media General's aspirations by those of scores of competing newspaper and TV companies, and soon Americans will be witnessing a new wave of media dealmaking. But this time, the mergers won't include many big-name blockbusters. Instead, newspaper and TV companies mostly will be trading and buying individual properties to bulk up their holdings in select markets. While the new combinations may lack national sweep, their impact will be no less profound in the communities where they appear. "The media companies' top priority is more concentrated power in local markets," says Blair Levin, a regulatory analyst at Legg Mason Wood Walker.


  Under Chairman Michael K. Powell, the FCC is opening the floodgates with three new rules in particular. While details have yet to be hammered out, and grassroots opponents are making a strong last push, regulators will likely let a TV network own local stations covering 45% of the U.S., up from 35% now. Then, TV stations will probably be able to buy second stations in their market as long as two of the top four don't merge. In all but the smallest towns, newspapers will be able to merge with TV and radio stations. "Everyone is waiting for the new rules; then they'll pounce," says Mark R. Fratrik, a vice-president at media-merchant bank BIA Financial Network Inc.

TV networks will be the most conservative: Already, many are close to the new limits as a result of previous acquisitions. In contrast, newspaper publishers such as Tribune and Gannett want to expand their TV holdings. So do TV-station owners Sinclair Broadcasting Group and LIN TV, which seek more two-station markets. They want to buy stations in the $50 million range in midsize markets, where prices have climbed in anticipation of the rule changes. They all say that added girth helps shore up local newsrooms. "The only entities unable to own TV stations in a particular market are foreigners, felons, and newspapers," quips Tribune CEO Dennis J. FitzSimons.

Indeed, newspaper-TV combos will be the most controversial new juggernauts on the scene. Many observers worry that such mergers could squash what few competing voices there are in many towns and cities. Say, for instance, that the FCC allows these combos in the top 150 of America's 210 media markets. As many as 100 of those markets are one-newspaper towns, according to a study by Consumer Federation of America. If that paper merges with the largest TV station, which usually grabs one-quarter of the TV market, the combined entity would dominate that community. That's troubling at a time when most Americans still turn to broadcast TV and newspapers for news, vs. cable and the Web, according to Consumer Federation.

For a scenario of the future, consider the Hartford-New Haven (Conn.) market. Through a regulatory anomaly, Tribune Co. owns the leading 200,000-daily-circulation newspaper, The Hartford Courant, along with two TV stations, WTIC-TV and WTXX-TV. Besides its Hartford holdings, Tribune owns The Advocate in Stamford, Greenwich Time, and four weekly papers. That kind of domination has piqued the interest of Connecticut Attorney General Richard Blumenthal, who says he won't consider an antitrust case against Tribune until he sees the final FCC decision, adding: "We're concerned that eliminating the cross-ownership rules will do serious damage to the diversity of viewpoints." But Tribune CEO FitzSimons points out that New York TV signals reach the area, and Comcast Corp. supplies a raft of cable channels.


  Whatever asset-shuffling does occur may put the smaller media have-nots in a more precarious position. In Alexandria, La., one of the smallest markets where the FCC may allow more media mergers, Media General has a plan. It might trade its leading TV station, KALB-TV, to Gannett -- which owns the only newspaper in Alexandria, The Town Talk -- perhaps in exchange for a Gannett TV station in a different city where Media General publishes. Media General and Gannett declined to comment on specifics.

Competitors worry about that market power. "If Gannett took Channel 5 in Alexandria, they'd be the supreme media source in central Louisiana," says William H. Pollack, president of Memphis-based Pollack Broadcasting Co., which owns No. 2 TV station KLAX-TV in Alexandria. In the new media world as rewritten by Powell's FCC, the rush to bigness may end up being a local affair. But to the locals, that merger ripple will feel more like a tidal wave.

By Catherine Yang in Washington, with Joseph Weber in Chicago

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