In TV, The Big Get Bigger
Consolidation of station ownership is the legacy of the new communications law.
By Douglas Gomery
Douglas Gomery is the author of nine books on the economics and history of the media
Last February, after years of struggle, Congress passed the greatest overhaul in communications law in more than three generations. The deregulation bill, which was the first major change in communications law in decades, permits, among other things, TV and radio station owners to buy more stations.
Changes came immediately. In a deal announced less than three weeks after the signing ceremony, Baby Bell US West took over the nation's third-largest cable operator, Continental Cablevision, for $5.3 billion. The marriage of phone and cable TV was on.
But while many had forecast such mergers, few anticipated the rapid and fundamental changes that would soon take place in broadcast television. For example, last July the Tribune company paid $1.13 billion in a takeover of six TV stations when it bought Renaissance Communications Corp.
In one stroke of the pen, Tribune surpassed NBC, ABC and CBS to become the top owner of TV stations in the U.S., reaching more than a third of all households. This marked a new era in TV ownership as Tribune moved ahead of Westinghouse Electric Corp.'s CBS division.
Since the earliest days of the television industry in the United States, one of the "Big Three" networks has owned and operated the largest collection of TV stations. This was the dirty little secret of the networks, a string of ever-profitable stations buffering them from recessions and serious challenges by outsiders.
In announcing the deal, a Tribune company spokesperson stated the obvious: "Each acquisition makes us more attractive to program distributors." He went on to underscore the significance, noting that this biggest-ever Tribune acquisition "truly labels us an aggressive, growth-oriented company." No one at NBC, ABC or CBS needed to be reminded. They grimaced when John W. Madigan, Tribune's CEO, stated the takeover proved "Tribune's commitment to grow significantly in a consolidating media marketplace."
Suddenly Tribune's reach extended into eight of the top 11 markets, including WPIX in New York, KTLA in Los Angeles and WGN in Chicago. Tribune could offer advertisers reach equal to NBC, ABC and CBS. Wall Street loved the takeover, and Tribune's stock advanced on the news.
For their part, the owners and management of Renaissance Communications did not really want to sell to Tribune. As of a year ago, well before it looked like the new communications act would pass, Renaissance itself had been seeking to acquire media properties, bidding nearly $300 million for three radio stations that General Electric, NBC's parent company, eventually bought from Outlet Communication. Renaissance Chairman Michael Finkelstein told the Wall Street Journal that, because of the frenzy of buying precipitated by the change in telecommunications law, "I'm a buyer who can't buy. Every time I try to buy, a bigger gorilla gets in the way. So I figured, if you can't beat 'em, join 'em."
This from the CEO of a billion-dollar company!
Tribune should cease calling itself a "newspaper" corporation because from now on it will derive more than half its operating cash flow from the television side. This could be seen as Tribune unveiled its new Washington bureau last year, complete with a dozen TV screens glowing over the "newspaper" office. Reporters are now expected to feed stories to both the print and broadcast sides. Each reporter's desk is equipped with a new Sony Trinitron set capable of receiving live satellite feeds.
But Tribune's position as the top TV station owner lasted less than a month. Later in July, Rupert Murdoch spent $2.48 billion to acquire New World Communications Group and its 10 television stations. Fox became the biggest owner and operator of television stations in the United States, reaching some 40 percent of all homes.
In yet another significant stroke of the pen, Fox surpassed Tribune and the major networks. It now owns and operates television stations in 11 of the top 12 TV markets in the United States. In all, News Corp., Murdoch's company, owns 22 TV stations, the most in history, offering a perfect base from which to launch this fall's new Fox news operations. And all these new stations are Fox network affiliates, making the owned and operated reach of the newest major network greater than NBC, ABC or CBS.
All this historic consolidation seems a long way from the promises of greater choice and competition made during the year-long debate surrounding the passage of the new telecommunications act. In the real world, these deals are about reaping economies of scale, lowering costs and generating higher profits. They are about holding onto dominant positions and protecting market share. ###