AJR  Columns :     THE NEWSPAPER BUSINESS    
From AJR,   November 2002

Consolidation Nation   

There could be a lot of newspaper shuffling if the FCC drops its ban on cross-ownership.

By John Morton
John Morton (mortoninc@msn.com), a former newspaper reporter, is president of a consulting firm that analyzes newspapers and other media properties.     


The Federal Communications Commission is expected in coming months to eliminate or greatly relax its ban on forming common ownerships of newspapers and broadcast stations in the same market--an event that likely would transform the media ownership landscape across the nation.

A possible result could be increased consolidation of newspaper ownership. Indeed, a recent report from Credit Suisse-First Boston predicted that in "sectors like newspapers, there's bound to be heavier consolidation" and that smaller companies "could become take-out targets." Of course, the smaller newspaper companies have long been under pressure to sell out to larger companies, which have been eager to use their ample cash flows to expand. The emergence of new cross-ownerships of newspapers and broadcast properties in even relatively small markets will only add to the pressure.

The reason for this is, to use the current media-business buzzword, convergence: the ability to cross-feed news and cross-sell advertising among multiple local media outlets.

Consolidation of ownership of radio stations has already largely been accomplished. A company can own up to eight stations in a single market. In some large markets a company can own two television stations, and a recent court decision will allow a television station to own a cable system in its market.

Newspapers have been kept out of this fray by the ban on new cross-ownerships. The only newspaper-broadcast cross-ownerships are in large cities, which were grandfathered in when the FCC imposed its ban in 1975.

How a change in FCC rules will play out for newspapers will depend on how important convergence becomes. So far it has not loomed large. There are convergence efforts under way in grandfathered cities, however, and the common wisdom is that the trend will become increasingly important economically for newspapers.

If convergence does become important, those newspaper companies not owning television or radio stations will face a strategic decision. Relatively small newspaper companies might not have the resources to buy local broadcast stations or, even more likely, might not be able to find willing sellers. This could increase the pressure to sell out to a larger company. Some larger pure newspaper companies--Knight Ridder, Lee Enterprises, McClatchy and Pulitzer--have sold off their television holdings over the years and others--Community Newspaper Holdings Inc., Journal Register, MediaNews and Ottaway--have never owned any. To take advantage of the expected benefits of convergence, these companies would have to buy local stations, and they, too, might have trouble finding willing sellers.

An alternative would be to strike up news and marketing alliances with stations they do not own, but of course this means that economic benefits would be shared by two owners.

This leaves the newspaper companies that also own television and radio stations, but not in their markets. If the cross-ownership ban is lifted, or loosened, we can expect a lot of station-swapping among these companies and with broadcast companies. Lifting the ban also would bring great relief to Tribune Co. and Gannett. Through recent acquisitions, Tribune has wound up with cross-ownerships in Los Angeles, New York, Hartford and Fort Lauderdale-Miami. Gannett has one in Phoenix. These cross-ownerships are in effect in limbo pending the FCC decision. Should the FCC do the unexpected and leave the ban in place, these companies would face major divestitures.

In the past I have opined that if the cross-ownership ban is lifted, the resulting realignment of properties would primarily affect broadcast properties. I have always thought that newspaper companies for the most part have been attached to their properties and would be loath to discard them.

Now I am not so sure. With the increasing corporatization of newspaper ownership--and by this I am not referring to size so much as to the attitudes of management--newspapers have come to be viewed more as economic units than living, breathing, diverse operations with personality, history and tradition. To the extent that this attitude has taken hold, we could see some shuffling around of newspaper economic units.

* Amplification: In September's column I wrote that Douglas McCorkindale, chief executive of Gannett, defended the company's practice of not expensing stock options. McCorkindale responds that he did not defend not expensing options; instead, his point was that whatever changes are made must apply equally to all companies so that Gannett does not wind up "reporting apples and apples and other people are reporting apples and oranges."

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