IGNORE the Television Guide - the Top-Rating Feature of Most Privately-Owned American Local Television Stations Are Their Eye-Popping Profit Margins

Article excerpt

IGNORE the television guide - the top-rating feature of most privately-owned American local television stations are their eye-popping profit margins. While most manufacturers struggle to produce single-digit returns, the reward for an endless cycle of soaps, games shows and syndicated news has historically been between 40% and 60%. So it is understandable that the broadcasting heavyweights are anxious to get a bigger cut of the action by campaigning to cut the red tape that limits their expansion.

Last week's US federal appeals court ruling that nullified two longstanding government rules limiting the size of the world's largest media companies has been celebrated as a bonanza for broadcasters and their investment bankers.

The ruling that Federal Communications Commission (FCC) limits on TV-station ownership are "arbitrary and capricious" is likely to encourage a new wave of broadcast company consolidations. It requires the FCC, the chief regulator, to reconsider its regulation that limits the number of broadcast TV stations a single company can own. The cap is 35% of the national audience.

While the regulator must consider a range of opinions before making the decision, the ruling appears to suit the ideology of Michael Powell's FCC and its political masters in the White House. In addition, market-leaders such as Viacom and Rupert Murdoch's News Corporation, which had anticipated a favourable ruling, are already over the 35% cap.

Industry insiders are betting that the FCC will raise the limits, allowing companies such as NBC's parent General Electric and News Corporation to continue to buy TV stations.

Other media companies, such as the Washington Post, which owns smaller groups of TV stations, had supported the FCC limit, fearing that further consolidation will make the major broadcasters, ABC, CBS, NBC and Fox even stronger.

There is an abundance of precedents in the broadcasting and cable industry offering guidance on what happens when the regulators allow further consolidation. It is six years since the government bowed to pressure and abandoned a rule allowing companies to own only three stations and replaced it with the limit of 35% of the audience.

This caused a feeding frenzy among TV networks and halved the companies owning one or more of the then 1,348 commercial stations to around 370. …