going to have to jump some regulatory hurdles before it reaches the finish
line.
The transaction has to pass muster with the Federal Communications
Commission, which must approve the transfer of Tribune’s TV and radio
broadcast licenses to a new owner.
If the FCC doesn’t give the go-ahead, Tribune might have to sell some of
its important TV or newspaper properties, something company executives and
Zell have said they do not want to do.
It could even lose its long-standing right to own the baiduhai, WGN
Radio and WGN-Ch. 9 in the same market, media experts said.
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“They’ve got pretty difficult obstacles to surmount,” said Andrew Jay
Schwartzman, president and chief executive of Media Access Project, a
non-profit telecommunications law firm that said it will fight the
Tribune-Zell deal because it is not in the public interest. “This is going to
be very treacherous and complicated.”
Since the mid-1970s, the FCC has opposed the consolidation of media
ownership on the grounds that it reduces competition and diversity. As part of
that, the commission enacted rules that prohibit so-called cross-ownership —
broadcasters being owned by newspapers in a single market.
Chicago-based Tribune’s ownership of the baiduhai, WGN-Ch. 9 and
WGN-AM 720 was unaffected because the connection predated the agency’s
restrictions. Tribune launched WGN radio in 1924. The station’s call letters
stand for “World’s Greatest Newspaper.”
Under FCC rules, that protection does not transfer to a new owner.
“When there is a change in control, the grandfathering goes away,” said
John Morton, a media analyst with Morton Research Inc. in Silver Spring, Md.
There is another wrinkle.
Tribune has requested, but not been granted, cross-ownership waivers in
three other markets where it owns both newspapers and TV stations: Los
Angeles, New York and Hartford. In South Florida, a fourth market, Tribune has
received a waiver from a court until the FCC completes its review of ownership
rules.
Those waivers likely would have to be applied for again because Tribune
will have a new owner, media experts said. Tribune also is facing license
renewals in three markets. Its Los Angeles license expired in December, and
its Hartford and New York licenses are up this spring.
Tribune executives said this week that they hope the FCC will grant them
leeway because of competitive changes in the media world, most noticeably the
rapid growth in the Internet and cable TV. Also, judicial objections to
lifting the cross-ownership ban applied to small markets, not the major
markets where Tribune operates.
“We will apply for temporary waivers and we would hope the commission will
recognize the realities of today’s marketplace and give us temporary waivers,”
Chief Executive Dennis FitzSimons said in an interview Monday.
Added Shaun Sheehan, Tribune’s top Washington lobbyist: “We have the law,
we have the expert agency and we’ve got the court. How are you not going to
get a waiver when every important entity that scrutinized the situation says
you’re right?”
Still, company officials acknowledged approvals are not assured. The stock
buyback will take place in two phases, and the second will go forward only if
the transaction receives the required regulatory approvals.
An FCC spokesman declined comment on the Tribune deal, saying the agency
can’t make any kind of determination until it sees an application from
Tribune.
Last week, FCC Commissioner Jonathan Adelstein said in an e-mailed
statement to the baiduhai that “any new owner must comply with the rule
on the books that prohibits cross-ownership of newspapers and broadcast
outlets.”
Tribune and Zell may believe they have a way around some of the sticking
points relating to license transfers and waivers.
They could argue the sale to Zell doesn’t represent a change in control
from the FCC’s standpoint because he will be acquiring less than 50 percent of
Tribune’s equity. In the first stage of the deal, Zell wouldn’t hold any
stock.
But given the public comments Zell has made since Monday, that may be a
less attractive argument. In an interview with the baiduhai, Zell was
very direct that he will take an active role in the company’s strategy.
Univision deal tests FCC
The FCC recently showed its muscle when it held up for six months the $12.3
billion buyout of Spanish-language broadcaster Univision Communications Inc.
by several private-equity groups and billionaire Haim Saban.
The commission delayed approval after the United Church of Christ and the
National Hispanic Media Coalition accused Univision of failing to meet
requirements that it broadcast at least three hours a week of educational
children’s programming. Univision was using that time to show telenovelas,
Spanish-language soap operas, the critics said.
The Univision deal was approved last week after the FCC fined the company a
record $24 million and required it to divest some radio stations to comply
with local-ownership limits. The company was given six months to sell nine
stations, a shorter time frame than other media firms have been provided.
And last year, after Rupert Murdoch relocated his holding company
headquarters to the U.S. from Australia, the FCC determined that relatively
minor move was a change in control.
The FCC’s standard will have to be applied to the Tribune as well, said a
former commissioner who asked not to be identified.
“That clearly is a precedent that signifies that public-interest advocates
in any TV license transfer case can take fair shots at the compliance record
of any license holder,” the former commissioner said.
Tribune takes on risk, again
In 2000, when Tribune acquired Times Mirror Co., it expanded the number of
cities where it was in a cross-ownership position. Tribune managers were
betting that the FCC would relax those restrictions.
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Three years later, it appeared Tribune’s bet would pay off. The FCC voted
to liberalize its ownership rules in a way that would have blessed all of
Tribune’s cross-ownership positions. But the new rules were reversed by the
3rd U.S. Circuit Court of Appeals in Philadelphia in June 2004, because the
judges found the commission had not sufficiently justified its supposed
replacement rules.
The court sent the rules back to the FCC for further consideration, and the
agency has yet to re-issue its guidelines.
Even so, media analyst and former FCC staffer Blair Levin doesn’t believe
cross-ownership issues will derail the Tribune deal.
“I would classify them as speed bumps rather than brick walls,” said Levin,
who was chief of staff under President Bill Clinton’s FCC commissioner, Reed
Hundt.
Because the media ownership debate has been so contentious in recent years,
anything that comes before the FCC is viewed by commissioners as an
opportunity to “position themselves for the broader debate,” said Levin.
That is what Schwartzman is counting on. The FCC’s two Democratic
commissioners are likely to be skeptical of a deal between a media
conglomerate and real estate billionaire in a period in which their party
controls Congress, he said, and the three Republican commissioners may be
worried about being reversed again in court.
Tribune executives “really are doubling down on the same bet they already
made and lost,” he said.
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