The transition from analog to digital television, or the lack thereof in much of the U.S., is another example of how political goals can crash into reality. About 36% of roughly 1,800 television stations were set to go digital by the initial Feb. 17 deadline. The remaining stations have until June 12, hoping all the while that straggling viewers will pick up converter boxes amid a recession.
As the government focuses on the digital transition, acting Federal Communications Commission Chairman Michael Copps told reporters in February that the agency can still push other measures. "There is a lot the commission can accomplish in the weeks and months ahead," he said, pointing to issues such as minority ownership of radio and television stations.
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President Obama's choice to head the FCC, venture capitalist Julius
Genachowski, is not in place. However, Copps said the FCC can still
prepare for future initiatives. "The time to start moving on that is
right now," he said.
Obama and Vice President Biden were critics of joint ownership of a
newspaper and television station in one market and other manifestations
of big media. Unless the advertising market improves, which does not
seem likely soon, it will be difficult to put new restrictions on
broadcasters, who were already losing money to digital competitors.
"Obama clearly came in with a fairly extensive media agenda and was
one of the co-sponsors along with Biden of legislation to overturn
former FCC Chairman Kevin Martin's rule on broadcaster newspaper
cross-ownership," says Andrew Lipman of Bingham McCutchen LLP.
"Obama has been a big believer in media deconsolidation, minority
ownership and the like. I don't think those objectives are diluted."
Media ownership issues test the will to drive change, however, for a
president who has filled his cabinet with Washington insiders and is
battling a worsening economic storm. Young Broadcasting Inc. joined Tribune Co. in Chapter 11 protection in February, and many of their peers are endangered. It took John Malone to keep Sirius XM Radio Inc. out of the bankruptcy courts.
Antitrust or progressive theories may be lofty, but they may be
better suited to better days. Says Lipman, "The concern is, given the
macroeconomic situation, particularly as it impacts broadcasters, that
some of these issues such as diversity are going to be back-burnered if
the alternative is going to be potential losses of jobs or closures."
There are few signs that the pain among broadcasters will abate soon. Last fall, Moody's Investors Service
offered an outlook for broadcasters. The agency estimated that 2009
revenues would fall 15% to 20% from the year before, and downgraded or
assigned negative outlooks to 28 companies. Just a month into 2009,
Moody's said that the level of distress is at the high end of that
range and that it will re-examine its numbers. Some broadcasters showed
declines of more than 25% in January. Without a rebound in advertising,
the agency warns that Ebitda could contract 35% to 40% and could push
leverage multiples "well into double-digit levels."
Against this backdrop, antitrust and progressive ideals can be a
difficult sell. David Honig, of the Washington nonprofit Minority Media
and Telecommunications Council, says the FCC could take deregulatory
steps to aid minority ownership, such as lifting engineering
restrictions that make it tough for new broadcasters to enter large
markets. He says employment discrimination has had little action in the
last eight years, and is another area in which the government could act
without preventing capital, if there is any, from entering the
industry.
"The wisest course right now given the current market probably is
just to stay calm and leave the ownership rules as they are so the
markets will be able to predict what the regulatory environment holds
for this industry sector," he says.
M&A on any scale will not be easy. Moody's says owners may be
reluctant to exit at "fire-sale prices," and companies with resources
to buy, such as News Corp., have looked to sell stations outside top markets.
In such an environment, the only buyers of troubled stations may
well be operators who already own a station or newspaper in that
market. Though unpalatable, that may be the only option. Maturities,
interest payments and covenant step-down dates are not as easily moved
as digital television transition rates.
Chris Nolter covers media for The Deal.
