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. Last Updated: 07/27/2016

With U.S. Ruling, Big Media Firms to Get Bigger

NEW YORK -- As U.S. consumer advocates deplored Monday's changes to media ownership rules as a blow to democracy, investors bought up shares of the country's biggest media companies.

Both advocates and investors agree that the latest rule changes are likely to let media leviathans like the News Corp. and Viacom fortify their positions while increasing the odds against newcomers and small fry.

The changes mainly loosen restrictions on the ownership of local television stations. But even in the one area -- the radio industry -- where the Federal Communications Commission tightened the rules on media consolidation, the changes will have the unintended effect of making it more difficult for smaller rivals to challenge the dominance of the industry giant, Clear Channel Communications.

To curtail the swift consolidation of radio broadcasting since its deregulation in 1996, the commission set new limits on the maximum number of stations one company can own in certain cities and towns. The new rules will impede Clear Channel's future expansion. But at the same time, the commission let Clear Channel keep its clusters of stations that exceed the new caps, preventing its smaller competitors like Cumulus Media and Citadel Broadcasting from ever catching up.

Citadel had sought rules that would force it to sell some of its approximately 200 stations, in the hopes of forcing Clear Channel to shed some of its 1,200.

"Whether you call it revolution or evolution, the big companies now have the opportunity to be even bigger and stronger," said Blair Levin, a former top official for the commission who is now an analyst at the investment bank Legg Mason.

"Everyone in the business has to wake up tomorrow and ask, 'Do I want to be a buyer or a seller?' In a relatively condensed time frame -- three or five years -- there will be a pretty large turnover in the way the map looks," Levin said.

Together with recent deals like News Corp.'s proposed acquisition of satellite broadcaster DirecTV, the changes may create opportunities and pressures for more mega-mergers.

In a little-noticed shift, the commission declined to reinstate a rule that blocked cable companies from owning local television stations.

For the first time, cable giant Comcast could now merge with the Walt Disney Co., owner of ABC and some of its owned-and-operated broadcast television stations. AOL Time Warner, owner of Time Warner Cable, could buy NBC from General Electric. Both moves have come up for discussion by analysts and investment bankers as logical responses to match the new power of News Corp., which will now combine studios, major broadcast and cable networks and pay-television distribution. Another investment banker fantasy: Viacom, owner of Paramount, CBS and MTV, might merge with the other satellite service, Echostar.

The centerpiece of the changes effectively makes it easier for networks, newspaper publishers, radio station owners and others to buy local television stations. Broadcasters sought the new rules to help support free over-the-air stations, which face growing competition from cable and satellite services as well as higher costs for programs and digital upgrading, said Victor Miller, an analyst at Bear, Stearns.

Owning local television stations in tandem with other television or radio stations, newspapers or cable systems in the same market offers the prospect of more economies of scale in producing news or selling advertising.

The change was a victory for the major networks, raising the cap on the maximum share of the national audience one company can reach with its stations to 45 percent from 35 percent. News Corp.'s Fox television subsidiary and Viacom's CBS division already own stations reaching about 40 percent of the market.

But owning more stations gives the networks more power over their affiliates in negotiations over fees and what programs to show. It also enables the biggest companies to consolidate the advantages of size over their smaller competitors.

One side effect of the rules, for example, caps the number of stations in some markets that can enjoy the benefits of merging with a local rival. The rules preclude a company from owning more than one of the top four stations in a market, so in markets with just five or six stations one or two will inevitably be left to go it alone. The loners in the market will face a permanent disadvantage, said Tom Davidson, a lawyer at Akin, Gump, Strauss, Hauer & Feld who represents Granite Broadcasting, a station owner.

In recent weeks, some in the industry, most notably entrepreneurs Ted Turner and Barry Diller, have raised alarms that the changes will make it harder for new or independent voices to be heard in television programming.

But most analysts do not expect quick or earth-shaking reactions to Monday's changes, or the start of a race to snap up local stations. "You could argue that not much might come of it," Miller of Bear, Stearns said. "We don't think there are a lot of natural buyers and few major potential targets."