In a further deregulatory action aimed at helping the shrinking fortunes of the three major television networks, the Federal Communications Commission yesterday unanimously overturned a 22-year prohibition against networks' owning cable TV systems.
The 5-0 decision, which followed the FCC's promise last year to conduct a thorough review of decades-old regulations governing televisionnetworks and local stations, is designed to give the networks new areas in which to expand in the face of growing competition from cable.
But in response to fears from local broadcasters that allowing network ownership of cable TV systems could result in "discriminatory conduct," the FCC also imposed caps on how many cable TV subscribers a network could acquire. Such discriminatory conduct could include a network's giving favorable cable channel positions to its own local stations at the expense of competitors.
Consumer advocates are also concerned that allowing cross-ownership could further limit the programming available on free television.
Cross-ownership rules were adopted by the FCC in 1970 to curtail the networks' overwhelming dominance in the video marketplace and to protect the then-nascent development of cable television.
Networks have been allowed to own cable channels such as ESPN or CNBC but have not been allowed to own the more-lucrative systems that distribute cable programs to homes, which are usually monopolies in their service areas.
But cable television now reaches more than 60 percent of all television households in the country, and some cable networks, such as Home Box Office, attract more viewers on some nights than do ABC, CBS or NBC. Furthermore, the part-time Fox network has cut into traditional network viewership and could threaten further erosion when it expands next year to seven nights a week.
"The broadcast television networks have lost a considerable portion of the total television audience, thus causing a decline in their advertising revenues," the FCC said.
Under the FCC's new cross-ownership formula, a network would not be allowed to take a stake in more than 10 percent of all cable homes nationwide, and 50 percent of homes with cable TV in a local market. There are about 56 million homes with cable TV in the United States.
In addition, the networks would still be prohibited from any investment in cable TV systems in markets where they own stations.
Those caps, which could be lifted in three years, are not likely to encourage an immediate flurry of network-cable transactions, said David Westin, vice president and general counsel of Capital Cities-ABC Inc., the main force behind the campaign to lift the ban.
Mr. Westin said the caps would result in the networks' having to sell off many parts of the cable systems they acquire because most markets have only one cable TV operator.
Over the long term, however, network ownership of local cable TV systems could have important consequences for broadcasters and viewers, especially if caps are lifted.
Eventually, viewers may have to pay for what they traditionally have viewed for free, said Jeffrey Chester, executive director of The Teledemocracy Project, a Ralph Nader-affiliated public interest group.
"We may not see the impact for another 10 to 15 years, but this is the beginning of the end of free TV," Mr. Chester said.
Yesterday's action comes at a time of big changes in the relationships between television networks and their affiliates. In the first decades of the modern television networks, the networks paid fees to affiliate stations for carrying their programs.
But the networks have been trying to reduce the amount of compensation that they will pay affiliates for carrying their shows, and CBS sent shock waves through the industry recently by announcing that it would begin charging its biggest affiliates fees that offset much of the compensation the network sends them.
While the FCC has been moving steadily to deregulate radio, television and cable, Congress has been taking steps to reregulate cable.
A House subcommittee yesterday approved a bill that would require cable television systems to pay a fee of 5 cents a subscriber to retransmit broadcasts of local television stations.
The action came a day after a separate House panel passed a different bill to reregulate cable rates and service. The bills may be considered at the same time by the full House.