FCC to allow networks to own cable systems

June 19, 1992|By New York Times News Service

WASHINGTON -- The Federal Communications Commission voted yesterday to allow broadcast television networks to buy local cable television systems, a move that could hasten a basic realignment of the television industry.

Rather than having one local over-the-air affiliate station in a city, for example, a network could operate a local cable system offering dozens of channels of programming. That probably would alter, and perhaps terminate, the traditional relationship between the networks and local affiliates.

"What if my network now all of a sudden becomes my major competitor in the marketplace?" asked Mick Schafbuch, general manager of KOIN-TV in Portland, Ore., who is head of the association of CBS affiliates. "What kind of judgments are they going to make in terms of what programming goes on cable and what kind of programming goes on the affiliate?"

Among other things, the affiliates fear that the networks could soon begin favoring local cable systems with their best programming, perhaps reserving the most expensive shows for pay-per-view systems and leaving affiliates with low-cost shows that attract fewer viewers.

Ultimately, owners of stations fear, the networks could simply stop doing business with them entirely.

The FCC said it would take steps to resolve complaints from local stations that felt they were being treated unfairly by a network.

If bias was found, the FCC said, it could order a network to include a local station on its cable system or to change it to a lower, more favorable position on the dial.

The new rule greatly relaxes a ban imposed by the FCC in 1970, amid fears that the three big networks were so powerful that they would stifle cable television in its infancy.

But the FCC left several important restrictions that could blunt the ability of networks to make big deals.

Under the new rule, which will take effect in about three months, a television network will be barred from owning cable systems that can be received by more than 10 percent of the nation's households or by more than 50 percent of the households in a single viewing area.

The commission said it would review these restrictions after three years and lift them if they did not appear to be necessary.

"This bodes well for the possibility of the broadcast networks being partners with the cable industry in programming the next generation of television," said Larry Gerbrandt, senior vice president at Paul Kagan Associates, a cable-industry research firm in Carmel, Calif. "The future of television is multichannel, and the broadcast networks know it."

Network executives said the rule did not go far enough, but the affiliates expressed fear.

In adopting the change, the FCC said that cable television had grown into a "robust, independent competitor" that is capturing an increasing share of the national audience. About 60 percent of all households in the nation subscribe to cable systems, and the industry has annual revenues of $20 billion.

The TV networks have already been allowed to own cable networks. ABC, for example, owns ESPN, and NBC owns CNBC.

The new rule does not change a provision of the Cable Television Act of 1984 that prohibits a company from owning both a television station and a cable system in the same market.

That prevents a television network from buying cable systems in many of the largest markets, including New York City, where they own and operate their own stations.

"This leaves many restrictions in place," said Patricia Matson, a spokeswoman for Capital Cities/ABC, which had lobbied heavily for a more sweeping relaxation.

Officials at the National Cable Television Association greeted the rule favorably, noting they had argued for 10 years that the old rule was outdated.

Yesterday's action comes at a time of big changes in the historic 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, because that provided the networks with a national audience that could be sold to advertisers.

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.

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