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Large media companies are about to learn whether a bite accompanies the Federal Communications Commission’s bark when it comes to clearing mergers. The FCC is weighing how to respond to News Corp.’s defiance of a July 2001 order requiring it to divest a New Jersey television station within two years in exchange for the agency’s approval to buy 10 TV stations from Chris-Craft Industries Inc. for $5.4 billion. News Corp., which media mogul Rupert Murdoch controls, never carried through with the divestiture, betting instead that the FCC would amend its prohibition on owning broadcasters and newspapers in the same market before the two-year waiver expired. The media company nearly hit paydirt. The FCC did alter its rules. But a federal appeals court in June rejected the rewrite, which meant the cross-ownership prohibition remains in effect. Complicating matters is that News Corp. allowed the court fight over the FCC rules to play out without filing for an extension of the waiver, which ran out more than a year ago. That means it has been in violation of the agency’s order for months. What the FCC decides to do about the violation could have wide-ranging implications for other media conglomerates that have delayed required asset sales in hopes that new media merger rules would make such divestitures moot. Tribune Co. of Chicago and Media General Inc. of Richmond, Va., have similar ownership matters under review at the agency. Both are expected to petition the FCC to waive the restriction for markets where they own newspapers and TV stations. Media General owns The Morning News in Florence, S.C., where it also controls WBTV Florence. Tribune owns newspapers and broadcast stations in New York, Hartford, Conn., and Los Angeles. But because both companies bought newspapers in markets where they own TV stations, they were able to exploit an FCC loophole that permits dual ownership until a TV station’s license comes up for renewal. In a recent press conference, FCC Commissioner Kathleen Abernathy said the appeals court ‘s freezing of the agency’s media rules has caused problems for many companies expecting looser ownership limits. She said the agency must send a signal “one way or the other” on whether more waivers are warranted. “Now that we have the court decision freezing up the agency’s media ownership rules, we’re going to have to provide some clarity for media businesses that own and operate stations that they have because of waivers we’ve provided,” Abernathy said. But consumer groups argue that the time for providing clarity on the matter has come and gone. The FCC’s failure so far to punish scofflaws demonstrates the agency’s laxity in enforcing its own limits on media mergers, they said. “The FCC has let the corporations run wild,” said Mark Cooper, research director at Washington-based advocate group Consumer Federation of America. “News Corp. never tried to sell the station even though that’s what they were supposed to be doing.” News Corp.’s problems began when it agreed, in order to secure the three Republican votes it needed to win clearance of the deal, to divest Secaucus, N.J., TV station WWOR-TV within two years. Owning the station violated the FCC’s prohibition on one company owning both a TV station and newspaper in the same market. WWOR-TV, Channel 9, operated in the New York City area, where News Corp. also owns the New York Post newspaper. At the time, FCC commissioners agreed that News Corp. should be given time to unload the station to avoid a “fire sale.” Abernathy at the time said the “size and scope” of the marketplace requires the commission to give companies adequate time to sell assets to meet ownership limits. But instead of hiring an investment bank and preparing to auction the station, News Corp. operated it with no apparent intent of finding a buyer within the two-year limit, which expired in July 2003, sources said. “I am not aware that we have had any plans to sell the station,” said Jim Clayton, general manager of WWOR-TV. Observers said News Corp. expected the agency to eliminate the newspaper-broadcast prohibition before the deadline. Although the FCC did just that in June 2003, the 3rd U.S. Circuit Court of Appeals ordered the agency to rewrite the rules, leaving News Corp.’s New Jersey station in a precarious situation. News Corp. didn’t file a petition to extend the waiver until late September 2004. Consumer groups, including public interest law firm Media Access Project in Washington, are considering a lawsuit. Glenn Manishin, partner at law firm Kelley Drye & Warren in Vienna, Va., said consumer groups are likely to file an appeal if the agency approves News Corp.’s petition to extend the waiver. Manishin, who represented a group of consumers in the media rule fight before the appeals court, said an interested party may file a suit on grounds that the agency can’t grant an appeal retroactively. “Granting this kind of waiver exceeds the FCC ‘s authority,” Manishin said. News Corp. could face a significant penalty for its failure to sell the station. MAP associate director Harold Feld said the FCC could require News Corp. subsidiary Fox Television Stations Inc. to divest the station immediately. The FCC also could order WWOR-TV to shut down unless it is sold or issue a fine for every day the outlet is in breach of the order. More recently, News Corp. began efforts to close the station and consolidate most of the operations with a near-by New York City area outlet. The company received permission from the FCC to own WNYW-TV in the New York market, but the agency decided that owning two TV outlets in New York created too much media concentration. News Corp.’s decision to consolidate operations has raised the ire of New Jersey lawmakers. Sens. Frank Lautenberg and Jon Corzine and three other lawmakers sent a letter to FCC Chairman Michael Powell on Sept. 10, calling on the agency to investigate News Corp.’s plans to move its station out of New Jersey. FCC Media Bureau spokeswoman Rebecca Fisher said the lawmakers’ request is under consideration. Clayton, who has managed WWOR-TV and WNYW-TV since 2001, said he has met with both Lautenberg and Corzine to discuss their concerns. He said the station, which competes mostly in the New York market, will continue the same level of coverage of New Jersey as it did before the move. He added that WWOR-TV is not expected to complete the switch for another year. But the lawmakers argue that the move will separate the news organization from the community it is supposed to be covering. Powell said recently that the FCC, which has four years to adopt new regulations, will take its time evaluating the court’s decision before issuing new regulations. Spokespersons for News Corp. in New York, Fox Television Stations in Los Angeles and News Corp.’s regulatory counsel Skadden, Arps, Slate, Meagher & Flom in Washington did not return several calls for comment. Copyright �2004 TDD, LLC. All rights reserved.

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