House Panel Deals TV Giants a Setback

Capitol Hill blocked the big TV networks' expansion options Wednesday, but the obstacle isn't necessarily permanent.

The House Appropriations Committee voted to prevent the Federal Communications Commission from letting networks own TV stations covering more than 35% of the population, a move that could delay implementation, for at least a year, of the FCC's decision last month to raise the population coverage ownership cap from 35% to 45%.

But the measure, attached to a budget bill for fiscal year 2004, could be stripped out of the bill on the House floor as early as next week or face a veto from President Bush.

That being said, Wednesday's vote increases the chances of some form of ownership limit rollback, according to Legg Mason. That would be bad news for CBS owner Viacom (VIAB) and Fox owner News Corp. (NWS) -- which, thanks to waivers, are already operating above the 35% ownership cap -- along with NBC parent General Electric (GE) and ABC operator Disney (DIS), which have expansion plans of their own.

"This is probably a tipping point in favor of ultimate enactment of the legislation, and could also spur other efforts to pass a stand-alone bill that would retain the 35% cap indefinitely," Legg Mason analyst David Kaut wrote in a note Wednesday.

In addition to limiting the growth options for the four major networks, the 40-25 vote is mixed news for independent local broadcasters, says Legg Mason. Retention of the 35% cap would keep the networks from gaining additional leverage, they believe, but the bill could fuel a broader backlash against other deregulatory measures in last month's FCC decision, such as a relaxation of longtime rules limiting newspaper and broadcast station ownership in the same market. Fear of such a backlash is likely unwarranted, says Kaut.

Shares in all the TV broadcasters' parent companies declined slightly Wednesday.

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