ABC Stations Wary Of Comcast 'Lifeline'

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Comcast Corp. CEO Brian Roberts wants to enter the broadcasting business. But do broadcasters really want Comcast in their business?

In bidding for the Walt Disney Co., the crafty and opportunistic Roberts is proposing to seize control of the ABC Television Network and its 10 local owned-and-operated stations, some of them in big markets where Comcast is the dominant cable company.

If approved, the deal would be historic. It would represent the largest-ever incursion into the broadcast industry by a cable operator — a move unthinkable just two years ago, when federal rules effectively barred common ownership of a TV station and a cable system in the same local market.

For many independent ABC affiliates, the idea of Comcast becoming at once their programming lifeline and their opposite number at the retransmission-consent bargaining table is just plain terrifying.

The National Association of Broadcasters, which represents about 200 ABC affiliates, did not issue a statement regarding Disney's potential takeover by Comcast. But at least two analysts —Sanford C. Bernstein's Tom Wolzien and Craig Moffett — predict stiff opposition from all NAB members, not just ABC affiliates.

"We believe that every local broadcaster in America would be lined up to prevent this deal," Wolzien and Moffett said in a report last week.

Many ABC affiliates, which already have a stormy relationship with Disney, see nothing but trouble ahead if Comcast runs ABC.

According to one ABC affiliate in a top-10 market, the problems are many. Here are just a few:

Is Comcast, a company with limited broadcast programming knowledge, even capable of running ABC in a manner consistent with the best interests of ABC affiliates?

Would Comcast-ABC pressure an ABC affiliate by threatening to transfer affiliation when cable carriage talks disintegrate?

Would Comcast-ABC punish a difficult ABC affiliate by running ABC network programming exclusively on cable and satellite until the affiliate bent to Comcast's will?

Would Comcast-ABC use its muscle to drain advertising from other local TV stations — especially in markets where Comcast owns a TV station and a cable system?

Under federal law, broadcasters are required to negotiate cable carriage in good faith, a provision that expires in January 1, 2006. But the good-faith mandate does not apply to cable.

COURT PAVED WAY

For decades, federal law and regulation kept local cable and TV stations in separate corners. But many of the tensions predicted in a future relationship between Comcast-ABC and the affiliates would flow from the February 2002 court ruling by the U.S. Court of Appeals for the D.C. Circuit.

In the ruling, the three-judge panel ordered the FCC to abolish a rule that effectively banned a cable company from owning a local TV station. The ruling was a surprise, because the case involved other FCC media ownership rules that were not abolished but remanded to the agency for possible revision.

The FCC's rule wasn't an outright ban. It read that in the event of a TV-cable combination, the cable operator was barred from carrying any TV station, public or commercial, in the same local market. Since cable wanted to carry local TV stations, MSOs didn't buy any within their markets.

Time Warner Entertainment Co., upset that it was forced to divest some cable subscribers in Atlanta after Time Warner Inc. acquired Turner Broadcasting System Inc., fought the FCC's retention of the rule. The FCC justified the need for the rule by claiming cable operators that owned TV stations would discriminate against competing TV stations.

But in striking down the rule, the court reasoned that the FCC failed to show "a substantial enough probability of discrimination to deem reasonable a prophylactic rule as broad as the cross-ownership ban."

The FCC refused to appeal the decision and later formally removed the rule from its books.

Ironically, the FCC adopted the rule in 1970 to prevent the mature broadcast industry from dominating the nascent cable sector. Today, the reverse could be happening, making some lawmakers skittish about a Comcast-Disney merger.

'THREAT TO LOCALISM'

"Obviously, it means a possible threat to localism," said Rep. John Dingell of Michigan, the senior Democrat on the Energy and Commerce Committee and the House's longest-serving member.

Rep. Joe Barton (R-Texas), who is expected to become Energy and Commerce chairman this week, told reporters that the merger "was a candidate for some oversight hearings."

Sens. Mike DeWine (R-Ohio) and Herb Kohl (D-Wis.) said they intended to hold a hearing on the deal, if necessary.

The Justice Department or the Federal Trade Commission would have to approve the deal, as would the Federal Communications Commission.

The FCC blocked EchoStar Communications Corp. from taking over DirecTV Inc. and slapped an array of behavioral conditions on News Corp.'s acquisition of DirecTV late last year.

FCC Chairman Michael Powell promised to give a possible Comcast-Disney deal a thorough scrubbing, particularly with regard to local-market concentration.

Appearing on CNBC's Kudlow & Cramer
last Thursday night, Powell was asked whether the media merger would raise local cross-ownership problems, and he said it would.

"I think there are going to be some issues, even though they are not rule-oriented," said Powell.

"Absolutely, they will have some issues and they will be issues we will have to deal with."

Comcast would be the dominant cable operator and own the ABC affiliate in such large markets as Philadelphia, Chicago and San Francisco, and the MSO would have a cable presence in five other ABC O&O markets. The FCC has never reviewed a merger that involved so much potential cable-TV station overlap.

D.C. WOULD 'FILTER'

"Any merger of this sort of monumental size and this level of vertical integration and distribution across so many platforms is unquestionably going to have to go through one of the finer government filters," Powell added. "I can't say what the result would be."

A few analysts see trouble ahead for a Comcast-Disney deal. Some predicted that members of Congress might go so far as to introduce legislation that would block it.

Short of congressional intervention, Wolzien and Moffett think "significant FCC conditions" are likely, including possible divestment of the ABC television stations, making ESPN an à la carte service or requiring Comcast to sell its Comcast SportsNet to satellite competitors Dish Network and DirecTV Inc.

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