House Passes Bill with 35% Cap

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The House passed a bill Wednesday that bars the Federal Communications
Commission for one year from relaxing a broadcast-ownership rule supported by
the corporate parents of ABC, NBC, CBS and Fox but opposed by hundreds of their
independent affiliates.

The House voted 400-21 to retain a rule that limits a TV-station group to
reaching no more than 35% of TV households nationally.

On June 2, the FCC, under Republican chairman Michael Powell, raised the cap
to 45%, triggering a backlash on Capitol Hill that few anticipated.

Earlier in the week, the White House came to Powell's defense in a letter to
House Energy and Commerce Committee chairman Billy Tauzin (R-La.) from Office of
Management and Budget director Joshua Bolton.

In the letter, Bolton defended the FCC's rewrite of important media rules and
promised that if the 35% cap stayed in the bill, President Bush's "senior
advisors would recommend that he veto the bill."

The House included the 35% cap in a fiscal-2004 spending bill that included
the FCC's budget. On Tuesday, the House rejected an amendment that would have
restored the 35% cap, as well as the ban on the common ownership of a TV station
and a local newspaper in the same market.

Prior to the House vote, Powell, who is vacationing this week, issued a
statement defending the agency's rules as modest relaxation that would protect
the public interest while responding to court decisions mandating a rewrite of
the agency's broadcast-ownership rules.

"We are confident in our decision. We created enforceable rules that reflect
the realities of today's media marketplace. The rules will benefit Americans by
protecting localism, competition and diversity," Powell said.

Blair Levin, a media analyst with Legg Mason Inc. and a former FCC chief of
staff, indicated that the 35% cap had a good chance of becoming law.

"We recognize that the White House has issued a veto threat and that there is
much remaining uncertainty regarding this legislation, but our best guess at
this point is that the 35% language will ultimately be enacted," Levin said in a
client note Wednesday.

Both Viacom Inc. and News Corp. currently exceed the 35% cap by a few
percentage points. Levin said they might be forced to divest some stations if
the 35% cap becomes law.

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