Don't look for cable operators to start binge-buying television stations as a result of the FCC's relaxation of the media ownership rules last week.
But according to at least one analyst, the rule changes could force broadcasters to look at cable in a whole different light.
While broadcast/cable ownership restrictions were vacated by the D.C. Circuit Court of Appeals last year, the Federal Communications Commission in its June 2 ruling declined to reinstate those limits. That, said Fulcrum Global Partners media analyst Richard Greenfield, coupled with improved financials at most cable companies, could make cable acquisitions more attractive to broadcasters.
Free cash lure
Most broadcasters previously passed on cable acquisitions because cable wasn't generating free cash flow, or cash flow after interest payments and capital expenditures are made, said Greenfield.
Now that several cable operators are generating free cash flow — with the rest expected to by 2004 — that all could change.
"I don't think anything is imminent, but over the next few years, could you have a lot of these companies rethinking their desire to be in distribution? Absolutely," Greenfield added.
A prime example of that changing mind-set, Greenfield added, is News Corp.'s pending acquisition of DirecTV Inc. parent Hughes Electronics Corp.
"I think part of why News Corp. bought into DirecTV was in some ways defensive, so they don't have to deal with Comcast [Corp.] putting pressure on them to discount programming," Greenfield said. "They now [potentially] control a national distribution platform.
"Comcast controls what I would call a national distribution platform, EchoStar [Communications Corp.] does. Could you see one of the larger media companies trying to aggregate several other cable companies? Of course."
"The world of buyers for cable properties could expand," Greenfield added.
Whether or not the rule changes creates new buyers for systems, cable operators fear that by being allowed to control more stations in top markets, programmers will be able to use their retransmission consent club more effectively.
"Unreasonable retransmission-consent demands by national broadcast networks already are harming consumers, by inflating cable bills and diminishing capacity for local cable systems and local broadcasters to tailor programming line-ups to suit their communities," Cox Communications Inc. CEO Jim Robbins said in a statement. "Raising the national ownership cap from 35% to 45% will exacerbate this problem.
"Additionally, the national networks' ability to force carriage of unproven cable channels by leveraging retransmission consent consumes scarce cable network bandwidth that could impede the availability of such nascent services as high definition television," Robbins added. "Permitting national broadcast networks to own more local stations will drive up programming costs for American consumers and will reduce the diversity and control of programming by local media serving local markets."
Willner: Re-eye retrans
Insight Communications Co. CEO Michael Willner echoed Robbins' comments.
"The big content companies have the ability to get bigger and it continues to raise the question as to whether retransmission consent is really in the public interest," Willner said.
Willner said he was approached by several investment bankers last year to encourage Insight to purchase television stations. Willner balked, he said, because he saw few synergies.
"We looked at it and decided it wasn't for us," Willner said. "The only synergies were in the advertising-sales world, and that is less than 10% of our revenue.
"That is just not our business. We're in the consumer-servicing business and the network-operations business. Selling advertising is a very small part of our business."