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FCC Order Lets Viacom Keep UPN

Washington— Viacom Inc. can keep both CBS and United Paramount Network (UPN), as the Federal Communications Commission voted last week to relax a portion of its broadcast-network ownership rules.

By a 3-1 vote, the FCC acted just a few weeks before Viacom would have needed to divest UPN. But the media giant never had to prepare for that event, because agency officials had already made it clear that relaxation of the "dual-network" rule was a given.

Viacom urged the FCC to allow it to retain UPN because the network was hemorrhaging money and there were no potential buyers. The company said it was in the best financial position to steer the network into the black.

The dual-network rule, originally adopted in the 1940s and modified several times thereafter, barred any of four major networks from combining and barred one of them from owing either UPN or The WB.

The FCC took no action at last Thursday's meeting that would allow one of the "Big Four" networks — ABC, CBS, NBC or Fox — to merge with another. The change it adopted allows any one of those networks to combine with either UPN or The WB, however.

The new rule would even allow CBS to own both UPN and The WB, FCC spokesman David Fiske said.

The FCC's relief came just in time for Viacom, which had until May 4 to shed UPN. Although the new rule doesn't take effect for a few more weeks, the agency would insure Viacom can retain UPN in the interim.

The FCC's move likely begins a multiyear effort to do away with media-ownership rules that new Republican FCC chairman Michael Powell believes are no longer necessary. Over the last few months, Powell has told audiences that his philosophy is to "validate or eliminate" media-ownership caps.

"It clearly signals that we are going to have a serious debate about relaxing the multitude of broadcast limitations," said media analyst Scott Cleland, CEO of the Precursor Group. "It's among the most contentious debates the FCC will face in the next two years. This is a mega-hot potato."

Powell has already indicated that he would like to modify or eliminate a 1975 FCC rule that bars the common ownership of a newspaper and a radio or television broadcast property in the same market.

Also on deck are rules that limit a TV-station group from reaching more than 35 percent of TV households or prevent the common ownership of a TV station and a cable system in the same market.

But Powell can't move aggressively on the deregulation front until he has a secure GOP majority in place. On April 6, President Bush nominated Kevin Martin and Kathleen Abernathy to occupy GOP seats on the FCC, giving Powell his majority. Bush also nominated Democrat Michael Copps to replace Democratic FCC member Susan Ness.

Last week's action at the FCC demonstrated that Powell's hands were virtually tied until Martin and Abernathy are there to back him up.

Although Ness voted to relax the dual-network rule with Powell and Republican FCC member Harold Furchtgott-Roth, she ruled out any interest in allowing any consolidation among the Big Four.

"The combination of any of the top four networks would dangerously diminish source and viewpoint diversity in the United States," Ness said. "This order does not implicate other media ownership restrictions. It is narrowly focused on the dual network rule as it applied to UPN and [The] WB."

Furchtgott-Roth, a free- market economist who is leaving to make room for Bush's new picks, said he would have voted to abolish any restrictions on network ownership.

"I think Commissioner Ness has accurately described all the things the item does not do. My only regret is that it doesn't do the things that Commissioner Ness said it doesn't do," he said. "I look forward to the time when the commission gets out of the ownership-limitation, First Amendment-restriction game."

Created in 1995, UPN presently has 200 affiliates. Viacom owns 20 of those stations.

Even though the network is the home of programs such as WWF Smackdown!, Star Trek: Voyager, Moesha
and The Hughleys, UPN has lost more than $100 million a year and accumulated more than $800 million in total losses.

Viacom effectively told the FCC that UPN would collapse unless a conglomerate of its breadth and strength could retain ownership.

According to the Association of Local Television Stations, a trade group, UPN stations have historically been must-carry stations for which cable operators did not have to pay. But Viacom's control over two networks could put its owned-and-operated UPN stations — and possibly its affiliates — into play as retransmission-consent stations for which cable operators must offer compensation.

"By all means, I would expect it," said Matt Polka, president of the American Cable Association, the small MSO trade group that has often clashed with Viacom, The Walt Disney Co. and News Corp. over carriage terms. "To get carriage, they had to go must carry. With big brother Viacom there, they won't need it."

The FCC majority reasoned that Viacom's retention of CBS and UPN would not harm competition or ownership diversity because broadcasting as a whole has seen its share of the primetime audience drop from 71 percent in 1996 to 58 percent in 2000.

Broadcasters also faces growing competition from cable and direct-broadcast satellite operators, which have access to more than 200 cable networks to capture the over-the-air audience.

FCC officials said The UPN and The WB both offer niche programming geared to minority viewers and the failure of one of those networks would lessen diversity and harm their affiliates.

In a strongly worded dissent, Democratic FCC member Gloria Tristani called the decision to partially eliminate the dual-network rule "a result in search of a rationale" that would "only further erode the already tenuous level of diversity on the public airwaves."

Rather than abolish the rule, the FCC should have granted Viacom a stand-alone waiver after careful analysis of UPN's financial condition and Viacom's promise that it was best positioned to stave off UPN's collapse, she said.

"Wholesale abandonment of well-settled rules is not the way to save a struggling network or promote the public interest," she said. "Decreasing the number of owners of broadcast networks is simply not a means to achieving greater viewpoint diversity."

Powell did not speak at length about his support for the CBS-UPN combination. But he noted that consolidation was not, as Tristani suggested, synonymous with a loss of program diversity because TV stations are in the business of aggregating audience segments that advertisers want to reach.

"I think the important question is to what degree you automatically assume there is no commercial interest in being diverse, that no one has or ever has a legitimate economic incentive to try to serve consumers at their highest, and in a way that there is great consumer welfare," Powell said.