One station per network per city was for decades a bedrock law guiding the US television industry, and barely one month after regulators lifted the rule a seismic change is under way, with shockwaves spreading to all corners of the media business.
Viacom's proposed US$37 billion merger with CBS would not only amass its TV stations to exploit the relaxed "duopoly" ownership rule, but on a grander scale link a distributor's massive reach, CBS, with one of the world's largest producers of entertainment content, Viacom.
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The change in the rules, some dating back to television's infancy in the 1949s, now lets a company buy a second station in markets with at least eight separately owned TV stations, or about half of the 100 largest US markets.
The four top-rated stations in a market could not combine.
In smaller markets, a company could buy another station only if the second outlet had failed financially, was in danger of failing, or had been authorized but never built.
In addition to the CBS television network and 15 TV stations, CBS is a leading radio-station operator and one of the largest outdoor advertising companies in the world.
Viacom's varied assets include 19 TV stations, the UPN television network, Paramount Pictures, cable channels MTV, VH1 and Nickelodeon, publisher Simon & Schuster, and a majority stake in video-rental chain Blockbuster.
They have set the pattern, industry analyst said, for the future look of the integrated media leviathan, a company with a dominating presence in print, broadcast, production, distribution, and marketing.
And on the flip-side of media and entertainment -- providing access to consumers for advertisers -- the new Viacom Inc. will be the No. 1 outlet for advertisers in the world, according to Schroder & Co. research.
"Duopoly is certainly the way CBS got into Viacom, because duopoly is going to be the early bird catches the worm," said Ryan Beck & Co. media analyst Dennis McAlpine.
"The first guy in stands the best chance of getting a deal approved. That is clearly why Viacom talked to CBS -- on the hopes of selling them the TV stations. But somewhere along the line, something changed and [CBS chief executive] Mel Karmazin proved he is the best salesman in the world," he said.
"The combination ... continues the media industry's trend toward vertical integration whereby content and distribution assets are combined," noted Salomon Smith Barney analyst Jill Krutick in her research on the deal.
McAlpine predicted that over the next year or two there will be at least one more major media deal, with Barry Diller's USA Networks -- owner of 13 television stations in coveted, big markets like New York City, Los Angeles and Chicago -- a likely target.
"There will probably be another attempt at consolidating, my guess is USA Networks because it has got some bigger-market stations were there are possibilities" to exploit the relaxed duopoly rule.
Industry sources have in the past indicated that USA is in talks that with several potential partners, including Walt Disney Co. which owns the ABC television network through its 1995 purchase of Capital Cities/ABC, a $19 billion deal that was toppled two days ago by Viacom-CBS as the biggest media merger ever.
"You would have to look at NBC as certainly being possible, and at some point ABC is going to figure out that they are going to have to play in this game if they want to. If they just sit back it's going to be too late and it won't matter," McAlpine said.
A USA spokeswoman declined to comment, and a Disney spokesman was not immediately available.
General Electric's NBC television unit is working on buying about one-third of broadcaster Paxson Communications, a deal that could be worth about $400 million, a source close to the matter confirmed Thursday.
Such a deal has been rumored to be in the works after Paxson, a leading owner of TV stations, said one month ago that it had hired investment bank Salomon Smith Barney "to explore potential strategic alliances for the company."
The source said the deal could be announced as early as this week, though a formal unveiling could occur next week.
An NBC spokeswoman declined to comment, and a spokesman for Paxson was not immediately available.
Paxson, based West Palm Beach, Florida, said the decision to hire the bankers was precipitated by the FCC's recent easing of television-station ownership rules. Under certain conditions, one party can now own two stations in one market.
Upon completion of pending acquisitions, construction projects, other deals, Paxson will own, operate, or have an economic interest in 72 television stations and have 51 additional PAX TV network affiliates carrying the company's PAX TV network programming, according to the company.
Copyright 1999 Reuters Limited.
