Continuing consolidation and FCC ruling to mark 2003


By Greg A. Lohr
January 3, 2003
Washington Business Journal

After the ill-fated predictions that the economy would turn around in 2002, it's tempting to play reverse psychologist with 2003. Expect the worst and get the best — it's worth a try, isn't it?

One thing's for sure: The past year changed Greater Washington's marketing and media field so much that just about anything could happen in the coming year. It might not be a whole new game, but the rules have changed and so have many of the players.

Don't be surprised if local advertising and public relations shops continue shifting toward government contracts and public affairs. Also expect a resurgence among smaller, boutique agencies. In a tough economy, they can cut prices thanks to low overhead. And some of them have picked up top-notch talent from big agencies that had layoffs or were involved in an acquisition.

In the media realm, consider the plight of newspapers with lagging readership. They're likely to keep soliciting new customers — particularly young adult readers — while also weathering the ad slowdown by relying more and more on side sources of income. The Washington Post Co., for example, expects 2003 to be the first time its Kaplan standardized-testing unit brings in more revenue than its flagship newspaper.

The local media industry also enters 2003 missing publications devoted to technology.

One might anticipate the loss of tech magazines leaving a void in media coverage. But no one's likely to rush in to become the next publishing casualty. The economy —and ad spending, in particular — would have to thaw from a deep freeze in order to make regional tech pubs viable again.

Some industry experts say the coming year looks shaky for Journal Newspapers, the Alexandria-based publisher (http://www.jrnl.com) of several community dailies. They predict the chain is moving toward publishing only twice a week or weekly. Already, the company has let go some employees, closed a few of its offices, and switched from broadsheet to a tabloid format.

Regardless, some anticipate further consolidation among weekly newspapers in the D.C. area.

For example, Larry Grimes, a print media broker in Gaithersburg, wonders whether this will be the year for an expansion by Gazette Newspapers. Gazette, a unit of the Post (http://www.washpostco.com), operates a chain of community newspapers in Southern Maryland.

"There's always the thought of, 'What's next for the Gazettes?'" Grimes says. "When are they coming to Northern Virginia?"

One of the biggest stories in radio in many years, satellite service, could hit paydirt — unless it hits a brick wall — in 2003. Locally, XM Satellite Radio is still hanging on, and it has made considerable progress. But the District-based company says it needs another $200 million and at least 700,000 more subscribers to survive beyond year's end.

In television, prepare for stiffer competition among local news operations. Although the area's NBC affiliate, WRC Channel 4, continues to dominate the market, other network stations are gaining ground at certain times of the day.

The biggest story of the coming year, by far, could be a change in media ownership rules.

The Federal Communications Commission is reviewing a few regulations, including cross ownership — such as a major newspaper owning a broadcast station in the same market, which is now prohibited — and the 35 percent cap on the national TV audience one media outlet should be allowed to tap into. The commission also is reviewing its ban on cable system operators owning a TV station in the same market. The FCC intends to craft a proposal by spring for its commissioners to consider.

One question is how changes in media ownership rules could affect Clear Channel, the broadcast giant that owns more major radio stations in the D.C. area than any other company. Another is whether the Post or any other newspaper company would pursue new broadcast ownership possibilities in Greater Washington.

On one side of the media ownership debate are groups such as the D.C.-based Center for Digital Democracy (http://www.democraticmedia.org), which calls the FCC's existing policies "important rules that have protected the public from the consequences of deregulation and media consolidation."

On the other side are large media companies that claim the rules are unconstitutional. As part of lawsuits filed by these companies, some courts have reversed FCC rules in specific markets and decided that the FCC has not offered enough concrete evidence to support all of its goals and predictions.

At least some of the FCC's rules are likely to be revised, says Tim Pecaro, principal at D.C. media finance consultancy Bond & Pecaro (http://www.bondpecaro.com). They were enacted decades ago, he says, when individual markets had only a few media voices — typically major TV networks and a daily newspaper — and radio was less powerful than it is today.

"I think newspaper cross ownership and the cable rules are most likely to change, because they'll say you've got enough programming outlets in the market," Pecaro says. "They'll have some ownership cap. It may not be 35 percent; they may bump it up to 50 percent. But they're not going to let someone own 100 percent of a market."

E-mail: glohr@bizjournals.com Phone: 703/312-8344