January 28, 2005
By Stephen Labaton

WASHINGTON -- Media companies hoping to expand their television station holdings and to own both TV stations and newspapers in the same markets suffered a setback yesterday when the Bush administration decided to abandon its challenge to a ruling that blocked the relaxation of ownership rules.

The Justice Department will not ask the Supreme Court to consider a decision last year by a federal appeals court in Philadelphia that sharply criticized the move toward deregulation and ordered the Federal Communications Commission to reconsider its action. The decision is a final slap to Michael K. Powell, the departing chairman of the F.C.C., who had advocated the changes.

It also throws into question the future of newspapers and TV stations owned by the Tribune Company and Media General, which made acquisitions in anticipation of further deregulation. Tribune's media acquisitions in Los Angeles, New York, Hartford and South Florida would violate the old rules, as would Media General's in Florence, S.C., and Panama City, Fla.

They would have to request exemptions from the F.C.C. if they were to keep all of them.

Relaxation of the rules had been advanced by most of the broadcast television networks and many large media companies, including the News Corporation, Tribune, the Gannett Company and The New York Times Company.

The networks have been hoping for rules that would allow companies to expand the number of television stations they can own, giving the networks a greater share of the lucrative TV station business. Under a law passed by Congress last year in response to Mr. Powell's proposal, one company can own stations that reach 39 percent of the nation's homes. Mr. Powell wanted to increase that to 45 percent, from the old rule of 35 percent.

Big media companies want to expand the number of markets in which they can own both newspapers and TV and radio stations. In the last few days, some of those media companies, most notably Tribune, pressed the Justice Department to challenge the appeals court ruling, lawyers involved in the case said.

Some of those companies said they plan to appeal the ruling, but they have little chance of success without the support of the Justice Department.

Critics say there has already been too much media concentration, leaving readers and viewers with fewer sources of news and information. They further contend consolidation would stifle creativity and lead to a decline in local news coverage.

The deregulation had been opposed by a broad coalition of Democrats and Republicans in Congress, as well as an unusual coalition of labor, consumer, religious, artistic and civil rights organizations. Some members of the coalition said they feared that further consolidation would increase the amount of indecent programming.

The networks and media companies argue, however, that the growth of other forms of media, especially the Internet, has given people more alternative sources of news and information than they have ever had. Those additional news sources, they argue, are stiff competition for both TV stations and newspapers.

The Supreme Court had set next Monday as a deadline for the initial filing of papers in the appeal.

Officials said one reason the administration decided not to seek Supreme Court review was that some lawyers were concerned the case could prompt the justices to review related First Amendment issues in a way that could undermine efforts by the commission to enforce indecency rules against television and radio broadcasters. Over the last year, the agency has issued a record number of fines - and for record amounts - and has been pressed by some conservative and other advocacy groups to be evenmore aggressive.

If, as now expected, the appeals court decision stands, it would return the rules to the commission for further consideration. Lawmakers and some officials predicted that whoever succeeds Mr. Powell would probably not embark on a course of wholesale deregulation of the media rules in light of the political furor that Mr. Powell's plan provoked. But they also said the agency could ultimately reconsider and relax a few of the rules.

In a bitterly partisan vote in 2003, the commission voted 3 to 2 to approve a package of deregulatory measures drafted by Mr. Powell that would have rolled back decades of ownership restrictions.