FCC Reviewing How Murdoch Bought Stations

The Federal Communications Commission, in an unusual move, is revisiting a controversial 1986 decision that allowed media baron Rupert Murdoch to take control of seven TV stations.

Murdoch acquired the stations from Metromedia Co. eight years ago and used them as the cornerstone to build Fox Television Stations Inc.’s fourth network. In order to comply with limitations on foreign ownership of broadcast licenses, the Australian-born Murdoch became a U.S. citizen.

Now, prompted by a complaint from the New York branch of the NAACP, the FCC has reopened the case and asked interested parties to submit comments. The group contends that Australian-based News Corp., Fox’s parent, is the ultimate owner, which would be a violation of FCC restrictions on foreign ownership.

The issue is one Murdoch cannot afford to treat lightly. The seven stations--since grown to eight, with an option for a ninth--broadcast to 19.3% of the country’s TV homes and are a crucial source of cash flow for the company.

News Corp. executives say the issue raised by the NAACP is bogus because Murdoch, whose family owns 32.7% of News Corp. shares, exerts de facto control of the company.

“The ownership structure of Fox TV Stations Inc. and all of the issues relating to it were fully resolved by the FCC in 1986,” said Preston Padden, senior vice president of News Corp. “There is absolutely no substance to the arguments advanced by the NAACP.”

News Corp. structured the acquisition by vesting in Murdoch 51% of the TV station subsidiary’s preferred stock and in Fox Chairman Barry Diller 25% of the preferred stock. Murdoch acquired Diller’s preferred shares when Diller left the company about two years ago.

At issue may be how preferred stock in this case is treated--whether, as the NAACP argues, it is more like debt or whether, as News Corp. claims, it is equity. Also in question is how Murdoch can distinguish between his role as chief executive of News Corp. and the controlling shareholder of Fox.

One communications attorney predicted it would be “difficult to rule against Murdoch at this point.” However, in a potentially troublesome clause, the FCC’s rules specifically allow for the revocation of licenses if they are found to violate foreign ownership limitations.