Justice Approves Disney-Cap Cities Deal

WASHINGTON —  The Justice Department cleared Walt Disney Co.’s purchase of Capital Cities/ABC Inc. Tuesday after the entertainment giant said it would sell its Los Angeles television station, KCAL-TV Channel 9, to appease federal regulators.

The Justice Department’s decision, which dismayed some public interest groups, paves the way for review of the $19-billion purchase by the Federal Communications Commission, whose approval is considered pro forma.

Industry sources Tuesday said that there are few obvious buyers for the station and that they doubted Disney would be able to recoup the full $320 million it paid for KCAL in 1988, despite the high multiples that broadcast properties are fetching, the station’s highly acclaimed three-hour newscast in prime time and its desirable position on the dial and in the nation’s No. 2 television market.

All six television networks already own or affiliate with stations in Los Angeles and laws prohibit broadcasters from owning two VHF stations in a single market.

“The problem with KCAL is it is isolated, the seventh station in a seven-station market,” one television executive said. “Disney did as well as they could under the circumstances, but you need allied stations in New York and Chicago to make these independents work. New York is all sewn up.”

Disney had applied for a temporary waiver to own both KCAL and Capital Cities’ KABC-TV Channel 7, but agreed to sell KCAL before an investigation was completed by the Justice Department into whether such dual ownership would reduce competition in programming and distribution or raise advertising rates. Very high frequency stations have stronger broadcast signals than UHF stations.

“Disney’s commitment to sell KCAL-TV ensures that the deal will not harm competition in the sale of advertising in Los Angeles and makes further action by the division unnecessary at this time,” said Anne K. Bingaman, assistant attorney general in charge of antitrust.

The department decided that the combination of the two media giants would not pose antitrust problems in video programming, production and distribution.

Many public interest advocates have said Disney’s acquisition of Captial Cities was less troubling than some media mergers, but some wanted greater scrutiny.

“I am dismayed that Justice did not look more closely at this deal,” said Jeff Chester, executive director of the Center for Media Education, a Washington-based public interest group. “What Justice did is rubber stamp the creation of a media conglomerate that will control more of the information and entertainment that we receive.”

Disney has agreed to find a buyer for KCAL within nine months of the closing of the Capital Cities purchase and to close a sale within a year. It has hired Bear Stearns to find a buyer for the station, which has focused on news and sports broadcasts, and has rights to Los Angeles Lakers, California Angels and half the Mighty Ducks games. Disney owns the Mighty Ducks hockey team and has agreed to buy a stake in the Angels.

Industry sources predicted that Disney would receive about 10 times cash flow, which sources estimate at $20 million a year, unless there is a bidding war. Disney paid in full for the station because it originally hoped to pair it with WOR in New York.

Of the large station groups, Viacom’s Paramount Station Group is perhaps the most logical candidate to purchase KCAL, according to some industry executives. Located at the corner of Paramount’s lot on Melrose Avenue, KCAL could become the flagship and a testing ground for syndication fare for a station group concentrated mainly in mid-sized markets. But Paramount is affiliated with KCOP-TV Channel 13, a station owned by Chris-Craft Industries.

ITT Corp., which recently paid a record price for a UHF station in New York as an outlet for its two sports teams, said that having a Los Angeles station was not necessary for its plan of building a national sports-and-news network.

Sources said KCAL could help Telemundo in its battle against the leading Spanish-language station owned by Univision. But they noted that Disney’s insistence that the new owner air Ducks and Angels games could be a deterrent. Those sports contracts could affect the sale price.

Barry Diller could use KCAL as the linchpin for his plan to build a television network using his Silver King Communications, a group of UHF stations.