Will private equity go under the microscope?


On the whole, it was a typical, uneventful January FCC Open Meeting yesterday (1/17/08). The first annual edition of these montly events generally serves as a review of the preceding year (as in other years, we learned that much was accomplished due to the hard work of dedicated staff). But it did feature some navel gazing on the topic of broadcast finance which may be worth a look.

Private equity funding has always been available to broadcast companies, and participation on Wall Street has often been the exception rather than the rule. But that is not stopping FCC Commissioner Michael Copps (D) from wondering about their fitness of private equity funds as a steward of our national airwaves. Will this become an issue if a Democratic administration takes over Washington next year?

In comments after one collection of execs held forth, Copps noted the sudden spate of private equity deals being waved through the Commission. Are they good or bad, he wondered, and said the problem is that we just don’t know. He then cited the Great Depression which began in 1929, saying it was a result of corporate excess combined with a lack of accountability and oversight, and worried that we may again be heading down that path. He said we should be making a better effort to understand these things, and expressed his hope that such studies would be undertaken in 2008.

RBR/TVBR observation: If not 2008, why not 2009? If Copps, Adelstein or another like-minded Democrat takes over the FCC’s center chair, they could certainly kick off such a project. However, we would point out two things which we hope will ease Copps’ mind at least a little.

First, at a time when broadcast companies are having difficulty posting healthy revenue results, it is a good thing for people with cash to come in and put some capital into the business in order to better serve the public.
Second, since the "hardware" of a broadcast company — the broadcast station — is licensed by the government, any and all transactions are available for regulator scrutiny. Say for example that XXX Broadcasting tries to sell a group of stations to a loosely-independent company like ZZZ Broadcasting, a sham corporation which is in fact traceable back to XXX, in order to put false profit on the books and jack up the stock price. Such a move would be spotted instantly by the very FCC Copps works for as currently structured. Corporate malfeasance is much more difficult to pull off for companies public or private that operate in a government-licensed arena.