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By Christopher Stern
Washington Post Staff Writer
Tuesday, August 15, 2000; Page E01

Once again, News Corp. chief executive Rupert Murdoch has shaken up the broadcasting industry, this time with the $5.35 billion purchase of Chris-Craft Industries Inc., which owns television stations in some of the nation's largest markets, including New York, Los Angeles and San Francisco.

Under the agreement announced yesterday in New York, News Corp. would acquire 10 stations owned by Chris-Craft subsidiaries BHC Communications and United Television, giving it a presence in almost every one of the top 20 television markets.

The deal is expected to ripple through the entire media industry because it could bring about the demise of the UPN broadcast network and trigger the sale of Murdoch's New York Post. The announcement sent Chris-Craft's stock soaring more than 27 percent yesterday to close at $79.

The addition of Chris-Craft's stations would give News Corp.'s Fox Television Stations Inc. two TV outlets in New York, Los Angeles, Phoenix and Salt Lake City. But to comply with Federal Communications Commission rules, News Corp. may have to spin off some of its broadcast properties and reshuffle others.

The deal may also have a direct impact on Viacom Inc.'s UPN network. Until Friday morning, it was widely expected that Viacom, the owner of CBS, was going to be the new owner of Chris-Craft. One source said Chris-Craft and Viacom were trading final documents to be signed when Viacom President Mel Karmazin was informed that another company had entered the picture with a higher bid. Karmazin refused to match the $85 per share offered by News Corp., having already determined that Viacom would pay no more than $80 a share.

Viacom desperately wanted Chris-Craft's stations, eight of which are UPN affiliates, to bolster the UPN network. In fact, Chris-Craft had owned 50 percent of UPN until April, when it sold its share to Viacom for $5 million. Chris-Craft sold its stake in UPN after several years of losses. One analyst estimated that UPN cost Chris-Craft as much as $300 million over the years.

Sources at Viacom confirmed that as UPN faces continued losses, it is beginning to rethink the future of the network. The network targets urban markets with shows such as "Dilbert," "Moesha" and "WWF Smackdown," a very popular professional wrestling program.

News Corp. officials said they are indifferent about the future of UPN. Of more immediate concern is how to comply with FCC ownership rules. The Chris-Craft purchase could present Murdoch with tough choices. The FCC rules ban the ownership of a TV station and a newspaper in the same market, although in 1993, Murdoch won a waiver to own both the New York Post and a local TV station.

News Corp.'s president and chief operating officer, Peter Chernin, insisted yesterday that the addition of another station to News Corp.'s New York holdings should not force the sale of the New York Post.

"We were granted a waiver. We don't expect that this will change things," said Chernin.

FCC officials refused to comment on the deal, but it is not clear whether the waiver would be extended to a second station. If News Corp. is forced to sell one of these properties, analysts predict the New York Post will be put on the auction block.

"The Post would go in a heartbeat," said Edward Hatch, an analyst at SG Cowen Securities.

Profits from the New York Post would be dwarfed by the ability to generate revenue from two television stations in the nation's largest market, Hatch said.

Under current FCC rules, News Corp. would also be forced to sell or trade one of its stations in the Salt Lake City market. Although the FCC now allows one company to own two TV stations in the same market, one company may not own two of the four top-rated stations. The rule effectively blocks News Corp. from owning both Chris-Craft's ABC affiliate in Salt Lake City and the Fox station it already owns.

In addition, News Corp. may find it has to spin off properties to comply with an FCC rule that limits one company from owning TV stations that reach more than 35 percent of the national audience. The Chris-Craft deal would give News Corp. a national reach of approximately 41 percent, according to Andrew Butcher, a company spokesman. The sale of two stations could bring Fox Television Stations in compliance with the deal, he said.

But News Corp. is also currently suing the FCC to have the 35 percent national ownership cap thrown out. News Corp. argues that the national audience cap is outdated in an environment in which people have access to hundreds of cable channels and the exponentially expanding Internet. "We think it is an anachronism in the current media landscape," Chernin said.

Andrew Jay Schwartzman, president of the Media Access Project, a watchdog group, said that Murdoch is also looking forward to the presidential election and the possibility that a change in the White House will bring about further deregulation of media ownership rules.

"They are betting on the election," Schwartzman said.