UPDATE 3-Divided US FCC eases media ownership curbs

(Adds Sen. Dorgan reaction, analyst comment, waiver detail, share movement)

By Peter Kaplan

WASHINGTON, Dec 18 (Reuters) - The Federal Communications Commission narrowly approved on Tuesday a loosening of media ownership restrictions in the 20 biggest U.S. cities, despite objections from consumer groups and a threat by some U.S. senators to revoke the action.

The FCC voted 3-2, along party lines, to ease the 32-year-old ban on ownership of a newspaper and broadcast outlet in a single market.

In addition, the FCC action exempted 36 newspaper-broadcast ownership combinations that had been grandfathered under the previous rule. It also gave exemptions to six combinations that were pending before the agency.

The FCC's Republican chairman, Kevin Martin, called the move a "relatively minimal loosening of the ban" that could help bolster ailing newspapers in big cities by spreading local news gathering costs across multiple media platforms.

The vote came over the objections of the FCC's two Democratic commissioners who said easing the ownership rule would lead to more consolidation in the industry, eliminate independent voices and degrade local news coverage.

They also said it created a loophole that would let media owners combine newspapers and broadcast outlets in many smaller markets around the United States, not just the top 20 cities. The S&P publishing index .GSPPUBL gained 1.7 percent.

The FCC action provoked an immediate rebuke from members of Congress. Martin's chief critic in the U.S. Senate, Democratic Sen. Byron Dorgan, of North Dakota, vowed to make good on a threat to pass legislation overturning the changes.

"We're not done with this, not by a long shot," he said.

LEGAL CHALLENGE SEEN

Analysts at Stifel Nicolaus said the rule changes would probably be challenged in court and on Capitol Hill. But opponents in Congress "will likely have to overcome core Republican resistance and a possible presidential veto," they said in a research note.

The chairman of the House Energy and Commerce Committee, Democratic Rep. John Dingell of Michigan, said he was "greatly displeased" that Martin had gone ahead with the vote.

"Despite specific bipartisan and bicameral opposition, the Federal Communications Commission acted arrogantly and brazenly today to weaken the newspaper/broadcast cross-ownership ban," Dingell said in a statement.

Existing FCC rules ban ownership of a newspaper, and a television or radio station in the same market, unless the FCC grants a waiver.

Outside the top 20 markets, companies can now get the cross-ownership ban waived if they convince the FCC the broadcast station or the newspaper is financially "failing," or that the combination would lead to a significant increase in local news coverage.