Indecent Proposal

Whatever your position on the controversy over indecency in broadcast television and radio, be advised: Legislation recently passed by the House of Representatives and under consideration in the Senate could radically reshape these businesses.

Before you accuse me of hyperbole, consider some of the bill's possible provisions: Fines for indecency could go up to $500,000 per violation, broadcasters could lose licenses for repeated violations, and the definition of inappropriate programming might be expanded to include excessive violence.

Already, at least one company has changed its programming to avoid the Federal Communications Commission's wrath. As Rick Munarriz noted, Clear Channel Communications (NYSE: CCU  ) abruptly removed radio personalities Howard Stern and Bubba the Love Sponge from its stations as congressional hearings on indecency went into full swing. The FCC had fined Clear Channel for Bubba the Love Sponge's antics, but Stern hasn't been penalized in years, so the company evidently removed him as a preemptive action. With steeper fines and tougher regulatory action on the horizon, it seems reasonable that other broadcasters will alter programming.

In the near term, Viacom (NYSE: VIA  ) will likely take a hit if the new legislation passes. The media conglomerate probably won't be able to keep Stern on the air, and his departure alone could negatively affect revenues. But it's not just "shock" radio that could be affected. The Parents' Television Council, which lobbies for less sex and violence on TV, claims that objectionable content is prevalent on News Corp.'s (NYSE: NWS  ) Fox Network, Viacom's CBS and UPN, General Electric's (NYSE: GE  ) NBC, Disney's (NYSE: DIS  ) ABC, and Time Warner's (NYSE: TWX  ) WB. All of these outlets may revamp content to avoid tangling with the FCC.

Clearly, though, millions of consumers like "edgier" programming, and this audience will migrate to mediums that can, and likely will, provide such content, namely cable TV and satellite radio. NBC, ABC, CBS, UPN, WB, FOX, PAX, and regular radio are "broadcast stations" transmitted over the airways, which are technically owned by "the people." As a result, the FCC has a lot of power to regulate these stations. The FCC's regulation of cable and satellite channels is much more limited. The legislation before Congress concerns only broadcast stations, not cable channels.

And where ears and eyeballs go, so goes advertising and/or subscription money. Stern's possible jump to Sirius Satellite Radio (Nasdaq: SIRI  ) or XM Satellite Radio (Nasdaq: XMSR  ) may yet transform radio.

Media companies with TV interests could follow an analogous course by pushing racier shows to cable. Right now, Time Warner -- with TNT, TBS, HBO, and Cinemax -- looks best positioned for such a move, followed by Viacom, with Spike TV, Comedy Central, Showtime, and The Movie Channel. Disney and Fox's properties, meanwhile, tend to feature specialized content, such as sports, news, and documentaries, so they are less suited to take on more general programming. Of course, there is nothing stopping them from rebranding channels, other than time and expense.

Cable viewership has been growing for years, so much so that basic cable beat broadcast networks in ratings during November prime-time sweeps last year. The indecency legislation may accelerate this trend, and companies with the right destinations stand to win in the long run. In the end, though, the impact of the new legislation is far from certain, so the best advice for now may be to stay tuned.

Fool contributor Brian Gorman is a freelance writer in Chicago, Ill. He does not own shares of any companies mentioned in this article.