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Radio is not what it used to be. A brief and obscure regulatory provision tucked into the Telecommunications Act of 1996 – Congress’s comprehensive rewriting of telephone and cable regulations – eliminated or relaxed the previous limits on radio-station ownership. As a result, ownership of radio stations consolidated intensively over the next five years with some ownership groups acquiring dozens, if not hundreds, of radio stations across the country. The unprecedented creation of large radio conglomerates represents a fundamental transformation of the radio landscape.
With speed exceeding Wal-Mart’s ascent to retail dominance,[1] Clear Channel and, to a lesser extent, Viacom/Infinity/CBS Radio gained unprecedented market shares both nationally and locally. But Clear Channel’s rise presents greater problems than Wal-Mart’s. Radio is not about shelf space but about the public airwaves, one of the only free and ubiquitous media through which the public can access culture and information. And Clear Channel’s gains in market share came through a regulatory experiment in which Congress allowed more mergers and acquisitions than ever before. These changes have shown cause for alarm.
In 2002, the Future of Music Coalition published a study that examined radio consolidation and its effects on the public and the music community.[2] We compared radio to a public park, threatened by privatization and over-commercialization. And we raised concerns about how consolidation had led to homogenized programming, facilitated a new form of payola,[3] and presented musicians with fewer opportunities to get on the air.
Our 2002 study was submitted to the Federal Communications Commission (FCC) as part of its biennial review of its media ownership rules. Many citizens and public-interest groups from a variety of political perspectives participated in the proceeding, leading to a record-breaking number of comments filed at the FCC, most in opposition to further media consolidation. Despite strong evidence and negative public opinion, the FCC did move ahead with recommendations to loosen ownership regulations on radio, TV and newspapers. It wasn’t until a win by media reform advocates in Prometheus v. FCC at the Third Circuit Court of Appeals that the FCC was prevented from further relaxing the radio ownership limits that remained after the Telecommunications Act of 1996. In 2006, the FCC launched another review of its media ownership rules. With this new study we hope to contribute an updated and greatly expanded perspective on the recent history of radio consolidation.
Contents and Purposes of This Study
This study contains three chapters, each of which is divided into several subsections. Chapter 1 takes the most expansive look at the national radio industry. It surveys a thirty-year history, tracing ownership consolidation from 1975 to 2005. Chapter 2 focuses on local radio markets and the extreme consolidation they have experienced since the Telecommunications Act of 1996. Chapter 3 examines radio programming, and how consolidation appears to have affected the radio formats, individual songs, and the volume of syndicated network content carried on the air.
We will submit this study to the FCC in its 2006 review of media ownership rules. We believe this research will cause policy makers to question the benefits of consolidation as they decide whether to further relax radio station ownership regulations. In fact, the data contained in this report should urge the FCC to re-institute certain regulations or develop new regulations to address the loss of competition, diversity, and localism in radio. We also hope that this new, comprehensive, and unprecedented history of radio consolidation can inform current and future policy debates about the information industries.
The listening public deserves an explanation of how the radio industry has changed over the past decade. Working people—from musicians to DJs to local advertisers—need to understand how the media environment has changed, often for the worse. Although our data analysis has been robust, we have tried to make the results contained in this report clear and easy to understand. We provided graphs and figures wherever appropriate, documented our sources diligently and displayed reproducible results.
The Value of Radio
With the onset of internet radio, satellite radio, podcasting, and portable digital music devices (including cell phones) over the past decade or so, some observers mistakenly consider traditional, terrestrial radio to be of waning importance. Traditional radio companies have actually begun making the transition to digital broadcasting, sometimes called “HD Radio,” but this transition has happened slowly and the results remain uncertain. But digital or not, radio remains one of our most valuable media. No new technology has the penetration that radio has. Approximately 94 percent of Americans listen to radio each week.[4] Compare that to the 42 percent of US households that had high-speed internet access as of March 2006.[5]
Radio remains important and vital in many ways. The kinds of audio content offered by traditional radio—DJed sequences of songs, live concerts, news and talk shows, education and how-to guides—remain incredibly popular. Advertisers still buy radio time. Musicians still seek radio play to further their careers. Emergency authorities still rely on radio during disasters like hurricanes, fires, and chemical spills.[6] Noncommercial radio has become increasingly vital, with National Public Radio (NPR) doubling its listenership in the past five years.[7] Even the vast majority of early adopters of new audio technologies expect to maintain their current habits of listening to traditional radio.[8]
Although new audio technologies present exciting opportunities for consumers and musicians, they do not predict the demise of traditional radio. For example, satellite radio can program in more granular musical genres, but cannot build local connections between musicians and communities like traditional radio does. Webcasts might have a local focus, but they lack the audience of traditional radio and cannot transmit to your car. Podcasts provide a portable means to hear music, news, or other audio programs in your car or anywhere else. But licensing copyrighted music for podcasts presents a significant hurdle.[9]
Of course, solutions to the problems with and limitations of these new technologies are possible. Podcast licensing could advance more quickly, for instance, or technology to put webcasts into cars could arise. Such developments would benefit the public. But they would not necessarily threaten the value of radio. Media technologies need not replace each other, but can instead complement each other. The addition of satellite, webcasting, and podcasting makes the music marketplace more open and competitive. These new technologies have helped musicians and individual listeners route around the bottlenecks that consolidation has caused in traditional media like radio. The ultimate effect of new technologies on radio depends on radio companies’ responses to these business challenges—and on policies that facilitate the best outcome possible for the public.
Bigger Is Definitely Not Better
So far the responses of policy makers and radio companies have fallen far short of ideal. Congress’s response to new technologies’ development was to eliminate or relax ownership limits to allow radio companies to consolidate. Radio companies’ response was to acquire lots of stations as quickly as possible. Clear Channel multiplied its station holdings by a factor of 30, going from 40 stations to 1,200 stations within five years of the Telecom Act.[10] In addition to its radio holdings, Clear Channel amassed television stations, billboards, concert promotion, and concert venue properties.
We wrote in our 2002 study that Clear Channel’s “bigger is better” strategy was misguided and expressed doubts about the supposed “synergies” they sought.[11] As it turned out, Clear Channel’s strategy had both dubious legality[12] and dubious profitability. By the spring of 2005, the company had abandoned its attempt to use its holdings across several media for leverage, breaking the company into three parts: radio/television, concerts, and billboards.[13] In November 2006, on the heels of a six-year decline in the company’s stock price,[14] a group of private equity investors purchased Clear Channel’s assets.[15] At the same time, Clear Channel announced that it would sell off 448 of its radio stations in markets outside the top 100 ranked by size, as well as all 42 of its television stations.[16]
Serious policy concerns remain despite the Clear Channel buyout. Thomas H. Lee Partners is one the two leading private equity firms in the purchase, along with Bain Capital. It also has holdings in two other large radio companies, Univision and Cumulus Media Partners, which it might have to relinquish. For example, Thomas H. Lee Partners’ three radio properties would own a combined 17 stations in the Houston-Galveston market, well beyond the current cap of 8 stations per owner. The FCC should retain its current rule for attributing ownership interest, which sets a 5 percent threshold for what counts as “ownership” when enforcing the ownership caps.[17] Otherwise, the current trend of taking media companies private will open another loophole in the media ownership rules.
Some observers have gone so far as to claim that the Clear Channel sell-off of 448 stations alleviates concerns about concentration in the radio industry.[18] No facts support such a claim. Even after the sell-off, Clear Channel will retain its dominant position, with over 700 stations in 88 markets out of the top 100 ranked by size. Those stations represent 88 percent of Clear Channel’s listenership and 86 percent of its revenue—leaving its market share mostly intact and well ahead of the second-largest firm.[19] Moreover, Clear Channel’s new private-equity owners could retain an option to buy back their holdings in Univision (with 73 stations) and Cumulus Media Partners (with 37 stations).[20] Either way, Clear Channel will retain ample size to pose a threat to competition in the markets where they will remain.
The research in this study will show how much damage has already occurred with respect to the FCC’s policy goals of competition, diversity, and localism. Relaxing the local ownership limits further would simply let Clear Channel get bigger—again—when the lesson from the past decade of experience with consolidation suggests doing exactly the opposite. Clear Channel’s size was the root cause of their many problems in radio: the potentially illegal business practices, the loss of localism, the harms to programming diversity, and so on.
More than anything, the Clear Channel buyout shows that policy makers must develop skepticism about the public benefits of such unproven—and ultimately, in this case, illusive—economies of scale.[21] The public has been harmed by both the formation of Clear Channel as a radio giant and the policy that allowed it to form. We cannot predict the future. Perhaps the 448 sold-off stations will go to local, independent, and minority owners who will revitalize radio. But it would take far more than 448 new or newly independent stations to restore local ownership to what it was.[22] And Clear Channel’s business practices—most importantly, its modern version of payola—may have damaged the health of the radio bandwidth. Listenership is down. We can only speculate—though we are not alone in our speculation—that listenership has declined because of the damage to diversity and localism from Clear Channel’s rise. Policy makers must not repeat their mistake, which flowed from the false premise that bigger is better. Not so for radio companies.
Lessons from Radio for the Internet
In a rapidly changing media environment, it becomes all the more important to learn lessons from the experience of established industries like radio. Brand new industries are harder to measure, understand, and evaluate. But data are available to measure the radio industry in various ways, however imperfect those data might be. In fact, the “experiment” Congress created, by allowing intensive consolidation in the radio industry, allows us to study consolidation in an information industry. Historical data on the radio industry give us a way to see what happens when ownership of the platform and the content in an information industry becomes concentrated in relatively few companies’ hands. While these similarities are not a perfect correspondence, they are useful given the lack of comprehensive, standardized data about the emerging marketplace.
Studying radio consolidation provides lessons beyond just radio. We can extrapolate from radio’s experience to suggest what could happen if a few owners of the internet’s infrastructure gain effective control over the entire internet platform—the subject of the current debate over network neutrality.[23] In the mid-1990s, it was the radio industry that convinced Congress and the FCC of the need for a set of regulations that would allow them to buy more stations, both locally and nationally. The rationale presented at the time was that the radio industry needed to take advantage of economies of scale in order to survive in a crowded media marketplace. If new regulations passed, the radio industry promised to deliver more and better programming to serve the public.
However, the Telecom Act had a radically different outcome. As articulated in the next three chapters, the Act led to massive industry consolidation, a loss of localism, and a lack of programming diversity. Even more compelling, the Telecom Act, in conjunction with the FCC’s own application of market definitions, served to protect incumbents and reduce economic competition—all at the expense of small businesses and the public.
A similar scenario has developed around the issue of network neutrality. Powerful telecommunications and cable corporations are telling Congress and the FCC that they need to be able to charge content providers for the use of their networks. Once again industry incumbents are asking policymakers for regulations and legislation that secures greater compensation for them at the expense of small businesses and the public. In this way, radio remains the canary in the coalmine.[24] Its experience with extreme consolidation can suggest paths we should avoid with internet and wireless technology.
Information industries like radio are vital to our culture, our democracy, and our economy. Together the information industries (software, telecommunications, television, movies, and so on) have grown to about 5 percent of total U.S. gross domestic product, nearly doubling in share since World War II,[25] and are among the few U.S. industries to enjoy a positive trade balance. Research about how information companies and information industries behave, like the research contained in this report, is therefore highly valuable. Even in a time of new technologies, studying radio remains essential.
Industry Research and Access to Data
Over the past two decades, radio companies have sought “regulatory relief” in the face of allegedly declining business prospects. In addition to—or, in some cases, instead of—developing new radio programming and other new services for listeners, radio companies have asked Congress to change the rules in ways that benefit them as incumbents. That is, one benefit for radio companies of gaining unprecedented size was dominance over any potential new entrants to the radio industry. Larger companies can hold more sway over advertising customers as well as suppliers of programming, such as musicians.
Federal administrative law requires that research back up any FCC decisions about adopting, modifying, or changing rules that affect incumbent radio companies. The FCC itself maintains a research staff to perform some research from an ostensibly neutral perspective. But the radio industry submits dozens of research reports each time the FCC has a proceeding to advocate for their perspective.
There are endemic problems to much of the research involved in this process. Both the FCC’s and the industry’s research are based on the same data, which are collected by and belong to the industry. Only variables that the industry sees fit to measure get measured. Only questions that the industry sees fit to ask get asked—unless public-interest groups fill the gap. To conduct our research, we have to purchase proprietary data sets from the industry, often the same data sets used by the FCC itself. With careful critical analysis, we make the most of these flawed, incomplete, and expensive data. But throughout this report we will emphasize the importance of disinterested research to the FCC’s policy-making process and the need for enhanced collection of and access to radio data.
Summary
The public park that is our radio airwaves remains endangered by consolidated control. We hope to save the park for the public’s enjoyment by telling its story and by suggesting how we can properly maintain its value. Radio—still a miraculous, inexpensive, ubiquitous, and valued technology—is worth saving.
If measured by the three long-standing goals of competition, localism, and diversity, the experiment with radio consolidation launched by the Telecommunications Act of 1996 was a policy failure. Chapter 1 shows the loss of competition in radio nationwide. Chapter 2 documents the accompanying loss of local ownership over the last decade. Chapter 3 highlights the lack of diversity on commercial radio and from large station groups.
If there is a silver lining to this cloud of failed oversight, it will be the lasting lessons that are already being applied in the debate over network neutrality and structural decisions about the internet marketplace. Radio’s story has played a major role in spawning the movement against media consolidation. And concerns about access to the data used in the FCC’s decision-making process have clarified the need for more substantial and transparent information to monitor media industries. Never again should these decisions be made in the dark. With this study we aim to shed some light.
We start with the history of radio consolidation from a nationwide perspective.
Read Executive Summary
Read Conclusion and Policy Recommendations
Download Full Report [6.2 meg PDF]
Download Appendices [1.1 meg PDF]
Read Press Release
Footnotes
1. Wal-Mart’s national retail market share rose from 9 percent in 1987 to 27 percent in 1995, comparable to Clear Channel’s rise from 2 percent national radio-revenue market share in 1995 to 28 percent by 2001. See Federal Reserve Bank of Atlanta, “The Race for Retail Market Share in the Southeast,” 2002 Econ South q. 2, at http://www.frbatlanta.org/invoke.cfm?objectid=D3F86AD9-E129-43A7-93E52B3590A62543&method=display (last visited November 28, 2006).
2. Peter DiCola and Kristin Thomson, Radio Deregulation: Has It Served Citizens and Musicians? (2002), at http://www.futureofmusic.org/research/radiostudy.cfm (last visited November 28, 2006).
3. See, for example, Office of New York State Attorney General, “CBS Radio Settles Payola Allegations,” (Oct. 19, 2006), at http://www.oag.state.ny.us/press/2006/oct/oct19a_06.html (last visited November 30, 2006).
4. The Arbitron Company, “Radio Today: How American Listens to Radio, 2006 Edition,” athttp://www.arbitron.com/national_radio/home.htm (last visited November 30, 2006).
5. John Horrigan, “Home Broadband Adoption 2006,” available at http://www.pewinternet.org/PPF/r/184/report_display.asp (last visited November 30, 2006).
6. See Eric Klinenberg, Fighting for Air: The Battle to Control America’s Media (forthcoming 2007).
7. Jacques Steinberg, “Money Changes Everything,” New York Times, March 19, 2006, Sec. 2, p. 1.
8. Arbitron & Edison Media Research, “The Infinite Dial: Radio’s Digital Platforms,” p. 13, available at http://www.arbitron.com/downloads/digital_radio_study.pdf (last visited August 27, 2006).
9. See, for example, Michelle Kessler, “Storm Clouds Gather Over Podcasting,” USA Today, August 3, 2005, available at http://www.usatoday.com/money/media/2005-08-03-podcasting-usat_x.htm (last visited December 1, 2006).
10. Source data: Media Access Pro (Radio Version), BIA Financial Networks, November 2005 data.
11. DiCola and Thomson, Radio Deregulation, pp. 30-31.
12. Allegations against Clear Channel include payola, antitrust tying, fraud, racketeering, and theft of public funds. See Chapter 1 of this study and the sources cited therein.
13.Press Release, “Clear Channel Communications Announces Planned Strategic Realignment of Businesses to Enhance Shareholder Value,” April 29, 2005, available at http://www.clearchannel.com/Corporate/PressRelease.aspx?PressReleaseID=1438 (last visited December 2, 2006).
14. We refer here to the broad downward trend that is easily visible from a simple stock chart, not to temporary ups and downs of the stock. See, for example, the “1-decade” chart for stock symbol CCU at http://www.investorguide.com (last visited December 2, 2006).
15. Angela Moore, “Clear Channel Agrees to $18.7 Billion Buyout,” Marketwatch.com, Nov. 27, 2006 (corrected version).
16. Press Release, “Clear Channel Announces Plan to Sell Radio Stations Outside the Top 100 Markets and Entire Television Station Group,” November 16, 2006, available at http://www.clearchannel.com/Corporate/PressRelease.aspx?PressReleaseID=1825 (last visited December 2, 2006).
17. See 47 C.F.R. § 73.3555 n. 2 (2004). Investment companies, as defined in 15 U.S.C. § 80a-3, can own up to 20 percent of a station before the FCC will deem them to have a “cognizable interest.”
18. “[N]ow that Clear Channel is splitting the company and most likely selling the 448 stations designated for divestiture to numerous buyers, industry observers believe consolidation opponents will be appeased enough to let the big-market deregulation the company is seeking slide by.” Ron Orol, “Clear Channel Needs FCC Help,” Deal.com, November 21, 2006 (subscription required; copy on file with the author).
19. Source data: Media Access Pro (Radio Version), BIA Financial Networks, November 2005 data.
20. Orol, “FCC Help.”
21. “Economies of scale” refers to the economic situation in which a larger firm can produce goods or services more efficiently (up to a point, at least) than a smaller firm. The opposite situation of “diseconomies of scale,” in which larger firms produces goods or services less efficiently, is equally possible both in theory and in real-world practice.
22. See Chapter 2 of this study, in particular the section entitled “The Local Ownership Index.”
23. See, for example, CNet articles at http://news.com.com/Net+neutrality+showdown/2009-1028_3-6055133.html (last visited November 28, 2006).
24. FCC Commissioner Michael Copps has also used this metaphor. See Jonathan Lawson, “Fixing Radio,” Reclaim the Media, February 28, 2005, at http://reclaimthemedia.org/radio/fixing_radio (last visited December 7, 2006).
25. Only the financial sector has grown faster than the information sector of the U.S. economy. See Bureau of Economic Analysis, “Gross-Domestic-Product-by-Industry Accounts, 1947-2005,” at http://bea.gov/bea/industry/gpotables/gpo_list.cfm?anon=645 (last visited November 28, 2006).
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