Subject: [NEXTEL-1] How did companies like Clear Channel come to dominate radio markets? Blame FCC inaction

From: [email-masked]
Date: Sun, 05 Oct 2003 06:15:28 -0400

FCC Dawdled as Radio Grew

How did companies like Clear Channel come to dominate radio markets? Blame FCC
inaction

By John Dunbar

WASHINGTON, October 1, 2003 — The Federal Communications Commission knew as far
back as 1998 that the way it
measured radio markets was deeply flawed and could lead to the creation of
behemoths like Clear Channel Communications,
but failed to act in the face of industry pressure and bureaucratic inertia.

The result is a radio industry where Clear Channel and other radio broadcast
companies own far more radio stations in
individual markets across the United States than was intended by Congress, despite
years of warnings by the FCC's own staff.
The FCC finally passed rules on June 2, 2003, meant to fix the problem, but only
after well-publicized concerns that
broadcasters wield near-monopoly power in certain markets that endangers free
speech and public safety. What's more, the
new rules contain large concessions to industry and face a challenge in Congress.

Radio has been dubbed the "canary in the coal mine" by critics of the FCC's June 2
decision to loosen ownership rules in other
forms of media and has become a poster child for what can go wrong when rules
restricting media ownership are removed.

The limits

Under federal law, there's a limit to how many stations a radio broadcast company
may own in a single market, based on a
sliding scale. In the largest cities, with markets of 45 or more stations, one
company may own eight stations. On the opposite
end of the scale, in a market with 14 or fewer stations, one company may own no
more than five stations.

But those limits have been far exceeded in dozens of cities across the United
States, according to a new Center for Public
Integrity study (Please see "Big Radio Rules in Small Markets") and other sources.
Although these might appear to be
violations, broadcasters have broken no law because the system used by the FCC to
define radio markets allows companies to
own a lot more stations than Congress may have intended.

Prior to 1996, a national cap on ownership prevented consolidation within the
radio industry. The Telecommunications Act of
1996, a far-reaching rewrite of communications law touching on everything from
local telephone competition to the V-chip,
changed all that.

Included in the sweeping act was a little-publicized measure intended to aid the
floundering radio industry. At the time, a single
broadcast company was allowed to own no more than 40 stations nationwide.

The act loosened restrictions at the local level and eliminated the national
ownership cap altogether. The law led to a frenzy of
acquisitions in radio and steadily escalating mergers between competitors.

When the law was enacted, there were approximately 5,100 owners of commercial
radio stations nationwide. By November
2001, the number had fallen to 3,800 owners, according to the FCC.

During the acquisition and merger boom, the FCC relied on something called the
"contour method" to determine the size of radio markets. The commission determines
the size of the market by looking at "mutually overlapping" radio signal contours.
The method is extraordinarily complex, and few outside the FCC, media law firms
and the radio industry actually understand it.
In a nutshell, the contour method, in some cases, vastly overstates the size of a
market, thus allowing broadcasters to own more stations than the counting method
would seem to allow. Pine Bluff, Ark., population 83,000, was cited by the FCC as
an example of the problem. Pine Bluff has 11 area radio stations, meaning the
maximum number a company can own is five. At the same time, however, the contour
method understates some companies' ownership because it splits the town into three
separate markets. This allowed a single company to own more than five stations,
yet stay within the rules because they were in separate markets.

The most notorious example is Minot, N.D., where Clear Channel owns six of the
city's eight stations. The company was sharply criticized when the lightly staffed
stations failed to answer the phones from emergency workers during an ammonia leak
and warn the public.

The incident became a rallying cry for anti-consolidation activists and placed
U.S. Sen. Byron Dorgan, a Democrat from North Dakota, squarely in the middle of
the debate. Dorgan is a member of the Senate Commerce, Science and Transportation
Committee which oversees the radio industry and has spoken out against Clear
Channel's domination in his home state.
"I think these issues, including the anhydrous ammonia accident, ought to persuade
us to be very concerned about absentee ownership (and) concentration of
ownership," Dorgan told National Public Radio's "On the Media." "The public
airwaves are extraordinarily valuable and we have licensed them to be used by
companies, and over time the usage has changed very substantially. I think the
public is not getting the kind of benefit from it that they used to get."

Problems well known

It was no secret at the FCC that the system for measuring markets was a
bad one. In August 1998, former commissioners Gloria Tristani and Susan
Ness said so in a joint statement. They warned it would be "entirely possible that
one entity could own all of the radio stations
that serve a particular community" under the rules.

Ness says that trying to get the system changed was like "hitting up against a
brick wall."
"Everyone in the market knows how many stations are really in the market, and
everyone knew the FCC's definition was a
joke," she told the Center. "It was totally absurd to have the definition remain
intact."
At the time Tristani and Ness issued their statement, consolidation in the radio
industry was under way, but it had far from
peaked. In October 1998, Broadcasting & Cable magazine reported in its annual
survey of the radio industry that Clear
Channel owned 453 stations at the time. Today, the company owns about 1,200
stations.
The concerns about the contour method extended to FCC staff and beyond.

The 1998 biennial review of broadcast ownership rules (which the FCC didn't
publish until May 2000) warned that the radio
market method was "illogical and contrary to Congress's intent" and was liable to
produce "unintended results."
An FCC "notice of proposed rulemaking" published in December 2000 echoed that
assessment: "Our methodology sometimes
leads to results that are completely at odds with commercial market definitions
and economic reality."
What's worse, the report noted, it created a loophole station owners could take
advantage of to buy more stations than the law
intended. "Our methodology may encourage applicants to structure transactions to
fragment what are commercially considered
single markets into a number of smaller markets," the report reads.

Radio industry resistance

Despite the strong indictment of the market definition method, there was still no
official vote to change the rules.
Former commissioner Ness says that no action was taken because of comments filed
by the radio industry on the proposed
rule change. "The only people who commented were the people whose ox was going to
be gored," she said.
Nearly a year later, on Nov. 8, 2001, the FCC issued yet another notice of
proposed rules which contained many of the same
criticisms, but was also not acted upon.

The FCC finally voted to change the rules last June 2 to reflect a new market
system based on Arbitron boundaries, which just
about every radio station in the country relies on for basic day-to-day
operations, like setting advertising rates. Arbitron is to
radio what Nielsen is to television.

Despite Arbitron's wide use and acceptance in the industry, the radio lobby
opposes the change.
In a May 29, 2003 letter to FCC Chairman Michael Powell, National Association of
Broadcasters Senior Vice President and
General Counsel Jack Goodman argued that the adoption of an Arbitron-based system
"would result in far more anomalies and
unpredictable or unjustified results than the current contour based system."

Goodman contended that many of the arbitrary results are "the result of
manipulation of Metro borders by Arbitron
subscribers"—a surprising argument to make considering that the radio broadcasters
who make up a substantial portion of
NAB's membership are also Arbitron subscribers.

The NAB has sued over the change.

"We think it's unfair and there's no justification to change the market definition
from a contour to Arbitron based definition," said
NAB spokesman Dennis Wharton. "These are radio companies who have played by the
rules set by Congress and the FCC
for years, and it's akin to changing the goalposts in the middle of the game."

When the FCC finally voted on June 2 to accept Arbitron as the new method for
defining markets, it contained the harshest
language yet regarding the contour method, saying it created a "perverse
incentive" for broadcasters to skirt the rules to get
bigger and bigger.

Clear Channel played up the decision as if it were a major blow to its interest.
In truth, two major concessions from the
commission might just help the company further consolidate its standing as the
industry's dominant player.
That's because, first, the FCC is allowing Clear Channel to keep all its stations
rather than force it to sell off stations to reach
compliance once the markets are redefined. As a result, Clear Channel will have a
federally sanctioned competitive advantage
in markets where it does business, without having to worry about competitors
building radio clusters of the same size and
scope.

Second, the new rules include non-commercial stations in the market counts,
greatly expanding the size of each market universe
and raising the limit on how many stations a company can own.
(Clear Channel failed to return several calls seeking comment for this report.)

But the industry may experience some rough times ahead.

Since the June 2 vote, there has been a tremendous backlash against further
consolidation in the broadcast industry in general
and against radio in particular.

Senate Commerce, Science and Transportation Committee Chairman John McCain has
submitted a proposal that would
remove the grandfather clause and force Clear Channel and others to sell off
non-complying stations.
His amendment, in addition to a number of others that seek to throw out much of
the FCC's June 2 decision, will be debated in
the coming months.

http://www.openairwaves.org/telecom/report.aspx?aid=64

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