[Senate Hearing 108-903]
[From the U.S. Government Publishing Office]
S. Hrg. 108-903
MEDIA OWNERSHIP
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JANUARY 30, 2003
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois RON WYDEN, Oregon
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
FRANK LAUTENBERG, New Jersey
Jeanne Bumpus, Republican Staff Director and General Counsel
Robert W. Chamberlin, Republican Chief Counsel
Kevin D. Kayes, Democratic Staff Director and Chief Counsel
Gregg Elias, Democratic General Counsel
C O N T E N T S
----------
Page
Hearing held on January 30, 2003................................. 1
Statement of Senator Brownback................................... 17
Statement of Senator Burns....................................... 12
Prepared statement........................................... 13
Statement of Senator Dorgan...................................... 14
Statement of Senator Ensign...................................... 15
Statement of Senator Hollings.................................... 11
Prepared statement........................................... 11
Statement of Senator Hutchison................................... 70
Statement of Senator Lott........................................ 64
Statement of Senator McCain...................................... 1
Prepared statement........................................... 1
Statement of Senator Smith....................................... 82
Statement of Senator Wyden....................................... 16
Article from The Wall Street Journal, dated February 25,
2002, entitled, From a Distance: A Giant Radio Chain is
Perfecting the Art of Seeming Local........................ 73
Witnesses
Berman, Hon. Howard L., U.S. Representative from California...... 7
Feingold, Hon. Russell D., U.S. Senator from Wisconsin........... 2
Prepared statement........................................... 5
Fritts, Edward O., President and CEO, National Association of
Broadcasters................................................... 24
Prepared statement........................................... 26
Henley, Don, Recording Artists' Coalition........................ 33
Prepared statement........................................... 36
Mays, Lowry L., Chairman and CEO, Clear Channel Communications,
Inc............................................................ 18
Prepared statement........................................... 20
Short, Jr., Robert, President, Short Broadcasting Co., Inc....... 38
Prepared statement........................................... 40
Toomey, Jenny, Executive Director, Future of Music Coalition..... 47
Prepared statement........................................... 49
Prepared statement of Thomas F. Lee, President, American
Federation of Musicians.................................... 56
MEDIA OWNERSHIP
----------
THURSDAY, JANUARY 30, 2003
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 9:36 a.m. in room
SR-253, Russell Senate Office Building, Hon. John McCain,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
The Chairman. I tell the Members of the Committee we are
waiting for three more Members to show up. In the meantime,
perhaps in the interest of time, we could have Senator Feingold
and Congressman Berman begin their opening statements. I may
have to interrupt you. In fact, I hope I have to interrupt you,
but please begin with your opening statement. Welcome Senator
Feingold, Congressman Berman. Please proceed.
[The prepared statement of Senator McCain follows:]
Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
Today, the Committee begins a series of hearings examining media
ownership. Later this year, the Federal Communications Commission will
act on a proceeding that addresses a number of different media
ownership issues. These decisions will have a significant impact on the
American media landscape.
I have always been a firm believer in free market principles. I
continue to believe that anachronistic government regulations that do
not reflect today's multimedia marketplace should be thoroughly
reviewed by the FCC and repealed or modified wherever appropriate.
Given the tremendous impact media can have in the everyday lives and
thinking of Americans, however, we must approach these issues
thoughtfully and it is important that the Committee hold hearings to
better understand them.
Today we will examine media ownership in the radio industry. After
enactment of the Telecommunications Act of 1996, the radio industry saw
unprecedented consolidation. Several station owners began to purchase
stations across the United States and the largest owner, Clear Channel
Communications, has grown from 60 stations in 1996 to over 1,200
stations today. Many critics have voiced their concerns about radio
consolidation and have alleged that some companies have been engaging
in anticompetitive behavior.
For instance, some have claimed that Clear Channel's vertical
integration with its entertainment division has hurt independent
concert promoters and artists. Some artists suggest that their refusal
to use Clear Channel's promotion services has led to their music not
being played on Clear Channel stations. I am concerned about these
allegations and I look forward to hearing from the witnesses on these
specific issues.
Finally, I believe that, wherever possible, we should look to
market-based approaches to ensure there is diversity in media
ownership. Later today, I will re-introduce the ``The
Telecommunications Ownership Diversification Act.'' The bill provides a
tax deferral and other market-based incentives designed to ensure that
our tax laws do not disadvantage small businesses that may be owned by
women and minorities who can help to further viewpoint diversity in
media. I hope that other Members of the Committee will join me on this
important legislation.
STATEMENT OF HON. RUSSELL D. FEINGOLD,
U.S. SENATOR FROM WISCONSIN
Senator Feingold. Thank you very much, Mr. Chairman, for
holding this hearing and my thanks also to the ranking Member,
Senator Hollings, for holding this hearing to examine the
effects of radio station ownership consolidation. I appreciated
the conversations I have had with both of you about this, and
this is a very early time in the session to be able to bring up
this issue, so I am grateful.
I also want to thank Senator Dorgan for his leadership on
this issue. If Congress had heeded Senator Dorgan's warnings
about the effects of consolidation on many of our communities,
perhaps we would not have to be here today.
Before I begin, I would ask, Mr. Chairman, that my full
statement be allowed to be printed in the record.
The Chairman. Without objection.
Senator Feingold. Let me start by saying that like I am
sure all of you, I love radio. It brought baseball play by play
and Bob Dylan songs into my life, along with many other
enriching influences. And I am sure everyone in this room has
his or her own version of that sentence because radio has
always been and continues to be, despite competition from
assorted new technologies, nothing less than the soundtrack of
American life. Whatever our different experiences, we are all
beneficiaries of radio's basic, uncomplicated and utterly vital
principle: radio is a public medium that must serve the public
good.
Over the last year, Mr. Chairman, I have learned that the
rapid consolidation in ownership of the radio and concert
industry has made it difficult for individuals, artists, and
organizations to find outlets to express their creativity and
promote diversity. To be honest with you, Mr. Chairman, I find
that a groundswell of anger is building in Wisconsin and across
the country about these changes. People are actually angry
about this. I know this, of course, because when people are
angry, they tend to call up their Senators.
I received the first contact about this more than a year
ago. Owners of a local concert promotion company said that they
were being pushed out of business by the anticompetitive
practices of a large radio station and promotion company.
Then I heard independently from a local radio station
owner. He said that his station had, without warning and
without compensation, lost syndicated programming, after
investing lots of years and a big chunk of money into building
an audience for that program, to a station across town, a
station recently bought by a large radio station ownership
group.
Both of these small local businesses that I just mentioned
cited the same company, the Clear Channel Corporation.
Now, I first asked the Administration to look into
anticompetitive activities and allegations that Clear Channel
and other companies were trying to evade the already minimal
local ownership limits, and I did not hear back for quite a
while.
I did, however, get an earful from many others, especially
after I spoke to a reporter from the Chicago Tribune. In the
interview, I simply expressed my concerns about these issues. I
also mentioned that I was looking at possible legislation. And
the response to this was overwhelming and fervent. Songwriters,
artists, promoters, managers, consumer groups, religious
organizations, unions, and radio station owners all called or
wrote right away asking, what can I do to support your efforts?
Mr. Chairman, this legislation is not just about
entertainment. More broadly, neither is this issue. I am here
not just because I want to preserve radio as an entertainment.
I am also here because we must preserve radio as a medium for
democracy.
There will likely be a number of conflicting views
expressed about the levels and effects of radio ownership
consolidation during the hearing today. After all, market power
can be measured in a number of different ways. Some may argue
that owning 1,000 stations is only a fraction of the total
number of stations in the United States. While this statement
is true, I think it is important to view any ownership numbers
in recent historical perspective.
When the 1996 Telecom Act became law, there were
approximately 5,100 owners of radio stations. Today, Mr.
Chairman, there are only about 3,800 owners, a reduction of 25
percent.
Minority ownership has also decreased. The number of
African-American owners of radio stations has fallen by 14
percent.
Prior to 1996, one company could not own more than 20 AM
stations and 20 FM stations. Now two companies--two companies,
Mr. Chairman--control 42 percent of the content that reaches
listeners and 45 percent of industry revenue. The concentration
of ownership is perhaps most startling when we look at radio
station ownership in local markets. Four radio station
companies control nearly 80 percent of the New York market.
Three of the same four companies own nearly 60 percent of the
market share in Chicago. In my home State of Wisconsin, four
companies own 86 percent of the market share in our largest
Milwaukee radio market.
At the same time that national and local markets have been
consolidated, I have heard really countless stories of how some
of the large radio station ownership groups also wield
increasing power through their ownership of a growing number of
businesses related to the music industry.
Take Clear Channel as an example. This corporation owns
more than 1,200 radio companies, Mr. Chairman, more than
700,000 billboards and control venues across the United States,
and it also owns the largest concert promotion company in the
United States.
During the last year and a half, I have also heard
countless allegations about actually leveraging this cross-
ownership in an anticompetitive manner. I have heard from small
businesses in Wisconsin, local promoters and local radio
stations who talk about large radio and promotion companies
tying in radio and promotion services to push them out of
business. These local businesses are happy to compete in a free
marketplace, but when a company uses their cross-ownership,
especially using a public medium like radio, in an
anticompetitive manner, it is simply unacceptable.
Some will argue that there are consumer benefits. For
example, they will often say that since 1996, there have been
more formats or types of radio stations in almost every market,
but what they will not tell you is that since many of these
formats are owned by the same out-of-state companies, that they
play the same songs and they share the same news, which
actually reduces consumer choices.
There are other disturbing ways in which the concentration
of ownership is changing what we hear on the radio. Singers,
musicians, and managers have talked with my staff and with me
about some of the new and very daunting challenges they face
when trying to get their songs played on the airwaves. These
people are very concerned that playlists are no longer based on
quality, subjective as that is, but are sold to the highest
bidder instead. They told me how in the past if you could not
get a deejay to play your song in Cleveland, perhaps you could
try in Pittsburgh, and if the song was a hit in Pittsburgh, the
Cleveland deejay would probably hear about it. Now I am told,
Mr. Chairman, that does not happen anymore. It really cannot.
The same companies own the stations in both markets. If they do
not want to play a song, they do not, anywhere. Opportunities
for artists to try their music somewhere else just do not
exist.
I have also been hearing about a new shakedown system. The
large radio stations allegedly require huge payments through
independent promoters before they will put a song on the air.
If you do not have the money to play in this system, you are
shut out. Is this pay-for-play? If it is not, I would like to
know what is.
Consider also how the rise in ticket prices coincided with
the passage of the 1996 Telecom Act. More precisely, consider
that ticket prices went through the roof. Before the act was
passed, ticket prices were increasing at a rate that was
slightly higher than the Consumer Price Index. Since the Act
became law, ticket prices have increased at a rate that is
almost 50 percentage points higher than the Consumer Price
Index.
Mr. Chairman, because of these concerns, I have
reintroduced legislation, the Competition in the Radio and
Concert Industries Act, which would address the levels of
concentration, curb some of the anticompetitive practices, and
end the alleged new payola system. The legislation prohibits
those who own radio stations and concert promotion services or
venues from leveraging their cross-ownership to hinder
competition in the industry. For example, if an owner of a
radio station and a promotion service hinders access to the
airwaves of a rival promoter or artist, then the owner would be
subject to penalties.
My legislation will also help to curb further concentration
that leads to these anticompetitive practices. It would
strengthen the FCC merger review process by requiring the FCC
to scrutinize the mergers of any radio station ownership group
that reaches more than 60 percent of the Nation's listeners.
The legislation would also curb consolidation on the local
level by preventing any upward revision of the limitation on
multiple ownership of radio stations in local markets.
And finally, the bill would also prohibit the alleged new
payola system where the big radio corporations are said to
leverage their market power to require payments from artists in
exchange for playing their songs.
Mr. Chairman, these are not radical notions. All my
legislation says is let us first get a handle on consolidation
and crack down on alleged anticompetitive practices. Second,
let us modernize our payola laws to make sure all forms of
payola are banned.
I hope that a lot of you will join me in cosponsoring this
legislation, but I also hope that this hearing will flesh out
other issues that are leading to many of the concerns that I
have been hearing.
Americans should be able to hear new and different voices,
and those voices deserve a place on the publicly owned
airwaves. Radio is one of the most vibrant mediums we have for
the exchange of ideas and for artistic expression. This public
medium has long served the public good, and we must ensure that
it continues to do so. If we do not act now, Mr. Chairman,
further concentration of the industry will guarantee that the
range of voices we listen for when we turn on the radio, the
voices of democracy that make radio unique will continue to
fade away.
So thank you so much, Mr. Chairman, for holding this
hearing, and I look forward to working with you, the ranking
Member, and all the other Members of the Committee.
[The prepared statement of Senator Feingold follows:]
Prepared Statement of Hon. Russell D. Feingold,
U.S. Senator from Wisconsin
Thank you Mr. Chairman and ranking Member Hollings for holding this
hearing to examine the effects of radio station ownership
consolidation. I also want to thank Senator Dorgan for his leadership
on this issue. If Congress had heeded Senator Dorgan's warnings about
the effects of consolidation on many of our communities, perhaps we
wouldn't be here today.
I'll start by saying that I love radio. It brought baseball play-
by-play and Bob Dylan songs into my life, along with countless other
enriching influences. I'm sure everyone in this room has his or her own
version of that sentence, because radio always has been--and continues
to be, despite competition from assorted new technologies--nothing less
than the soundtrack of American life. Whatever our different
experiences, we are all the beneficiaries of radio's basic,
uncomplicated and utterly vital principle: Radio is a public medium
that must serve the public good.
But, over the last year, I have learned that the rapid
consolidation in ownership of the radio and concert industry has made
it difficult for individuals, artists, and organizations to find
outlets to express their creativity and promote diversity.
A groundswell of anger is building in Wisconsin and across the
country about these changes. People are actually angry about this. I
know, of course, because when people are angry they call their
senators.
I received my first contact about this more than a year ago. Owners
of a local concert promotion company said they were being pushed out of
business by the anti-competitive practices of a large radio station and
promotion company. Then I heard from a local radio station owner. He
said his station had, without warning and without compensation, lost
syndicated programming--after investing a lot of years and a big chunk
of money into building an audience for that programming--to a station
across town, a station recently bought by a large radio station
ownership group. Both of these small, local businesses cited the same
company--the Clear Channel Corporation.
I first asked the Administration to look into anti-competitive
activities and allegations that Clear Channel and other companies were
trying to evade the already minimal local ownership limits. I didn't
hear back for quite a while.
I did, however, get an earful from many others, especially after I
spoke to a reporter from the Chicago Tribune. In the interview I
expressed my concerns about these issues. I also mentioned that I was
looking at possible legislation. The response to this was overwhelming
and fervent. Songwriters, artists, promoters, managers, consumer
groups, religious organizations, unions and radio station owners all
called or wrote, asking ``What can I do to support your efforts?''
This legislation is not just about entertainment. More broadly,
neither is this issue. I am here not just because I want to preserve
radio as entertainment. I am here because we must preserve radio as a
medium for democracy.
There will likely be a number of conflicting views expressed about
both the levels and effects of radio ownership consolidation during
this hearing today. After all the market power can be measured in a
number of different ways. Some may argue that owning a thousand
stations is only a fraction of the total number of stations in the
United States. While this statement is true, I think it is important to
view any ownership numbers in recent historical perspective.
When the 1996 Telecommunications Act became law there were
approximately 5,100 owners of radio stations. Today, there are only
about 3,800 owners, a reduction of about 25 percent. Minority ownership
has also decreased--the number of African-American owners of radio
stations has fallen by 14 percent. Prior to 1996, one company couldn't
own more than 20 AM stations and 20 FM stations. Now two companies
control 42 percent of the content that reaches listeners and 45 percent
of industry revenues.
The concentration of ownership is perhaps most startling when we
look at radio station ownership in local markets.
Four radio station companies control nearly 80 percent of the New
York market. Three of these same four companies own nearly 60 percent
of the market share in Chicago. In my home state of Wisconsin, four
companies own 86 percent of the market share in the Milwaukee radio
market.
At the same time that national and local markets have been
consolidated, I have heard countless stories of how some of the large
radio station ownership groups also wield increasing power through
their ownership of a growing number of businesses related to the music
industry.
Take Clear Channel as an example. This corporation owns more than
1,200 radio companies, more than 700,000 billboards, and controls
numerous venues across the United States. It also owns the largest
concert promotion company in the United States.
During the last year and a half, I have heard countless allegations
about leveraging its cross ownership in an anti-competitive manner. I
have heard from small businesses in Wisconsin--local promoters and
local radio stations--who talk about large radio and promotion
companies tying in radio and promotion services to push them out of
business.
These local businesses are happy to compete in a free marketplace,
but when a company uses their cross ownership--especially using a
public medium like radio--in an anti-competitive manner, it is simply
unacceptable.
Some will likely argue that consolidation benefits consumers. For
example, they will often say that since 1996, there have been more
formats, or type of radio stations, in almost every market. But what
they won't tell you is that since many of these same ``formats'' are
owned by the same out-of-state companies that play the same songs and
share the same news--which actually reduces consumer choices.
There are other disturbing ways in which the concentration of
ownership is changing what we hear on the radio. Singers, musicians and
managers have talked with my staff and with me about some new and very
daunting challenges they face when trying to get their songs onto the
airwaves. These people are very concerned that playlists are no longer
based on quality--subjective as that is--but are sold to the highest
bidder instead. They told me how, in the past, if you couldn't get a DJ
in Cleveland to play your song, you could try to find one in Pittsburgh
who would. And if the song was a hit in Pittsburgh, the Cleveland DJ
would hear about it.
I am told that doesn't happen any more. It can't. The same
companies own stations in both markets. If they don't want to play a
song, they don't--anywhere. Opportunities for artists to try their
music ``somewhere else'' just don't exist.
I have been hearing about a shakedown system, where large radio
stations allegedly require huge payments through independent promoters
before they'll put a song on the air. If you don't have the money to
play in this system, you are shut out. Is this ``pay-for-play''? If it
isn't, I'd like to know what is.
Consider also how the rise in ticket prices coincided with the
passage of the 1996 Telecom Act. More precisely, consider that ticket
prices went through the roof.
Before the Act was passed, ticket prices were increasing at a rate
that was slightly higher than the Consumer Price Index. Since the Act
became law, ticket prices have increased at a rate that's almost 50
percentage points higher than the Consumer Price Index. From 1996-2001,
concert ticket prices rose by more than 61 percent, while the Consumer
Price Index increased by just 13 percent.
There are a number of factors behind this rise in ticket prices.
But the fact is that the largest radio station ownership group also is
involved in over 60 percent of the concert industry, in terms of
revenue, certainly begs the question--has consolidation within the
radio and concert industry led to increased ticket prices?
Because of these concerns, I have re-introduced legislation, the
Competition in the Radio and Concert Industries Act, which would
address the levels of concentration, curb some of the anti-competitive
practices, and end the alleged new payola system.
My legislation prohibits those who own radio stations and concert
promotion services or venues from leveraging their cross-ownership to
hinder competition in the industry. For example, if an owner of a radio
station and a promotion service hinders access to the airwaves of a
rival promoter or artist, then the owner would be subject to penalties.
My legislation will also help to curb further concentration that
leads to these anti-competitive practices.
It would strengthen the FCC merger review process by requiring the
FCC to scrutinize the mergers of any radio station ownership group that
reaches more than 60 percent of the Nation.
My legislation would also curb consolidation on the local level by
preventing any upward revision of the limitation on multiple ownership
of radio stations in local markets.
The bill would also prohibit the alleged new payola system, where
the big radio corporations are said to leverage their market power to
require payments from artists in exchange for playing their songs.
These are not radical notions. All my legislation says is that
first, let's get a handle on consolidation and crack down on alleged
anti-competitive practices. Second, let's modernize our payola laws to
make sure all forms of payola are banned.
I hope many of you will join me in cosponsoring this legislation,
but I also hope that this hearing will flush out other issues that are
leading to many of the concerns I have been hearing.
Americans should be able to hear new and different voices, and
those voices deserve a place on the publicly-owned airwaves. Radio is
one of the most vibrant mediums we have for the exchange of ideas and
for artistic expression.
This public medium has long served the public good, and we must
ensure that it continues to do so. If we don't act now, further
concentration in the industry will guarantee that the range of voices
we listen for when we turn on the radio, the voices of democracy that
make radio unique, will continue to fade away.
Again, Mr. Chairman, thank you for holding this hearing and I look
forward to working with you and the other Members of this Committee.
The Chairman. Thank you very much, Senator Feingold.
[Recess.]
The Chairman. And now Congressman Berman thank you for
appearing. It is nice to see you again.
STATEMENT OF HON. HOWARD L. BERMAN,
U.S. REPRESENTATIVE FROM CALIFORNIA
Mr. Berman. Thank you, Mr. Chairman and Ranking Member
Hollings and distinguished Committee Members. I appreciate very
much your decision to hold this hearing on consolidation in the
radio industry.
I am deeply concerned that radio industry consolidation and
related activities related to that consolidation are hurting
songwriters, musicians, recording artists, concert promoters,
radio listeners, and the music community as a whole. I believe
the negative effects of radio industry consolidation merit
serious Congressional scrutiny and should spur investigations
by the Department of Justice and the Federal Communications
Commission.
Nearly a year ago, I wrote the DOJ and the FCC on this
issue. I encouraged them to fully investigate the allegations I
relayed and, if they found violations of law, to prosecute.
The public reaction to my letter was utterly unexpected and
totally overwhelming. Independent broadcasters, concert
promoters, venue owners, radio deejays, musicians, bands
agents, managers, theatrical producers, actors'
representatives, and recording industry executives inundated me
with calls, e-mails, and letters. Virtually all decried the
evils of consolidation in the radio and concert industries.
Many focused on the conduct of Clear Channel in particular. The
breadth of their allegations was astounding and went far beyond
the issues I had addressed in my January 2002 letter.
Clear Channel representatives also contacted me and I met
with Lowry and Mark Mays here in D.C. They denied the
allegations of wrongdoing. Admitting to being hard-nosed
businessmen, they explained the many complaints as the sour
grapes of their failed competitors. And I am glad they are here
today because I think they should have a chance to both hear
and respond to some of the allegations that have been made to
me.
While many of these allegations are derived from firsthand
accounts, you will have to use your own judgment about whether
they warrant an investigation. But here are the most serious.
Clear Channel denies or threatens to deny radio airplay to
recording artists if they use companies other than Clear
Channel Entertainment to promote their concerts, if they refuse
to give local Clear Channel stations free concert tickets, or
if they refuse to do interviews and free drop-by performances
for Clear Channel stations.
Clear Channel Entertainment refuses to let artists play
venues it owns unless the artists agree to let Clear Channel
Entertainment be the nationwide tour promoter or agree to use
Clear Channel Entertainment venues in other markets.
Clear Channel Entertainment uses predatory pricing to offer
recording artists or events deals that independent concert and
event promoters cannot offer.
Clear Channel parks or warehouses radio and TV stations in
certain markets in what seems like a violation of legal
ownership caps.
By threatening to boycott them, Clear Channel Entertainment
signs exclusive deals with venues and thus ensures that
competing concert promoters cannot use these venues.
Clear Channel has removed Clear Channel-owned programming
such as Rush Limbaugh from independent stations and then given
competing Clear Channel-owned stations exclusive rights to
carry this programming in a clear attempt to drive competing
broadcasters out of business.
And radio stations generally demand payment from record
companies--Senator Feingold made reference to this--usually
through middlemen known as independent music promoters in order
to play the music of artists signed by those record companies.
Regardless of their legality, these alleged activities may
negatively affect consumers, musicians, independent
broadcasters, and concert promoters. We as policy makers must
decide whether these effects are likely and, if so, whether we
should do something to counteract them.
As you will hear from Jenny Toomey later, there is
substantial evidence that the radio industry consolidation has
reduced music programming diversity. Music programming
homogeneity has particular implications for musicians and
songwriters. Musicians rely on radio airplay to drive both CD
sales and concert attendance which comprise their main source
of revenue. Similarly, songwriters depend on airplay of their
musical composition for performance royalties and to drive CD
sales for which they receive mechanical royalties. To the
extent that different radio stations share the same playlists,
songwriters and musicians who are not on these narrower
playlists thus suffer.
The allegations concerning payola also have a variety of
troubling implications. At its core, payola constitutes
blackmail of musicians, songwriters, and record companies. If
they fail to pay, they may be denied access to a public
resource essential to their survival. Payola has long had a
disproportionate effect on those little known or independent
artists who lack the resources to either pay for play or to
engage in major marketing campaigns.
But as the radio industry has consolidated, the payola
rates have evidently risen to the point where even the big guys
cannot afford them. The proof is that the major record labels,
independents, and several artist groups recently put aside
their intramural squabbling and jointly called on the FCC and
Congress to address payola.
If, through its control of the airwaves and concert venues
in certain markets, Clear Channel is forcing recording artists
to sign with Clear Channel Entertainment in other markets,
these tying arrangements could clearly have anticompetitive
effects on independent concert promoters. While I personally
believe that consolidation within an industry is not
necessarily an evil, independent concert promoters should at
least be given a level playing field on which to compete.
While I believe the allegations and negative effects
outlined above and additional ones that I detail in my written
statement merit a full investigation, it does not appear that
the agencies of jurisdiction will conduct one. The reaction of
the DOJ has been most disappointing.
In a meeting with my staff and in a written response to me
3 months after I sent my letter, the DOJ encouraged me to
forward any evidence of anticompetitive conduct in the concert
promotion or radio industries. DOJ indicated it would initiate
an investigation if it found such evidence credible.
As a result, I encouraged all those who had contacted me
with firsthand evidence to, in turn, contact the DOJ. To those
who expressed skepticism, I asserted that DOJ would do its job
by vigorously investigating allegations of antitrust violations
and other illegal conduct.
It is now one year later, and as far as I can tell, the DOJ
has done nothing. And I do mean nothing. According to many of
the folks I told to contact the DOJ, the DOJ has never
responded to their overtures and never followed up as promised
after an initial call. My staff has attempted to follow up with
DOJ several times, but their calls have not been returned
either.
Some may say, I told you so. Since the day I sent my
letter, many claimed that the Administration would not allow
the DOJ to actively pursue antitrust investigations, but I do
not think this is a sufficient explanation. The ongoing
investigation of the Press Play and MusicNet ventures indicates
the Bush DOJ is interested in probably pursuing a lengthy
investigation of a somewhat speculative antitrust concern. If
it has such grave antitrust concerns about new entities in the
as-yet infinitesimally small market for legal online music, why
is it not willing to pursue allegations of actual
anticompetitive behavior in the radio and concert industries? I
do not know the answer to this question, but judging by the
responsiveness of the DOJ to date, I do not expect to get a
response even if I ask.
Anyway, that is why I am here, and I think this is an issue
that Congress has to deal with and I am very grateful that you
are beginning that process with this hearing. Thank you, Mr.
Chairman.
The Chairman. Thank you very much, Senator Feingold and
Congressman Berman. We thank you for coming, and we appreciate
your comments. They have been very helpful to the Committee.
Thank you very much.
Today the Committee begins a series of hearings examining
media ownership. Later this year, the Federal Communications
Commission will act on a proceeding that addresses a number of
different media ownership issues. These decisions will have a
significant impact on the American media landscape.
I have always been a firm believer in free market
principles, and I continue to believe that anachronistic
Government regulations that do not reflect today's multi-media
marketplace should be thoroughly reviewed by the FCC and
repealed or modified wherever appropriate. Given the tremendous
impact media can have in the everyday lives and thinking of
Americans, however, we must approach these issues thoughtfully,
and it is important that the Committee hold hearings to better
understand them.
Today we will examine the media ownership in the radio
industry. After enactment of the Telecommunications Act of
1996, the radio industry saw unprecedented consolidation.
Several station owners began to purchase stations across the
United States, and the largest owner, Clear Channel
Communications, has grown from 60 stations in 1996 to over
1,200 stations today. Many critics have voiced their concerns
about radio consolidation and have alleged that some companies
have been engaging in anticompetitive behavior.
For instance, some have claimed that Clear Channel's
vertical integration with its entertainment division has hurt
independent concert promoters and artists. Some artists suggest
that their refusal to use Clear Channel's promotion services
has led to their music not being played on Clear Channel
stations. I am concerned about these allegations and I look
forward to hearing from the witnesses on these specific issues.
Finally, I believe that, wherever possible, we should look
to market-based approaches to ensure there is diversity in
media ownership. Later today I will reintroduce the
Telecommunications Ownership Diversification Act. The bill
provides a tax deferral and other market-based incentives
designed to ensure that our tax laws do not disadvantage small
businesses that may be owned by women and minorities who can
help to further viewpoint diversity in media. I hope that other
Members of the Committee will examine this legislation and
possibly join in its partnership.
I want to thank the witnesses for coming today.
Senator Hollings.
STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
Senator Hollings. Mr. Chairman, I will just file my
statement with one comment, and that is, from the testimony of
the distinguished Congressman and Senator Feingold, I think the
Committee ought to bring the Department of Justice up here
before we move on any legislation. It has always been my
opinion that these antitrust provisions forbid exactly what
they have attested to. And similarly, with respect to payola,
we definitely passed a law with respect to payola some years
back, and it ought to be enforced.
Thank you.
[The prepared statement of Senator Hollings follows:]
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
Thank you, Mr. Chairman. I appreciate your leadership in scheduling
this, the first in a series of hearings on media consolidation. These
discussions come at a critical time in the history of American media.
In many quarters, the core values of competition, diversity, and
localism that have long served as fundamental pillars of our democracy,
are today under attack.
They are under attack by an industry that appears unsatisfied with
the tremendous consolidation that has already taken place; by the
courts, who seem to ignore Supreme Court precedent about the
government's strong interest in preserving a ``multiplicity of
information sources''; and, most importantly, by FCC Commissioners who
seem intent on relaxing or eliminating many of the existing ownership
rules without regard to the tremendous consolidation that has already
occurred.
Likewise, it is fitting we begin with radio--where a tidal wave of
mergers over the last six years has left both consumers and the medium
with visible scars.
Since 1934, when radio broadcasts were the only broadcasts on the
public airwaves, the FCC has been charged with ensuring that use of the
public airwaves is consistent with the ``public interest, convenience,
and necessity.'' Historically, this obligation has required the
Commission to go beyond the bounds of traditional antitrust analysis in
order to promote the diversity of owners and viewpoints; to ensure
public access to multiple sources of information; and to meet the needs
of local communities that are the true ``owners'' of the airwaves.
This attention to diversity and localism has served America well by
expanding economic opportunity and energizing civic discourse. Indeed,
it is the preservation of diversity and localism that promotes
competition and choices for advertisers; that creates opportunities for
small companies, minorities, and women; that allows innovative
programming to find an outlet; and that ensures that the interests of
each community is served by the license of this public asset.
Consequently, soon after the 1934 Act's inception, this public
interest responsibility led the FCC to create sensible restrictions on
the number of radio stations that a single party could own, both
nationally and on the local level.
Unfortunately, the compromise required to ensure passage of the
Telecommunications Act of 1996 eliminated the FCC's national ownership
cap for radio and changed the local limit, which now permits a single
licensee to own up to 8 stations in some markets. Predictably, radio
broadcasters went into in a feeding frenzy.
In the first year after the 1996 Act, more than 2,100 radio
stations changed hands. Today, according to one recent study, the top
ten radio group owners control 67 percent of industry revenue and 65
percent of radio listeners. At the top of the heap is Clear Channel,
which has grown in six short years from a small cluster of 39 stations
with $495 million in revenues into a nationwide radio conglomerate with
1,211 stations, earning $3.2 billion in revenues. As a result, Clear
Channel now reaches more listeners in the U.S. than its second, third,
fourth, and fifth competitors combined.
And beyond the impact that such consolidation has had within the
radio industry, there are troubling allegations that Clear Channel
unfairly uses its control over sizable portions of the airwaves, its
approximately 135 concert venues, and its over 700,000 outdoor
billboards to engage in anti-competitive practices that harm
independent promoters, music artists and consumers.
In sum, while investors on Wall Street have profited handsomely
from these mergers, consumers on Main Street have suffered. Radio
consolidation has contributed to a 34 percent decline in the number of
owners, a 90 percent rise in the cost of advertising rates, a rise in
indecent broadcasts, and the replacement of local news and community
programming with remote ``voice tracking'' and syndicated hollering
that ill-serves the public interest.
If ever there were a cautionary tale, this is it.
The Chairman. Senator Burns.
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. Thank you, Mr. Chairman. Thank you for the
hearing today. I also will file my full statement.
I do want to bring out a point, though, that sort of
addresses the concerns of both Congressman Berman and Senator
Feingold. I am wondering if they have given the same attention
to the situation where we find grocery stores who sell shelf
space in their stores to one company to display their articles
or their food products or whatever. That is a practice that is
going on across this country too, and I think that needs to be
looked at about as much as what we hear of here.
Also, I got to bring before the Committee a recent Arbitron
study. Now, I come out of radio. I am sort of familiar with
radio. Of course, my years were in farm broadcast, which is
sort of a niche in the market, that I enjoyed very much. I
would have gone into hard news, but I could not read and that
is noted here on this Committee just about every time we meet.
[Laughter.]
The Chairman. It is not a requirement of Committee
membership.
[Laughter.]
Senator Burns. It is not a requirement?
I always liked the idea that I am probably one of the very
few that did not have a college degree in this group, and I got
intimidated by the people who had letters in back of their
names when I arrived in this town. So I come up with my own
letters. I put N.D.B.A., no degree but boss anyway.
[Laughter.]
Senator Burns. I like that idea.
We are all familiar with the Arbitron surveys and we all
lived by them when we were in the radio business. But I was
caught the other day by a note that 74 percent of the consumers
believe radio does a good job, a very good job, in providing
the type of programming that they want to hear. I am sure that
they would be less satisfied with what they get on television
or the recording industry, but nonetheless radio seems to be
doing a very good job this time.
And yes, maybe we have some concentration in some areas
that are troubling to some of us, but we have antitrust laws,
as Senator Hollings pointed out, that should be looked at.
But radio has come a long way in the last 5 or 6 years in
improving their own financial viability. There was a time when
you might have owned a license that was not worth very much and
it was just a short time ago.
So I would say that the 1996 Telco Act has actually worked,
and I do not want that reopened or bothered at the present
time. We have the laws in place. Enforcement of those laws may
be a little bit lax in some areas, but it is not because the
policy is not maybe at the right proportion right now as we
find it in the industry.
So I am happy about this hearing. I am happy about the
information that will come out of it. I think probably there
are always complaints from competitors and those complaints
will always be there in a free market system. But I would
suggest that we did good work in that 1996 Act as far as the
AM/FM radio broadcast industry was concerned. And I thank you,
Mr. Chairman, for holding the hearing.
[The prepared statement of Senator Burns follows:]
Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
Mr. Chairman, thank you for calling for this hearing in what I
understand is to be the first in a line of hearings on media ownership.
Today's focus will be on the state of competition in the radio
marketplace.
As many of you know, I have a fondness for radio stemming from my
days when I was a farm broadcaster in both radio and television. Given
my interest in agriculture and Montana, I decided to launch my own
radio network based on the issue of agriculture, and in 1975, I founded
four radio stations that I named the Northern Ag Network.
Those four stations grew to serve a total of 31 radio and
television stations across Montana and Wyoming continuing to focus on
agriculture. There is no question in my mind, with my own personal
history, that the state of radio itself today is much more sound
financially and much more diverse in programming choices.
I note a recent Arbitron study that shows 74 percent of consumers
believe radio does a good or very good job providing the type of
programming they want to hear. I am sure the same public would be less
satisfied with what they get on television, cable or with the recording
industry.
The radio industry has certainly rebounded from some difficult
times in the not-too-distant past. In fact, in the early 1990s, half of
all the Nation's radio stations in America were losing money. So what
happened that has made the radio industry significantly more
financially stable and even more robust today, especially when one
considers the economic downturn over the last three years? The answer
is simple: the 1996 Telecommunications Act.
The Telecom Act and the wave of sensible deregulation it ushered in
has brought a breath of fresh air and fiscal sense to the radio market.
The deregulation of radio ownership allowed private businesses to enjoy
financial efficiencies.
By allowing radio owners to expand their holdings in local markets
and on a national scale, radio companies could make more efficient use
of capital to deliver a better product.
The revolution in radio technology that has erupted beginning in
the late 1990s can be directly attributable to the Telecom Act. In
fact, today's radio stations look nothing like the ones I helped create
more than 27 years ago. The ability to expand in local markets has also
allowed radio owners to expand into different formats. In the past,
when one could only own a couple of stations in a local market, the
temptation was to go after the largest single audience no matter what,
which typically was the pop music audience in most markets. You would
then get three or four owners that would be playing the same kind of
programming hoping to attract that largest audience group possible.
I would also like to address the current ban on newspaper/broadcast
cross-ownership. The FCC's newspaper/broadcast cross-ownership rule is
clearly outdated and unnecessary in light of the abundance of
competitive outlets in today's media marketplace. The rule was adopted
at a time when the media environment was dominated by just three over-
the-air networks and their affiliates. In the intervening years,
explosive growth in the number of traditional media outlets--combined
with a flood of new entrants, including an extraordinary variety of
cable, DBS, and Internet sources--has transformed the marketplace and
given consumers a vast array of news and information choices.
Even in a market as small as Miles City, Montana, where Star
Printing Company has continued to own and operate a ``grandfathered''
newspaper/AM radio combination since the cross-ownership rule was
adopted in 1975, there are plenty of alternative outlets to ensure
adequate viewpoint diversity. In fact, the number of competitors in the
market has grown steadily since 1975. Today, there are five separately
owned television stations in the Designated Market Area, five radio
stations in Miles City alone (four of which are under separate
ownership), numerous radio stations in neighboring communities, a
competing daily newspaper in Billings, and a cable television franchise
offering at least thirty channels.
As a result of the explosive growth in the media marketplace over
the last quarter century, the FCC, Congress, and the courts have
eliminated or substantially relaxed all of the Commission's other media
ownership restrictions. However, newspaper publishers have been forced
to stand on the sidelines as their competitors have pursued acquisition
opportunities and entered into more efficient and cost-effective
operating agreements. Repeal of this discriminatory restriction is
necessary in order to place newspapers and broadcasters on an even
playing field with their multi-channel, multi-media competitors. In
addition, I believe that eliminating the ban will advance the public
interest by enhancing the quality and quantity of news and other
informational services available at the local level.
I look forward to the testimony of the witnesses on these and other
key issues before the Committee today.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Dorgan.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you very much. I am
going to have to step away for a few minutes, but I intend to
come back for the bulk of the hearing today. This is, I think,
an important hearing.
I have some disagreement perhaps with my friend from
Montana. I think since 1996 we have had galloping concentration
in radio and television. Frankly, I think we ought to raise a
lot of questions about it. Free markets are very important, but
free markets are less free when you have concentration, I
believe.
Let me make a couple of points.
I do not think big is necessarily bad or small is
necessarily beautiful. But I do think what makes the market
system work is robust, aggressive competition, and I do think
that in most cases concentration, left unchecked, clogs the
arteries of competition and clogs the arteries of the
marketplace.
Attached to licenses that we provide for broadcast is the
requirement to serve local interests, localism. That is
something I am very concerned about.
I want to mention one thing. In 1996 when we took the
limits off radio ownership and relaxed the limits on television
station ownership, the only vote that occurred was a vote that
I forced on the Senate about 4 o'clock one afternoon to try to
restore the limits on television station ownership back to the
25 percent level. I actually won that vote; I think by 3 or 4
votes at 4:30 in the afternoon.
And then we had a reconsideration of the vote about 3 hours
later following dinner, and several of my colleagues had an
epiphany over dinner, I guess. I believe our colleague, Senator
Dole, was on the other side, and I was surprised to have beaten
him actually, but I only beat him for 3 hours because after
dinner we had a second vote, and I lost by three or four votes.
I have no idea what was served that evening.
[Laughter.]
Senator Dorgan. But whatever it was, it was very effective
for my colleague's position because I lost.
But I raised the points then, in 1996, because I was
concerned about where I thought this was headed. And, I am
concerned today. Again, let me say, I do not think big is
necessarily always bad. You cannot build a 757 airplane in a
garage in Regent, North Dakota. You need economies of scale and
so on. But with respect to broadcast, I am very concerned about
where we are headed in television and radio and the substantial
concentration that has occurred since 1996.
The question is, where does it end? Is it if someone wants
to buy 3,000 stations, if someone wants to capture most of the
television market in most of the metropolitan areas? Where does
it end? Where are the practical limits?
And those are the public policy questions we should
address, and I am very appreciative, Senator McCain, that you
have called this hearing. I think we should be thoughtful about
it and move through it. A number of questions have been raised
this morning that are very interesting to me, and I do not have
the foggiest idea what the answers are. But I know we are going
to have people testifying today and we can ask those questions
of them. So I appreciate the hearing, Senator McCain.
The Chairman. Thank you very much.
Senator Ensign.
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. I think we can agree that diversity in
radio markets is important. Our constituents want and need
access to diverse, quality programming. Over the past 10 years,
1,283 new radio stations were licensed by the FCC. That is
about 25 new radio stations per state. In my home town of Las
Vegas, almost every frequency on the FM band is occupied with
the choice of country, rock, rap, R&B, alternative, easy
listening, instrumental, classical, talk radio, or sports
programming; not to mention Hispanic radio stations in Las
Vegas. While I may not always be able to hear my favorite song
while listening, there is certainly diversity in programming. I
am confident that any music fan would be able to find something
to listen to in our local markets.
Recently there has been much discussion regarding ownership
of such radio stations; specifically, whether such ownership is
beneficial for our constituents' ability to access quality
diverse programming. I believe that we got it right in 1996 by
substantially deregulating restrictions on radio ownership.
While diversity in the market is vital, think back to where
we were technologically in the early 1990s. Those of us who had
seen the Internet saw only a text-based browser. Neither
Internet nor satellite radio had yet come to market. Legitimate
online music services such as Press Play, where you can
purchase tracks from CDs in a digital format for a nominal fee,
had not yet been invented. Digital radio was not even on the
horizon. Indeed, radio technology has advanced significantly
over the last decade and music fans are winning.
I was pleased that Chairman Powell is taking a close look
at these outdated, antiquated ownership restrictions. I urge
both Chairman Powell and the FCC to continue on the path toward
unleashing market forces, thereby allowing the market to
determine the winners and losers, not bureaucrats in
Washington, D.C.
While I understand the concerns of some of our witnesses
regarding concentration in radio markets, I would like to
remind them of antitrust laws already on the books that
prohibit anticompetitive behavior in free markets or collusion
among businesses.
I would also like to point out that since the 1996 Act,
when ownership restrictions were further deregulated, 720 new
stations were added to the airwaves, further increasing
diversity of programming on the airwaves. Moreover, since I
have been elected to the Senate, I have not heard from a single
Nevadan complaining about the access to quality, diverse radio
programming, perhaps because we have better radio programming
than we did just a few years ago.
Just a couple of comments on a personal level, Mr.
Chairman. I read the testimony of Don Henley, who is one of my
favorite artists, and I hate to be on the other side of an
issue than one of my favorite artists. However, when he was
talking in his testimony about how on certain radio stations in
years past, a listener would hear a lot of different types of
formats or a lot of different types of music on a single radio
station. That increased and challenged the musicians and
artists to broaden what they were producing. As a listener, it
used to drive me crazy when I wanted to listen to a certain
type of music and a radio station aired other types of music.
I love the fact that today you can listen to exactly what
you want to listen to. If you want to listen to country music--
I am big country music fan. I love to listen to it. When I want
to listen to that, I want to listen to that. When I want to
listen to alternative rock, I listen to alternative rock. When
I want to listen to sports, I listen to sports, and so on. I
think that, for the consumer, the choices are greater than
ever, and we have to recognize the role that choice plays in
the radio marketplace today.
Thank you, Mr. Chairman, for holding this hearing.
The Chairman. Senator Wyden.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you, Mr. Chairman.
Mr. Chairman and colleagues, since 1996, when Congress
lifted the radio ownership caps, radio concentration shot up
virtually immediately. I have been told that there have been
about 10,000 radio transactions worth about $100 billion. It
just seems to me that there is an important lesson to be
learned here, and that is, that media consolidation races ahead
if you let it.
I think this is a very important hearing, Mr. Chairman,
because it seems to me that we are now faced with the prospect
that the Federal Communications Commission wishes to repeat an
experiment that the evidence suggests has created as many
problems as it has solved. I think we ought to be very
reluctant to repeat the experiment that Congress gave the green
light to in 1996 in other areas of the media.
I want to note that one of the FCC commissioners, Mr.
Adelstein, when he appeared recently, said that radio was in
his view the canary in the coal mine. I think Congress ought to
take a careful look at what the canary has to tell us.
And I will tell you that I am very reluctant to allow this
train of consolidation that is going forward down at the
Federal Communications Commission to go forward unchecked
because I think it would allow the repeat of an experiment that
was begun by the Congress in 1996 which has caused problems for
competition, which has caused problems for localism, and
Congress should be reluctant to allow it to continue.
Thank you, Mr. Chairman.
The Chairman. Senator Brownback.
STATEMENT OF HON. SAM BROWNBACK,
U.S. SENATOR FROM KANSAS
Senator Brownback. Thank you, Mr. Chairman, for holding the
hearing.
I will just note a couple of things, some of which has been
noted already, but I want to also take off on another area.
In the over-the-air radio market, while ownership of
stations has consolidated, consumers have access to more
diverse programming than ever before. In addition, many
consumers also have access to radio streamed over the Internet
by webcasters and news satellite services. I think those would
need to be looked at all together.
Terrestrial radio is, of course, perfectly harmonious with
consumers' interest where price is concerned because it is
free. Webcasting in its infancy has also provided many
consumers with free access to music. And I am going to be
paying close attention to see how webcasting royalties impact
this nascent market for opportunities and for consumers. As
with all new technologies and services, the price of satellite
radio will continue to drop, making it ever more affordable for
consumers.
Now, the point of the hearing, regulatory legislation that
seeks to create competitive advantages in certain areas instead
of permitting market forces to function naturally in
combination with antitrust laws, which I think are a very
important aspect of this, are uniquely situated to address
radio consolidation concerns on a fact-intensive, market-by-
market basis.
This is not the kind of competition policy this Committee
should support where we go in and re-regulate. We have spent
the last 7 years dealing with just such an artificial policy in
other segments of the telecom space, and I will not support
exporting such a policy to other segments of the economy where
we seek to regulate that economy.
Recently the recording companies created a coalition with
others in an effort to advance webcasting royalty legislation
that ultimately could have driven many small webcasters out of
business. It is my understanding that some people that are
testifying here today supported this bill as a way of forcing
an increase in the royalties charged by BMI and ASCAP.
Webcasting, whether provided through wireline Internet
connections or especially wireless Internet connections when
such capability developed, is exactly the kind of distribution
outlet that could be invaluable for publicizing new and unknown
artists, increasing artists' direct access to the public
without middlemen, and further increasing competition in the
radio industry generally. So if that is the area that we are
interested in, if that is the particular problem, I think the
answer is one that we should look at more in the area of
webcasting.
Mr. Chairman, thank you very much for holding this hearing.
I think it is an important subject, and I look forward to the
testimony. I am going to have to slip out myself. I hope I will
be able to get back for some of it.
The Chairman. Thank you, Senator Brownback.
Our next panel is Mr. Lowry L. Mays, Chairman and CEO of
Clear Channel Communications. Would you all please come
forward. Mr. Edward Fritts, President and CEO of the National
Association of Broadcasters; Mr. Don Henley, singer and
songwriter; Mr. Robert Short, President, Short Broadcasting;
and Ms. Jenny Toomey, Executive Director of Future of Music
Coalition.
As our witnesses are coming forward, I am entertained by
the continued suggestion that we go to the Department of
Justice when we have a Federal Communications Commission that
was set up and funded with hundreds of millions of dollars to
regulate the industry. That any problem could be handled by the
Department of Justice is entertaining. I hope that that same
approach will be used to other matters that concern Members of
the Committee.
Mr. Mays, we will begin with you, sir. Welcome before the
Committee.
STATEMENT OF LOWRY L. MAYS, CHAIRMAN AND CEO, CLEAR CHANNEL
COMMUNICATIONS, INC.
Mr. Mays. Good morning, Chairman McCain--Senator Hollings I
am sorry has left--and Members of the Committee. It is my
pleasure and privilege to appear before you today. I welcome
this opportunity to discuss the radio business with you because
it has been a passion of mine for over 30 years.
Far from being a cautionary tale of the dangers of
deregulation, radio has a great story to tell. The industry is
healthier and more robust today than ever before. That would
not be true if radio stations like ours across the country were
not pleasing their listeners each and every day.
Radio has changed in many ways since Richard Nixon and
George McGovern faced off in 1972. That was the year I bought
my first radio station in San Antonio, Texas. I knew very
little about the business then but I understood the core
principle that makes any radio station a success: you must be
locally focused and delight and inform the listener every hour
of every day.
While radio may have changed in many ways over the past 30
years, the key lesson I learned then still applies today. That
means Clear Channel must continue to serve our local
communities in the very best way that we can.
Remember back to the early 1990s for a moment. The
competition from cable, broadcast television, and hundreds of
new FM stations forced literally half of the Nation's radio
stations into the red, and many others were operating close to
it. In 1989 and 1990 alone, AM stations' profits plummeted 50
percent and FM profits by a third. Stations often had to cut
back on news and other local programming to survive.
All of that began to change with deregulation. With the
ability to own more stations both locally and nationally,
stations could cut costs and compete more effectively for media
advertising dollars. Owners could reinvest more in their
stations, improving their facilities, increasing the quantity
and quality of their programming, and hiring better on-air
talent.
Study after study has demonstrated that there are now more
formats available to listeners to choose from in local markets
across the Nation.
In addition, more stations today are owned by minorities
than in 1996, the year that Congress passed the
Telecommunications Act. Clear Channel is committed to
encouraging diversity in media ownership. In connection with
our acquisition of AM/FM a few years ago, we sold more than
$1.5 billion in radio properties to minority buyers. We also
committed $15 million to the Quetzal/Chase Fund which invests
in minority-owned media. And, Mr. Chairman, we strongly support
your bill to provide tax incentives to increase media ownership
by small business. We have done all of this not because it is a
benefit to Clear Channel, because we think it is the right
thing to do.
Still, some say that deregulation has gone too far, that
the industry is too consolidated. Let us stop for a moment and
put those numbers in perspective.
Radio is by far the least consolidated of any of the media
and entertainment industries. The 10 largest radio operators
account for only 44 percent of the industry's advertising
revenues. The top 10, 44 percent. Compare that to the top five
record companies. They control 84 percent; cable companies, 89
percent; movie studios, 99 percent.
Even though the number sounds large, Clear Channel's 1,200
radio stations represent only 9 percent of all of the stations
in this country. That means that over 90 percent of the
Nation's radio stations are owned by nearly 4,000 companies
other than Clear Channel.
Some object, however, whatever the radio percentages are,
that Clear Channel has too much power in the music industry and
power over musicians. We heard some of that this morning. The
fact is that major artists wield monopoly power of their own.
If we cannot meet their terms, they will simply go to another
local, regional, or national competitor.
Finally, I would like to take the opportunity to dispel the
myth that Clear Channel, or any other concert promoter for that
matter, is responsible for the steep rise in concert ticket
prices. That presumes we actually set the price of the ticket,
which we do not. The reality is that the artists not only set
the price of the ticket, but then they set large guarantees
which have been affecting small concert promoters. The artists
are demanding more and more money from touring because their
album sales are decreasing. It is not unusual for Clear
Channel, or any other promoter for that matter, to receive only
5 to less than 10 percent of the door.
Let me conclude by going back to the beginning. We succeed
when our radio stations serve the needs and interests of their
local communities. I am pleased that according to recent
surveys, we are doing just that. While I am pleased with these
surveys, I think we can always do better.
I look forward, Mr. Chairman, to joining the dialogue that
we are beginning here today. Thank you.
[The prepared statement of Mr. Mays follows:]
Prepared Statement of Lowry L. Mays, Chairman and CEO, Clear Channel
Communications, Inc.
Good morning Chairman McCain, Senator Hollings, and Members of the
Committee, it is my pleasure and privilege to appear before you today.
My name is Lowry Mays, and I am the Chairman and CEO of Clear Channel
Communications. I want to thank you for inviting me to discuss the
radio business with you, because it has been my passion for over thirty
years.
Radio: A Great Story
Far from being a ``cautionary tale'' of the dangers of
deregulation, radio has a great story to tell. The industry is
healthier and more robust today than ever before. And that just
wouldn't be true if radio stations across the country weren't pleasing
listeners each and every day. In fact, according to a recent survey,
the industry is doing just that. Nearly 3 out of 4 listeners believe
radio does a good or very good job providing the music, news and
information they want to hear. And 60 percent said they believe radio
is getting even better.
Radio has changed in many ways since Richard Nixon and George
McGovern faced off in 1972, and Don McLean's American Pie was number
one on the charts. That was also the year Clear Channel bought its
first radio station in San Antonio, Texas. I knew very little about the
business then, but I did understand the core principle that makes any
radio station a success. You must delight the listener, every hour of
every day.
That's why, in 1975, we made our radio station the first all news
format in San Antonio. Listeners were drawn to the local news, weather,
and sports we offered. And when we broadcast live from local places of
business, listeners would flock to see our on-air talent in person and
learn more about the merchant's goods and services. Everyone benefited,
and it was great radio.
Benefits of Deregulation
Radio is, without a doubt, healthier today as a result of
deregulation, and the public clearly benefits as a result. Recall for a
moment the financial health of radio in the early 1990s, before the
passage of the Telecommunications Act of 1996. Competition from cable
and broadcast television and hundreds of newly authorized FM stations
had forced half of the Nation's radio stations into the red. Many
others were operating close to it.
In 1989 and 1990 alone, AM station profits plummeted 50 percent,
and FM station profits dropped by one-third. Investment capital dried
up, causing facilities modernization to grind to a halt, and stations
owners who wanted to sell couldn't find buyers. Radio stations
struggled to compete with televisions and newspapers, and found it
increasingly difficult--if not impossible--to survive periodic
downturns in the local economy. Many radio stations resorted to cutting
their news budgets or other local programming. Some eliminated local
news departments altogether.
All of that began to change with deregulation. With the ability to
own more stations, both locally and nationally, radio companies could
create economies of scale and benefit from the substantial cost savings
that result. An owner of multiple stations in a market could diversify
formats and, for the first time since the advent of television, compete
successfully in the total market for media advertising dollars.
From 1975 to 1995, for example, radio labored with only about 7
percent of the total advertising pie. Since deregulation, there has
been growth in that share, with radio finally moving above 8 percent in
1999 and continuing to increase in 2000. Radio operators can reinvest
those savings in their stations, improving technical facilities,
increasing the quantity and quality of local programming, and hiring
more and better on-air talent.
In Syracuse, New York, for example, Clear Channel saves
approximately $200,000 a year by operating its stations as a unit
instead of as standalone properties. We have reinvested much of that
savings in the stations, upgrading the WSYR transmitter, acquiring a
booster for WPHR, and installing state-of-the-art studio equipment. We
increased local news programming on WSYR by one hour a day, and produce
the area's only local listener call-in show. WWHT now provides local
news, but did not before Clear Channel entered the market.
Deregulation has been good for radio in other significant ways.
Today, more stations are owned by minority-owned businesses than in
1996 when the Telecommunications Act was passed. Clear Channel is
committed to encouraging diverse media ownership, and I am proud to say
that we have been able to make significant contributions toward that
worthy goal. In connection with our acquisition of AM/FM a few years
ago, we sold more than $1.5 billion in radio properties to minority
buyers. That represented one-third of all the stations we had to divest
to obtain regulatory approval of the transaction. In addition, we have
committed $15 million to the Quetzal/Chase Fund, which invests in
minority-owned media. And, Mr. Chairman, we strongly support your bill
to provide tax incentives to increase media ownership by small
businesses and new entrants. We have done all of this not because of
any direct benefit to Clear Channel, but because it is the right thing
to do.
Deregulation has benefited listeners as well as owners. Study after
study, by academics and market analysts, demonstrate that consolidation
has led to increases in the diversity of formats available to listeners
in local markets, large and small. One recent study by Bear Stearns
found that the number of core formats has risen 7 percent since 1996.
It's easy to see why this is true. Owners with several stations are
better able to diversify their programming to serve the variety of
demographics that are present in the market. That is just what we did
in Syracuse, which did not have an urban formatted station when we
entered the market. By drawing upon our resources, we were able to
target this underserved audience and turn WPHR-FM into a successful
urban formatted station.
Deregulation: The Bigger Picture
Despite these benefits of deregulation, which are in evidence in
local markets of all sizes, some say that deregulation has gone too
far. They say the industry is too consolidated. And they contend that
Clear Channel, as the Nation's largest operator, has too much market
power. Let's stop for a moment and put the numbers in perspective.
Let's generate some light to accompany the heat.
Radio is by far the least consolidated segment of the media and
entertainment industry. The ten largest radio operators account for
only 48 percent of the industry's advertising revenues. Compare that to
the recording industry, where the top five record companies control 84
percent of all album sales.
It's also interesting to note that in cable television, the ten
largest companies account for 89 percent of the revenues. For movie
studios it's a whopping 99 percent. And, though the number sounds
large, Clear Channel's 1,200 radio stations represent only 9 percent of
all the stations in the country. That means that over 90 percent of the
Nation's radio stations are owned by companies other than Clear
Channel.
When these numbers are evaluated objectively, it quickly becomes
apparent that radio does not pose a media concentration threat. In
fact, the drafters of the 1996 Act made certain of that by limiting any
individual company to a maximum of eight stations per market, and only
then in markets containing 45 or more radio stations.
Serving Local Listeners
While radio may have changed in many ways over my three decades in
the business, the key lessons I learned from that first San Antonio
radio station still apply today. Stations must serve the needs and
interests of their local communities, listeners and advertisers alike.
Radio is inherently a local medium and always will be. That means Clear
Channel--along with nearly 4,000 other owners of radio stations in the
U.S.--must continually strive to serve our local communities in the
best ways we can.
Some have suggested, however, that the commitment to local
listeners has been lost as a result of deregulation--lost in a mad dash
of consolidation. Let me assure you nothing could be further from the
truth. Listeners want to hear a variety of music, news, local affairs
and other entertainment programming that appeals to their individual
tastes. And in today's multimedia world, those listeners are very
discerning. If they don't like what they hear, they will turn the dial,
burn a CD, or download an .mp3 recording that is more to their taste.
It's that simple, and that risky to our financial health.
That's why Clear Channel will always be in tune with what local
listeners want to hear. One tired song, a commercial that lasts too
long, or a failure to provide timely news, weather or traffic, and the
listener is gone. After all, radio is the only business I know of where
you can lose a customer with the push of a button at 60 miles per hour.
We may have grown from that single AM station in San Antonio into
the largest radio operator in the country, but we haven't outgrown our
commitment to localism and diversity. Contrary to what some would
suggest, our radio play lists are not put together at headquarters,
hundreds or even thousands of miles away from the communities in which
they are played. Far from it. Our play lists are developed by local
station managers, program directors, and on-air talent, and are based
on extensive audience research, listener feedback, and our employees'
knowledge of local tastes and culture.
While we make sure that our radio stations have access to the
highest quality news and information sources, we do not dictate the
quantity or content of news and information from our San Antonio
headquarters. Our local managers decide how to use the tools we give
them to meet the needs of their audience. The result is that over 80
percent of what airs on Clear Channel stations is produced locally.
We simply couldn't operate any other way. The preferences of
listeners vary from market to market, and we must respond to those
differences if we are to succeed. That is why a song like ``Screaming
Infidelities'' by Dashboard Confessional received hundreds of spins on
our Dallas station last year, but just a handful in Indianapolis and
here in Washington, D.C. Standardized play lists just don't exist at
Clear Channel.
Committed to Our Local Communities
But we don't just serve our communities by playing the music our
listeners want to hear. Clear Channel stations around the country are
deeply involved in supporting and promoting a wide variety of local
civic and charitable events. Consider just one market--Syracuse, New
York--where Clear Channel stations routinely help the community
whenever the need arises. For example, last year the State of New York
cited the Blodgett Library, located in one of the poorest neighborhoods
in the country, as a safety hazard. Clear Channel raised over $80,000
in a radiothon to help create the ``Dream Center,'' a state-of-the-art
library and dynamic learning center at a local elementary school.
Our local news/talk station in Syracuse, WSYR, produced a ten-part
series on child abuse and raised money to help create the McMahon/Ryan
Child Advocacy Site. The station also raised $35,000 for the Child
Abuse Referral and Evaluation program at University Hospital, and
published a guide to help prevent child abuse. The National Association
of Broadcasters awarded WSYR its ``Service to America'' award for this
series.
These are just two small examples of the countless number of
contributions Clear Channel radio stations make every day to the
communities we serve in over 300 U.S. markets. From radiothons to 10K
races, our stations help raise money for important charities like
breast cancer research, child literacy, and AIDS research, to name a
few.
Radio and the Concert Business: Effect on the Artist
I've heard some say that Clear Channel has too much power in the
music industry. They say that the combination of our radio stations and
our involvement in the live entertainment business, through concert
promotion and ownership of concert venues, gives us unprecedented
clout. They claim we can leverage those businesses to intimidate
artists, force out competing concert promoters, and drive up ticket
prices.
Well, I don't know if any of these critics have had the privilege
of negotiating a concert deal with Cher. Well, we have--and I can
assure you she is not intimidated by us one bit. And the same goes for
Madonna, Paul McCartney, and the Rolling Stones. The artists themselves
wield monopoly power. After all, there is only one Cher.
The truth is that major artists dictate nearly every aspect of
their tours--increasingly large performance fees, choice of venues,
tiered ticket pricing, percentage of merchandising, even the color of
the roses and brand of bottled water in their dressing rooms. If we
can't meet their terms, they won't think twice about signing with any
one of the local, regional and national concert promoters that compete
with us. And when we do sign to promote a tour, we are often not the
exclusive promoter. Many artists split promotion of their tour between
Clear Channel and other national or local competitors.
Speaking of our radio stations, let me say clearly, and for the
record, that Clear Channel does not use the threat of reduced airplay
to force musicians to tour with us or retaliate against competing
concert promoters by failing to promote their shows on the air. Anyone
who would make such allegations simply doesn't understand our business.
The fact is live entertainment accounts for less than 7 percent of
Clear Channel's revenue. Radio is the bread and butter of our business,
and we simply wouldn't risk the ratings of any station by refusing to
play or promote a popular artist who isn't touring with us, or by
overplaying a less popular artist who is.
To cite just one example, Britney Spears actually received 73
percent more airplay on Clear Channel radio stations in 2002, when she
was touring with a competing promoter Concerts West, than she got in
2001 when she was touring with us. Why? Because Britney Spears was one
of America's most popular music artists in 2002, and our radio stations
hardly could ignore her songs and still meet the needs of our
listeners. Remember, if we are not playing what people want to hear,
they will quickly vote against us by pressing another button on their
radio. It couldn't be easier--or more risky to our financial health.
Even when the artist is lesser known, we cannot, and would not,
take advantage of any perceived change in the negotiating dynamic. It
is not in our interest to do so. It happens that Clear Channel
Entertainment depends on small and mid-size venues for a substantial
portion of its revenue, and so we have a vested interest in booking the
up and coming artists that frequent these smaller stages. In fact, in
2001 Clear Channel hosted over 3,100 acts, of which nearly 70 percent
were staged at clubs and other smaller venues. Of all these acts, two-
thirds were not affiliated with a major record label, and almost one-
quarter were not signed to any label at all. Like our radio stations,
Clear Channel Entertainment is absolutely committed to promoting new
artists and their music.
Developing New Artists
Our commitment to local audiences involves introducing them to new
artists and their music. Make no mistake: new artists and music are the
lifeblood of many of our radio stations, whether they play country,
adult contemporary, rock or hip-hop. Unfortunately, the five major
record companies increasingly are failing to take the risks necessary
to sign, produce, and promote talented newcomers. Sadly, the result is
less new albums each year than listeners (and radio stations) would
like. But there is one thing you can count on: if the public wants to
hear a new song, Clear Channel will strive to be first to put it on the
air.
That's why Clear Channel has taken great pains to develop new
artists on our own. In September 2001, we began an Internet pilot
program called the Artist and Repertoire Network, which is dedicated to
providing music industry professionals with information about high
quality, unsigned artists from around the globe who have great
potential to succeed. The ``A&R Network'' (located at
www.anrnetwork.com) provides information such as the type of deal an
act is seeking, its biography and discography, tour information, and
more. I am proud to say that in just one year since its inception, the
A&R Network has played a key role in helping thirteen new artists sign
major and/or independent label record deals.
Then, on September 26, 2002, we launched another artist development
initiative, a not-for-profit, Internet-based forum for performers,
industry professionals, and fans called the New Music Network (located
at www.clearchannelnewmusicnetwork.com). This website allows unsigned
bands to upload their songs in .mp3 format to the Internet. It is a
free way for these artists to reach new audiences, promote their music,
and network with recording industry executives. Again, I am proud to
say that, even at this early stage, the New Music Network is a
phenomenal success. After just four months, we have already registered
more than 1,000 promising new musicians in genres as diverse as blues,
classical, folk, funk, punk, tejano, and gospel.
Our passion for discovering and developing new artists doesn't stop
there. At nearly 60 radio stations in 40 markets across the country,
Clear Channel's local managers are devoting airtime to showcase up and
coming talent in their local communities. In Detroit, for example, our
WJLB-FM plays new music by local artists every night for an hour
beginning at 9:05 p.m. Any original music that listeners request can
and does end up on the station's regular play lists.
And right here in Washington, D.C., every Sunday night WWDC-FM
produces the ``DC 101 New Music Mart.'' This hour-long program, which
has been on the air for eight years, features new music, including
releases from smaller labels, which our local managers select by hand.
And if the music is popular, it can make all the difference for a new
band. For example, Carbonleaf, an unsigned band out of Richmond,
Virginia, saw its music move from the Sunday night show to DC 101's so-
called ``power rotation,'' which includes the station's most heavily-
played songs.
Clear Channel's new music programs can have a national effect as
well. Stu Sobol, of Spivak Sobol Entertainment, gives the DC program
credit for breaking the new band The Calling, whose album went on to
become multi-platinum. Our radio stations sponsor local new music
programs in a host of diverse markets from Anchorage, Alaska to
Medford, Oregon to Sioux City, Iowa.
Rising Ticket Prices
A common misperception is that Clear Channel is responsible for the
steep rise in concert ticket prices over the past ten years. That
presumes that Clear Channel, or any concert promoter, actually controls
the price of the ticket. Unfortunately, that is not the case. I say
unfortunately because if ticket prices were controlled by us, we'd set
them low in the hope of getting more people through the door. That's
because our company makes very little income from ticket sales--rather,
our revenue comes primarily from ancillary services at the shows, such
as parking, concessions, and sponsorships. In fact, it is not uncommon
for us, or any promoter, to receive just 5-10 percent of the ``door,''
with the rest going to the artist.
The reality is that artists not only establish the ticket price,
and do so for all tiers (including the so-called ``golden circle''),
but also demand a set performance fee or ``guarantee'' from the
promoter. And artists are demanding more money from touring than ever
before, presumably due to a marked decrease in album sales. In fact, of
the top twenty touring artists in 2002, 62 percent of their income came
from concerts. Compare that to the 22 percent of their income that came
from album sales.
[It is interesting to note, by the way, that the Seattle Times, in
an article dated November 3, 2002, wrote that the escalation of concert
ticket prices began ``in 1994 when the long-feuding Eagles reunited for
their ``Hell Freezes Over'' tour. That outing launched a tiered system,
in which the best seats--commonly dubbed `golden circle' seats--cost
more. Ticket prices topped $100 for the first time.'']
Working Together to Improve Radio
Let me conclude by going back to the beginning. Clear Channel
succeeds when our radio stations serve the needs and interests of their
local communities. And I am pleased that, according to recent surveys,
we are doing just that. In one survey, 74 percent of respondents said
radio does a good or very good job of playing the kinds of music they
like. Seventy percent said radio does a good or very good job of
providing the kinds of news and information they want. And almost 60
percent said radio is getting better lately. Yes, I'm pleased by these
responses, but I'm not satisfied. There is always more that we can do
to improve radio. I look forward, Mr. Chairman, to joining the dialogue
that you are beginning here today.
The Chairman. Thank you very much, Mr. Mays.
Mr. Fritts.
STATEMENT OF EDWARD O. FRITTS, PRESIDENT AND CEO,
NATIONAL ASSOCIATION OF BROADCASTERS
Mr. Fritts. Thank you, Mr. Chairman. I am Eddie Fritts,
President and CEO of the National Association of Broadcasters.
NAB represents America's free over-the-air radio and television
stations, and today there are nearly 4,000 separate owners of
the some 13,000 local radio stations that serve America's
listeners. I am pleased to testify on their behalf.
While the industry continues to change, one thing has
remained constant, radio's commitment to serving local
communities. This attribute distinguishes us from all
competitors. From online music to satellite radio, local
service to the community is that which separates us from the
competition.
Radio broadcasters are proud of their commitment to
localism. A recent NAB study found that in 2001 alone, radio
stations contributed $7 billion worth of public service to
their communities. That number includes the value of public
service announcements, as well as monies raised for charities,
disaster relief, and for the needy.
While this is an impressive figure, it does not tell the
whole story. Radio's local connection allows it to offer
services that cannot be measured in just dollars and cents.
Take, for instance, the Amber Alert program. Over 40 abducted
children have been returned to their families largely due to
radio, and the Amber program, which I note that Senator
Hutchison has been a prime sponsor of, has recently passed the
Senate with our support. I do not think one can put a price tag
on the return of an abducted child.
Radio underscored its value also in helping solve the D.C.
sniper case. After hearing the vehicle description and the tag
number on the radio, a listener called authorities resulting in
the immediate arrest of the suspects.
And no dollar figure can account for radio's work following
the events of 9/11. Stations across the country raised
donations for rescue equipment for victims, organized blood
drives, and overall reassured and informed Americans during
that dark hour.
These, of course, are just a few examples and I could go
on.
Today the industry has rebounded financially, but just 10
years ago--just 10 years ago--60 percent of all radio stations
were losing money. Many had to go off the air depriving
communities of local service upon which they had come to rely.
It was that state of affairs that the Congress and the FCC
revised radio ownership rules. NAB believes the limits
implemented through the 1996 Telecommunications Act enabled
radio to better serve local audiences across the country, as
well as strengthening the industry economically.
As radio deregulation has moved forward, radio's critics
have tended to overstate the effects of industry trends.
Compared to other industry choices, radio is perhaps the least
consolidated sector. Take, for instance, the Hollywood movie
studios, the record companies, direct broadcast satellite,
cable systems, newspapers, even the Internet. All have more of
their revenue share concentrated among the top 10 owners than
does radio.
Of course, radio's diversity is not measured by revenue
shares. Radio broadcasters recognize the importance of
diversity. Chairman McCain's proposal, which he announced
today, will have great support from the NAB because it will
help foster diversity through tax deferrals. We look forward to
working with the Chairman and this Committee and the Senate in
moving this legislation forward.
Already today, radio formats mirror the diversities we have
in our American society. Spanish language formats have
increased by over 80 percent in the last decade. Other
ethnicities are well represented on the dial. From Persian to
Polish to Chinese to Haitian, the list goes on in specialty
programming.
Radio also remains the most trusted source for music.
According to Arbitron, two-thirds of Americans say radio is
where they first heard new music. Ninety-five percent of
Americans listen to the radio every week. Our listeners have
good reason for tuning in, for last year alone radio debuted
3,000 new songs of some 550 new artists.
In sum, Mr. Chairman, the Telecommunications Act has been a
success for our listeners, and what is good for our listeners
is good for our industry. It was a goal of Congress, when
formulating the Act, to keep radio a viable, vibrant and local
medium. That objective, we believe, has been met. Radio today
is more financially stable. Radio's programming is as diverse
as its audience, and today, radio remains the ultimate local
community medium. We look forward to continuing that proud
tradition into the future. I appreciate the fact that we were
able to testify at this hearing, and I look forward to
answering your questions. Thank you.
[The prepared statement of Mr. Fritts follows:]
Prepared Statement of Edward O. Fritts, President and CEO, National
Association of Broadcasters
Introduction
This testimony represents the views of the National Association of
Broadcasters (NAB) on the current state of the radio industry. The
testimony examines how regulatory changes implemented by the FCC in
1992 and by Congress in 1996 have advantaged both the industry's
financial health and its ability to serve listeners. We then examine
the current state of programming diversity in the industry, refuting
critics' charges that consolidation has resulted in homogenized
programming and had a deleterious effect upon radio's connection with
local community. Finally, this testimony comments on recent
Congressional proposals to re-regulate the industry, paying special
heed to the ``The Competition in Radio and Concert Industries Act'' (S.
2691), which was introduced by Senator Russ Feingold in June of 2002.
Deregulatory Actions of the 1990s Have Improved Both Radio's Economic
Health and Its Ability to Serve Listeners
1992: The Commission Moves to Deregulate Radio Ownership
Prior to the deregulatory gains of the 1990s, radio was encumbered
with anachronistic ownership limitations that restricted the industry's
ability to effectively compete with other mediums.
When the Commission issued its 1992 ruling liberalizing ownership
regulations, the industry was in serious decline. Radio's share of the
local advertising market was flat throughout the 1980s even as the
respective shares of directly competitive media, most notably cable,
increased. In fact, radio's share of the local advertising share,
remained at 12 percent from 1980 to 1990.\1\
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\1\ FCC Report and Order. MM Docket No. 91-140. Released April 10,
1992. 7 FCC Rcd 2759.
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Small market radio stations were particularly hard hit. More than
half of all stations, primarily those with less than $1 million in
sales, were losing money. Most disconcerting, the FCC has found that
almost 300 stations had ceased transmitting (due largely to financial
pressures).\2\
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\2\ Id. at 2760.
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It was with these concerns in mind that the Commission adopted new
ownership regulations in 1992. The new regulations modestly increased
the number of radio stations that could be owned by a single licensee
both nationally and in local markets, depending upon market size.\3\
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\3\ FCC Memorandum Opinion and Order. MM Docket No. 91-140.
Released September 4, 1992. 7 FCC Rcd 6387.
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1996: Congress Further Deregulates Radio
In formulating the 1996 Act, Congress updated ownership regulations
again. While debating the 1996 Act, it was a primary concern of
Congress that radio remain an economically viable medium in an
environment with a host of new mediums competing for the same limited
pool of advertising dollars. For instance, in support of the 1996 Act's
radio ownership provisions, Senator Conrad Burns stated, ``For the
longest time we have viewed radio as competing only with itself . . .
Radio goes head-on with other forms of mass media for the audience and
for those advertising dollars. We need to start acknowledging this
important distinction and give radio the tools it needs to compete with
all other information providers.'' \4\ As will be evidenced below, the
Telecommunications Act has met this Congressional objective as radio
continues to prosper in the face of new competitors.
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\4\ See Senate Congressional Record, June 15, 1995, S. 8424.
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Under the 1996 Act, radio owners are now allowed to own as many
stations as they like nationally. The Act also developed prudent
regulations for local ownership based upon market size. Under the
provisions of the 1996 Act, stations may own as many as 8 commercial
stations in a market with 45 commercial stations; markets with between
30 and 44 stations have a cap of 7 commercial stations for a single
owner; markets with 15 to 29 stations are limited to owning 6 stations
in the market; and in radio markets with fewer than 14 stations, a
party may own up to 5 commercial stations (but not more than half of
the stations in that market). In addition to these guidelines, the Act
regulates how many of these commonly owned stations may be in the same
band.
The Congressionally enumerated regulations for radio ownership have
improved local radio from both an industry economic perspective and
from the perspective of listeners.
Numerous private and governmental studies (including FCC studies
\5\) have well documented the economic as well as public interest
benefits flowing from joint ownership of media entities in a market.
Radio stations are no exception. Many of radio stations' costs are
fixed and can be significantly reduced through common ownership. For
instance, commonly owned radio stations in single markets may share a
single general manager, management personnel and clerical staff.
Commonly owned stations may also avail themselves of ``[B]ulk discounts
on services and supplies, shared operating facilities, advertising and
promotional expenses, and combined technical facilities.'' \6\
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\5\ See, e.g., Report and Order in MM Docket Nos. 91-221 and 87-88,
14 Rcd 12903 (1999) (in loosening the television duopoly rule, the FCC
discussed the ``significant efficiencies inherent in joint ownership
and operation of television station in the same market,'' and how
``[t]hese efficiencies can contribute to programming and other
benefits.'').
\6\ R.B Ekelund, Jr., G.S. Ford, and T. Koutsky, Market Power in
Radio Markets: An Empirical Analysis of Local and National
Concentration, 43 J. Law & Econ. 157 (2000).
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Even before the full market effects of the 1996 Act were felt,
several observers documented the financial advantages of in-market
radio ownership concentration. As early as 1997, a study by BIA
Research, Inc. found, ``The average station involved in a duopoly
combination in the Top 50 markets generated revenue of over $4.6
million. For the average non-duopoly station [also in Top 50 markets] .
. . revenues were under $2.6 million.'' \7\
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\7\ BIA Research, Inc., Radio State of the Industry, 1997.
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The significant cost savings and enhanced profitability stemming
from consolidation have rescued the radio industry from economic
failure. Even during 2001, a devastating year for all advertising
supported mediums, radio's share of the entire mass media advertising
revenue pie remained strong, ranking third with a seventh of all
spending among other advertising mediums such as newspaper and
television.\8\ Moreover, early projections indicate that local radio
advertising revenues will continue to grow by as much as 5 percent
during 2003.\9\
---------------------------------------------------------------------------
\8\ BIAfn, Inc. State of the Radio Industry: Radio Revenues; Is the
Bloom Back? Page 14.
\9\ Robert Cohen, Insider's Report Presentation on Advertising
Expenditures, December 2002, Universal McCann, page 4
---------------------------------------------------------------------------
State of the Dial: In Addition to Remaining Economically Vibrant, the
Radio Industry Has Become More Diverse Since Consolidation
While the deregulatory gains made by the Commission in 1992 and by
Congress in 1996 have, as expected, resulted in ownership
concentration, NAB strongly disputes that these trends have negatively
impacted diversity on the dial. In fact, radio continues adapting to
represent America's evolving demographics and changing musical tastes.
As an initial matter, before demonstrating the positive causal
connection between in-market concentration and enhanced programming
diversity, NAB must stress that recent consolidation trends in the
radio industry may be less dramatic than is commonly assumed. A recent
NAB study found that a large number of commercial radio stations remain
``standalones,'' or are part of local duopolies, in their respective
markets. The study found that nationally, as of November 2001, 1,510
stations (or 23.6 percent of the 6,403 commercial stations operating in
Arbitron markets at the time) are the only stations owned within their
respective market by stations' owners; an additional 1,064 stations
(16.6 percent) are part of duopolies within their respective markets.
Thus, while there has been a decline in ``standalone'' and duopoly
stations, it remains the case that a large number of stations in
Arbitron markets are ``independent voices'' in their markets. This
large number of stand-alone and duopoly stations also provide a path to
entry for new radio broadcasters.
Examining the industry from the perspective of revenue share
reinforces the point that the industry is less consolidated than
critics commonly assume. A Wachovia Securities analysis (Attachment A
*) of the top ten owners in ten media sectors found radio to be the
least consolidated, with the top ten owners controlling only 44 percent
of revenue share. By way of comparison, in the movie studio, Direct
Broadcast Satellite and Theme Park industries, the top ten owners
controlled over 90 percent of industry revenue share. For cable MSOs
and outdoor advertisers, over 80 percent of revenue is concentrated
among the top ten players. Moreover, 3,400 separate entities control
radio stations in the United States.\10\ While there has of course been
consolidation in the industry since 1996--that was the intended effect
of the 1996 Act--NAB submits that critics of deregulation have vastly
overstated the effects of recent ownership trends.
---------------------------------------------------------------------------
\10\ Radio Industry Review 2002: Trends in Ownership, Format and
Finance. George Williams and Scott Roberts. FCC Media Bureau staff
research paper. Page 3.
---------------------------------------------------------------------------
Furthermore, listeners' choices continue to grow. Thirty years ago,
there were but a handful of radio formats on the dial. Today, listeners
may choose from over 250 discrete formats.\11\ Moreover, the available
data would indicate a correlation between deregulation and expansion in
the number of available formats. For instance, an analysis of available
``core'' formats (the most common classifications) found that format
diversity increased by 7 percent between fall of 1996 (prior to passage
of the Act) and the fall of 2001.\12\
---------------------------------------------------------------------------
\11\ Format Diversity: More or Less. Bear Stearns. November 4,
2002.
\12\ Ibid.
---------------------------------------------------------------------------
The link between in-market ownership concentration and enhanced
programming choice was originally postulated by economist Peter Steiner
in his 1952 seminal work, ``Program Patterns and Preferences, and the
Workability of Competition in Radio Broadcasting.'' \13\ Steiner argues
that multiple ownership of stations in a market by a single entity acts
as a natural disincentive towards duplicative programming. After all,
station owners would not want their commonly owned stations competing
for the same audience share. As a result, greater ownership
concentration within a market encourages owners to experiment with
different formats to attract different and untapped listening bases.
---------------------------------------------------------------------------
\13\ Quarterly Journal of Economics. 66. 1952.
---------------------------------------------------------------------------
A series of more recent studies have validated Steiner's theory. A
1999 study concluded that, ``[b]etween 1993 and 1997 ownership
concentration and programming variety available in local radio markets
both increased substantially,'' consequently ``suggest[ing] that the
increased concentration has been good for listeners.'' \14\ The same
study found that ``increased concentration caused an increase in
available programming variety.'' \15\
---------------------------------------------------------------------------
\14\ Steven Berry and Joel Waldfogel, Merger, Station Entry, and
Programming Variety in Radio Broadcasting, National Bureau of Economic
Research, Working Paper 7080 at 25-26 (April 1999).
\15\ Id. at 25 (emphasis added).
---------------------------------------------------------------------------
Most recently, BIA Financial Networks issued a study \16\ on the
state of format diversity demonstrating that the number of programming
formats in Arbitron markets has continued to increase and that a causal
link exists between increased ownership concentration and increased
programming diversity. (The full BIA Study is attached as Attachment B
*). Specifically, the study finds that, since 1998, the average number
of general programming formats offered in all Arbitron surveyed markets
has increased by 8 percent, and the average number of specific
programming by 11.1 percent.\17\ This study therefore clearly shows
that diversity of radio programming has continued to rise in markets of
all sizes.\18\
---------------------------------------------------------------------------
\16\ Has Format Diversity Continued to Increase? BIA Financial
Network, June 5, 2002.
\17\ Ibid. at 5 and 7. This larger increase in the number of
specific programming formats is particularly significant, as it shows
that stations have continued to adopt new and different subformats that
an aggregated measure of formats using general format categories does
not capture.
\18\ Id. at 5-6. The smallest Arbitron markets (rank 101 and
higher) receive, on average, 9.5 general and 12.3 specific programming
formats. The largest markets (rank 1-10) receive, on average, 17.0
general and 38.6 specific programming formats.
---------------------------------------------------------------------------
Interestingly, the BIA Financial Networks study also found that the
above analysis actually understates the level of programming diversity
because it fails to take into account ``out of market'' listening. On
average, the study finds, less than three-quarters (71.1 percent) of
the listening within a market is attributable to commercial radio
stations listed by Arbitron as being ``home'' to that market. The
effect of ``out of market'' listening is most pronounced in smaller
markets where this ``distant'' listening is most common.\19\
---------------------------------------------------------------------------
\19\ Id at 9.
---------------------------------------------------------------------------
On multiple occasions, the FCC itself has recognized the
relationship between concentration and format diversity. When
liberalizing inter-market ownership regulations in 1992, the Commission
envisioned that consolidated ownership would promote ``program service
diversity and the development of new broadcast services.'' \20\
---------------------------------------------------------------------------
\20\ 1992 Radio Ownership Order, 7 FCC Rcd at 2757.
---------------------------------------------------------------------------
In short, not only is there a preponderance of evidence to back the
assertion that greater levels of ownership concentration promote
programming diversity rather than hinder it, but there is also
empirical evidence that this theory has played out in reality since the
deregulatory moves by the Commission in 1992 and by Congress in 1996.
Additionally, industry growth has further contributed to diversity. The
number of FM stations has tripled in the last 30 years and, in 2001
alone, 73 new FM stations went on-air.\21\
---------------------------------------------------------------------------
\21\ Radio Today: How America Listens to Radio, Arbitron Study,
2001.
---------------------------------------------------------------------------
Finally, in addition to the range of choices terrestrial radio
affords listeners (that is largely resultant of ownership
deregulation), technological innovation has further broadened
consumers' options with several newly arrived competitors that were not
even considered when the Telecommunications Act was formulated.
Internet-only radio continues to blossom as a competitor to traditional
radio. Estimates suggest that more than half of all American households
are online.\22\ As more Americans become Internet savvy, this new
outlet will only grow in importance. The 2001 and 2002 launches of XM
and Sirius satellite radio, each transmitting over 100 channels of
niche radio programming, provide consumers with yet more options. With
over 1 million listeners expected to be subscribing to XM alone by
year-end 2003,\23\ and Sirius having over 16,000 subscribers as of
October 2002,\24\ satellite radio clearly provides another vigorous
competitor. Additionally, according to the FCC's website, there are 70
Low Power FM stations currently licensed.\25\ The FCC's continued roll
out of this service will further expand listening alternatives. In
short, technology will only serve to enrich listeners' already diverse
range of choices in the years ahead.
---------------------------------------------------------------------------
\22\ Knowledge Networks/SRI Home Technology Monitor Ownership
Report, Spring 2002.
\23\ XM reaches 360,000 subscribers. XM Satellite Radio Press
Release. January 8, 2003.
\24\ Sirius Announces Third Quarter Financial and Operating
Results. Sirius Satellite Radio Press Release. November 14, 2002.
\25\ http://svartifoss2.fcc.gov/cgi-bin/ws.exe/prod/cdbs/pubacc/
prod/sta_list.pl.
---------------------------------------------------------------------------
The Enhanced Diversity Resulting From the Telecommunications Act
Benefits the Listening Public
Listeners have benefited from expanded diversity in a number of
ways. In recent years, radio has closely mirrored America's evolving
demography. The past decade, for instance, has seen an 82 percent
increase in Spanish language formatted stations.\26\ Other ethnicities
are well represented on the dial. Today, listeners may experience
Korean language stations, Farsi language radio, Chinese radio
programming, Polish-American programming, Arab language formats,
Vietnamese and Russian language programming, and Haitian targeted
programming. Moreover, these stations are not located exclusively in
major markets; as the American suburbs diversify demographically,
suburban American radio has responded with programming targeted to
these new audiences.\27\ These ethnically targeted stations play an
irreplaceable role in America's ethnic communities. In reference to
KIRN-AM 670, a Farsi language station in Los Angeles, one listener
said, ``The station is a kind of town hall. It became a clearinghouse
of information . . . 670 has become a meeting place for the Iranian
community.'' \28\
---------------------------------------------------------------------------
\26\ M Street Directory. 2002.
\27\ See All Languages, All the Time, and All Over the Suburban
Dial. New York Times, July 21, 2001. 21.
\28\ See Iranian Anger on AM Dial: Persian station KIRN serves as a
forum for immigrants upset by Dec. 16 detentions. Los Angeles Times.
December 29, 2002. Part 2; Page 1.
---------------------------------------------------------------------------
Terrestrial radio also continues to be American's dominant source
for emerging trends in popular music. In 2002 alone, over 3,000 new
songs debuted on local radio and over 550 new artists received
airplay.\29\ A recent FCC study of ``playlist'' diversity on radio
stations found that, while song diversity overall remained stable
between 1996 and 2001, the playlists for stations with the same general
formats competing in the same local market ``have diverged, so that
listeners in local radio markets may have experienced increasing song
diversity.'' \30\
---------------------------------------------------------------------------
\29\ Media Base 2002. http://www.mediabase.com/Note: Airplay
defined as at least 50 plays.
\30\ FCC, George Williams, Keith Brown and Pete Alexander, Radio
Market Structure and Music Diversity at 17-18 (September 2002).
---------------------------------------------------------------------------
Accordingly, listeners trust radio as their primary source for
music. Arbitron has found that over two-thirds of listeners said that
radio is where they turn first to hear new artists.\31\ A December
survey by the Washington polling firm the Mellman Group found that 77
percent of consumers believe their favorite local radio stations
provide the music that they like either all of the time, most of the
time or some of the time. Only 13 percent of radio listeners believe
that local stations rarely or never carry music that they like. (The
Mellman Group's Analysis is attached as Attachment C *.)
---------------------------------------------------------------------------
\31\ Internet 9: The Media and Entertainment World of Online
Consumers. Arbitron/Edison Media. July, 2002.
---------------------------------------------------------------------------
The Mellman survey also found that consumer satisfaction with the
medium is not limited to music. Seventy-eight percent of respondents to
the survey felt that radio played a ``very important'' or ``somewhat
important'' role in providing valuable news and information. Consumers
also rate radio highly in comparison to other mediums. The Arbitron
study found that consumers (aged 12 and higher) rated only the
ubiquitous television as more essential to their lives.\32\
---------------------------------------------------------------------------
\32\ Ibid at 3.
---------------------------------------------------------------------------
It should not be surprising that consumers rely so heavily upon
radio for music, news and community information despite the arrival of
other information and entertainment outlets (e.g., broadcast, cable and
satellite television and, more recently, the Internet and satellite
radio). Arguably, radio is perhaps the medium most responsive to
consumers' changing tastes. Stations spend millions of dollars every
year researching consumer preferences and with station revenues linked
directly to regularly issued ratings reports, radio acts in the best
tradition of the free market, providing consumers with the programming
they want, when they want it.
Equally important to radio's strong retention of consumer loyalty,
is that radio, even in the twenty-first century, remains first and
foremost a local, community-oriented medium. This remains true even
after consolidation. Radio stations, regardless of their ownership
status, continue to tailor their programming and news to local
audiences' preferences and needs. In 2002, for instance, radio aired
over 11,000 sporting events targeted to local communities. Local
interests also largely determine music selected for airplay. The song
``Screaming Infidelities'' by Dashboard Confessional, for instance, had
hundreds of plays in Dallas, Texas during 2002, but only a handful in
Washington, D.C.\33\
---------------------------------------------------------------------------
\33\ MediaBase, 2002.
---------------------------------------------------------------------------
Perhaps more importantly, radio stations use their strong local
connection to improve the communities in which they operate. Through
the airing of Public Service Announcements (PSAs), by acting as a forum
for discussion of community issues, by raising money to address local
(and for that matter national) problems and in countless other ways,
radio stations endeavor to serve their communities. The recent
successes of the AMBER Plan system, which uses the Emergency Alert
System to assist law enforcement in the recovery of abducted children,
speaks to the unique role radio plays in serving communities.
Radio broadcasters' community service efforts add up quickly. A
2002 study by the National Association of Broadcasters found that
during a single year (2001), local radio contributed $7 billion dollars
worth of public service. This dollar amount represented the value of
PSAs contributed by broadcasters as well as monies raised for
charities, disaster relief, and needy individuals.\34\
---------------------------------------------------------------------------
\34\ A National Report on Local Broadcasters' Community Service.
June 2002.
---------------------------------------------------------------------------
Clearly, the radio industry has a bright future as it continues to
serve local needs and interests. This service will be augmented as the
industry rolls-out HD (high-definition) radioTM which will
offer listeners CD-quality sound on FM, and FM-quality sound on AM, all
for free. Over 40 markets are expected to be broadcasting in the IBOC
digital format by the end of 2003 \35\ and broadcasters look forward to
harnessing this technology to better serve American consumers.
---------------------------------------------------------------------------
\35\ 40 Markets to Broadcast HD Radio in Early 2003. Ibiquity
Digital Radio Press Release. January 10, 2003.
---------------------------------------------------------------------------
The ``Competition in Radio and Concert Industries Act'' Would Not
Further the Causes of Diversity or Competition but Could
Engender Severe
Unintended Consequences
For the many reasons explained above, the National Association of
Broadcasters believes that the Congressionally enumerated ownership
regulations contained in the Telecommunications Act of 1996 have
positively impacted the radio industry's economic health and its
ability to better serve local communities. As such, NAB is skeptical
that the recently introduced ``Competition in Radio and Concert
Industries Act'' would affect any positive change. NAB believes the
bill could potentially have several severe unintended consequences.
Several aspects of the bill are duplicative of existing safeguards
and would simply create unnecessary work for already burdened
regulators. Section 3 of the bill prohibits radio stations, concert
promoters, and concert venue operators from engaging in allegedly
anticompetitive conduct. The bill instructs the FCC to revoke the
license of any radio station that uses its cross-ownership of radio
stations, promotion services or venues to discriminate against concert
promoters, content providers, or other stations.
These provisions are unnecessary in light of the existing
regulatory framework. The Federal Trade Commission and the Department
of Justice are already equipped to identify and address anticompetitive
conduct. Under current statute, the FTC and DOJ have the authority to
remedy anticompetitive behavior through preliminary or permanent
injunctive relief. Since passage of the 1996 Act, the DOJ has
diligently reviewed allegations of consumer harm caused by
consolidation in the radio industry, often requiring divestiture of
stations.\36\
---------------------------------------------------------------------------
\36\ The Antitrust Division of the Department of Justice has
actively regulated the radio industry to address competitive concerns.
For example, the Antitrust Division forced Sinclair Broadcasting to
restructure a transaction to exclude a radio station that raised
antitrust concerns; challenged the merger between Jacor and
Citicasters, leading to an agreement to divest a station; challenged
the proposed acquisition of three stations by American Radio Systems
from the Lincoln Group, leading to the divestiture of three stations;
challenged the $4.9 billion acquisition of Infinity Broadcasting by
Westinghouse, requiring the divestiture of stations; challenged the
proposed acquisition of three stations by Gulfstar Communications,
which led the parties to abandon the deal; challenged Chancellor's
acquisition of four stations, resulting in abandonment of the deal and
Chancellor terminating a local marketing agreement under which
Chancellor had been operating the stations in anticipation of the
acquisition; challenged the $1.6 billion acquisition of American Radio
Systems by CBS, requiring CBS to divest seven stations; and challenged
the $2.1 billion acquisition of SFX Broadcasting by Capstar
Broadcasting Partners, Inc., requiring Capstar to divest 11 radio
stations. 1999 Antitrust Division, United States Department of Justice,
Annual Report. This is but a small sampling of the active involvement
of the Department of Justice in regulating competitive concerns in the
radio industry since the passage of the 1996 Act.
---------------------------------------------------------------------------
Section 7 of the bill is also redundant in light of current law.
The Section requires the Commission to modify ``pay-for-play'' or
payola regulations. Under the overbroad language, a licensee would be
prohibited from garnering consideration, directly or indirectly, from
record companies, artists or concert promoters. Moreover, the language
could be construed to prohibit broadcasters from accepting advertising
from record companies.
NAB believes that the payola laws enacted in 1960 remain effective
today and that no Congressional intervention is required. The system of
independent promoters is largely of the record companies' creation and
the record companies should be responsible for ending the practice
should they feel unfairly burdened by it. Moreover, NAB submits that
the radio industry is in compliance with current statute and, if there
were indeed violations of the law, evidence of those violations would
most certainly have been presented to the FCC or Department of Justice.
No such complaints have been made and NAB questions the wisdom of
passing duplicative legislation to remedy non-existent problems.
While Sections 3 and 7 of the bill are largely duplicative of
current law, other provisions in the bill are more onerous. NAB is
strongly opposed to sections of the bill that would impose new
ownership regulations. Section 4(b) of the bill directs the FCC to
amend its regulations to prohibit any transfer when the applicant would
control stations with more than 35 percent of the audience or
advertising revenue in a local market. By doing so, the bill could
potentially lock into place permanent competitive imbalances. In
markets where one entity already commands over 35 percent of audience
share (presumably these entities would be grandfathered as the
legislation contains no provisions for divestiture), other station
owners would be permanently disadvantaged as the bill would prohibit
these new competitors from growing their advertising or audience share
beyond the newly established 35 percent threshold. As such, the ``early
consolidator'' that is grandfathered in behind the 35 percent cap would
retain a permanent in-market advantage.
Already, the FCC's policy of ``flagging'' for further scrutiny any
proposed radio transactions that would result in a single radio group
controlling 50 percent or more of the advertising revenues, or two
radio groups accounting for 70 percent or more of the advertising
revenues in that market, has contributed to competitive imbalances.\37\
Section 4(b) of the bill would go well beyond the FCC's ``50/70'' test
and reproduce this unhappy phenomenon in countless other markets.
---------------------------------------------------------------------------
\37\ See NAB's FCC Comments on MM Docket Nos. 01-317 and 00-244.
March 27, 2002. Page 48.
---------------------------------------------------------------------------
Additionally, by requiring the Commission to conduct a hearing on
any transfer application that, if granted, would result in the
applicant having a national audience reach in excess of 60 percent
(Section 4 (a)(1)), the legislation would arbitrarily target a new
requirement at one company. Only one company, Clear Channel
Communications, is even remotely close to approaching a 60 percent
national audience share.
Regardless of the dangerous precedent involved in crafting new
regulations aimed at penalizing a single entity, the provision would
unfairly burden any company to which the new regulation would apply. By
designating for hearing any ``application for the grant, transfer,
assignment, or renewal of a license'' that would result in a company
exceeding 60 percent national audience share, the bill would mandate
hearings for routine license renewals, for transactions involving the
purchase of single stations, and even for the construction of new
stations.
Moreover, setting an arbitrary threshold (such as 60 percent) seems
unwise given the dynamic nature of media markets. As new mediums such
as satellite radio and online music come to full gestation, regulators
will need more latitude, not less, in regulating radio ownership and
how radio competes with other media.
NAB also opposes section 5 of the bill, which would require the
Commission to review the ``advisability of its continuing to utilize
privately-controlled audience measurement systems to determine the
local markets of radio stations.'' In fact, at this time, the FCC does
not utilize Arbitron or any privately controlled services to determine
markets for purposes of its radio ownership rules. Currently, the
Commission relies on overlapping station contours to determine
geographic markets, although it has sought comment on the subject as
part of its ongoing rulemaking.\38\
---------------------------------------------------------------------------
\38\ In FCC filings in February 2001, March 2002, and January 2003,
NAB strongly advised the Commission against changing the way in which
it defines radio markets, and particularly advised the Commission not
to adopt Arbitron's market definitions. The current methodology for
defining radio markets was in effect in 1996 and was unchanged by
Congress when it revised the radio ownership rules. Further, while the
widely varied nature of radio stations inevitably means that any market
definition will result in some anomalies, the number of perceived
anomalies with the FCC's existing method is quite small and there is no
evidence that any alternative would result in fewer. The large amount
of out-of-market listening described above also suggests that the
current definitions, based on predicted contours, is actually
conservative and there may be more competing stations than the current
definition recognizes.
---------------------------------------------------------------------------
In sum, ``The Competition in Radio and Concert Industries Act''
imposes a number of new, unneeded and cumbersome regulations upon radio
licensees. NAB believes that any problems the bill seeks to remedy are
already adequately addressed in current law. Implementation of the bill
would unnecessarily burden the FCC with duties it is ill equipped to
fulfill, unfairly penalize broadcasters and engender several
unintended, severe, and anticompetitive consequences.
Broadcasters Support ``The Telecommunications Ownership Diversification
Act''
While the NAB must oppose Senator Feingold's bill, we recognize
that radio's greatest strengths have always been its connection to
local community and the diversity of its owners and, therefore, its
programming. That is why NAB has commended Chairman McCain for
introducing the ``Telecommunications Ownership Diversification Act of
2002'' (S. 3112). Through use of the tax code, this legislation would
foster ownership diversity and encourage minority acquisition of radio
as well as other telecommunications outlets. NAB encourages the
Committee and Congress to further explore such innovative approaches in
the future.
Conclusion
Since the first station went on the air in the 1920s, American
radio has been defined by its dedication to localism and community. As
technology has offered new competitors, the government has granted
radio the flexibility to more effectively compete for advertising
dollars. These deregulatory gains, implemented first in 1992 by the
Commission and furthered by Congress in 1996, have allowed the industry
to flourish financially. Additionally, recent ownership trends
involving greater concentration within local markets have acted as a
natural incentive towards greater programming diversity.
Clearly, the steps taken by the Commission and Congress have
provided radio with the necessary tools to compete with other outlets
in the information age. As such, NAB opposes the ``Competition in Radio
and Concert Industries Act'' which would, in many cases, duplicate
current law and in other cases engender several severe unintended
consequences. NAB urges Congress to retain the prudent ownership
regulations instated through the Telecommunications Act of 1996 in
order to advance the financial health of the industry, promote
diversity on the airwaves, and allow radio to continue providing local
communities with the service upon which they have come to rely.
* The Attachments referred to (in this prepared statement) have been
retained in Committee files.
The Chairman. Thank you very much.
Mr. Henley, welcome.
STATEMENT OF DON HENLEY, RECORDING ARTISTS' COALITION
Mr. Henley. Thank you, sir. I am honored to be here and I
thank you and all the other Members of the Committee for
letting me speak today on behalf of the Recording Artists'
Coalition.
Before I begin my testimony, I feel compelled to speak to a
statement that was made a little bit earlier by Senator
Brownback. I very much feel it is important that I address some
of the comments he made not only in this room, but in a press
release from his office that came out this morning. So if I
may, I would like to address that and then I will begin my
testimony.
Senator Brownback's news release said ``It is my
understanding that the Future of Music Coalition and Mr. Henley
are here today to address how consolidation is preventing
artists' access to the airwaves and the public.
Recently the artist community banded together with
recording companies in an effort to advance webcasting royalty
legislation that ultimately could have driven many small
webcasters out of business. It is my understanding that artists
supported this bill as a way of forcing an increase in the
royalties charged by BMI and ASCAP.''
And I would like to state for the record that nothing could
be further from the truth. In fact, we pushed for a small
webcaster bill from day one when the Copyright Office released
its rates. We were on the radio the very next day condoning
that and saying that we were all for it.
First of all, the small webcaster bill kept people in the
business, and for the very first time, artists were paid a
performance royalty for webcasting. We are not traditionally
paid. Because of the power of Mr. Fritts' lobby here in
Washington, we are not traditionally paid a performance royalty
for terrestrial broadcasts. We are the only country in the free
world that does not pay an artist a performance royalty when a
singer sings on the radio, and we are penalized for that around
the world.
So we worked closely with Senator Leahy and Senator Hatch,
and we were totally in favor of a viable small webcaster bill
for people who have businesses and who pay all their royalties.
So I just wanted to clear that up. Thank you for letting me do
that.
It is often said that radio airplay determines whether a
recording artist will succeed or fail, and even with the
ascendancy of the Internet and webcasting, radio airplay is
still the most important factor in an artist's career. And this
is especially true for new and younger artists. Getting on the
radio, in one way or another, is the holy grail of our
business. And in a perfect world, merit would determine which
records get played on the radio, but this is far from a perfect
world.
When I started in this business some 35 years ago, radio,
and especially FM radio, offered a wide variety of stations,
each presenting an interesting array of musical genres. A
listener could tune into a single FM station and hear rock
music, rhythm and blues, folk music, soul music, pop music, and
everything in between. The breadth of music on the airwaves was
varied and exciting, and genres were not compartmentalized and
put into little boxes. Listeners were encouraged to explore
different styles and to stretch the boundaries of their tastes.
The idea was not to fragment society into what is now called
demographics, but rather to bring people together. The benefit
to the public and to our culture and to our economy was
enormous. Artists could spread their wings and reach audiences
never reached before and create self-sustaining careers on an
unprecedented scale.
But slowly the radio world and, along with it, the music
industry changed. As local and independent radio stations were
purchased by larger corporations, radio playlists started to
contract and become much more uniform. In an effort to gain
more control over the music industry, radio conglomerates
started to narrow their playlists and to centralize the radio
programming function that had traditionally been done
independently by each individual station. Radio consolidation
made it increasingly more difficult for an artist to get radio
airplay. Radio network programmers became more powerful and
demanding. And not only did they erode the vitality of American
music, they placed themselves in a singularly powerful position
to extract additional concessions from the labels and the
artists.
Payola is not new. It has been around for a very long time,
going back at least to the 1950s. It has always been here. But
today, as a result of this unprecedented consolidation, record
labels must now hire independent promoters on an even grander
scale to help convince radio networks and stations to play
certain records. Millions and millions of dollars are spent
annually on what is called ``independent radio promotion.'' The
unspoken rule is that some form of special promotional or
marketing consideration must be provided by the independent
promoters to the radio station. The more consideration, the
better chance a record has of being represented by the
independent promoter and then getting airplay. So we all
accept, with great sadness, the fact that merit plays only a
small part in the equation, if it plays any part at all. A
recording artist has a much better chance of getting on the
radio if the promotional budget for a record is large than if
the record is good. And then, adding insult to injury, the
promotional fees paid to the independent promoters are recouped
either in whole or in part against the artist's royalties. So
essentially, the artist is still paying for radio airplay and
paying more than ever.
The 1996 Telecommunications Act strengthened the
conglomerates' position tenfold when it loosened the
restrictions even further. The consideration sought for radio
airplay increased because there was less competition among
radio stations and networks. The more powerful the radio
network, the greater the pressure on artists and labels to
spend independent promotion money. These days, many radio
stations are now demanding exclusive promotional concerts from
certain artists who are on their way up the ladder of success.
And this is just another form of payola. When these up and
coming artists refuse to do these promotional concerts, there
can be negative repercussions, as evidenced in some of the
materials that I have provided or will be providing to the
Committee staff.
In recent years, the problem has escalated unimaginably
because some of the same conglomerates that are buying radio
stations at an unprecedented pace have also embarked on a
buying spree of venues, agencies, and concert promotion
companies. So, the company determining whether or not a record
is played on the air may be the very same company that owns the
venue and books the tour.
There was an incident not too long ago involving my manager
and one of the other artists that he manages and Clear Channel
Entertainment. This artist was asked to do a promotional
concert for Clear Channel Entertainment. She had done a couple
of these things before. She declined in this instance for a
very good reason. She was in the studio trying to finish an
album on deadline. The record label was breathing down her neck
and she declined to play this promotional concert.
My manager received a phone call from a gentleman named
Michael Martin, who is a San Francisco programmer for Clear
Channel, requesting this appearance by the artist. Also on the
phone was an independent promotion man. My manager was told,
after he declined the artist's participation, that Michael
Martin programmed all 40 rhythm stations owned by Clear
Channel. And to make a long story short, the artist's next
single was basically boycotted.
I have an exchange of letters that some of you have seen.
Clear Channel, of course, denies this. My manager would be glad
to speak to any of you about this incident.
So, this institutionalized conflict of interest places the
artist in a vastly uncompetitive and weak position. What
happens when an artist refuses to perform in venues that are
owned by the radio network or chooses not to go on tour with a
promotion company not owned by the same company that owns the
radio network? Will the artist's records be played on that
network, or will the company reduce or eliminate radio airplay?
Most artists cannot afford to find out.
In fact, I come here today at my own peril. There is a very
good chance that my records or that records of The Eagles could
be reduced in airplay or eliminated altogether. I do not know.
This unprecedented control over the music industry by the
conglomerates is hurting the music business and it is hurting
the culture. It is preventing talented new artists from
emerging and it is generally casting a pall over a business
that has already been decimated by peer-to-peer file sharing, a
faltering economy and fierce competition from other
entertainment industries.
Artists, managers, and record labels are not the only ones
speaking out about this. Mr. William Safire, one of the most
well-known conservative columnists in the country, has strongly
condemned the unbridled consolidation of the radio industry in
a recent New York Times editorial. Mr. Safire persuasively
makes the case that further deregulation will hasten the demise
of diversity and competition on the airwaves.
Because of the 1996 Act and subsequent FCC deregulation,
the two largest radio chains in 1996 owned 115 stations. Today
those two own more than 1,400 stations. The top five radio
chains used to generate only 20 percent of industry revenue.
Now, they generate 55 percent of all money spent on local
radio.
Mr. Mays claims that his company owns a very small
percentage of the total stations in the country. Yet he fails
to break down their ownership by format. He fails to point out
that they are 50 percent of the pop airplay in the United
States of America, which is the crucial ``make it or break it''
format. They are 50 percent.
The number of station owners has plummeted by a third and,
as a result, as Mr. Safire says, ``the great cacophony of
different sounds and voices on the radio is being amalgamated
and homogenized.''
As Mr. Safire also points out, the radio airwaves are
loaned by the public to the radio station owners. The radio
airwaves cannot be equated with grocery store shelves. The
airwaves belong to the public, just as national forests belong
to the public, and they are supposed to be used to benefit the
public as well as to foster economic growth.
When radio station owners engage in unbridled, unregulated
consolidation, clearly the public interest is not served and
the industry as a whole stagnates. Deregulation in this regard
is not pro-business. It is anticompetitive. And like Teddy
Roosevelt before him, Mr. Safire's conservative economic
religion is founded on the rock of competition, and endless
consolidation harms competition. Regulation does not always
have to be anti-business.
The problem of radio consolidation will only get worse if
the FCC is allowed to remove the last limitations on ownership.
The Recording Artists' Coalition not only strongly opposes the
proposed FCC action, we strongly advocate for a reexamination
of the effect of the 1996 Telecommunications Act, and with that
reexamination, propose the implementation of new restrictions
on the conglomerates. Artists can no longer stand for the
exorbitant radio promotion costs, nor can we tolerate the overt
or covert threats posed by companies owning radio stations and
venues and agencies. The public interest is only served when
the airwaves provide diverse and exciting programming which
benefits both our culture and our economy, and this will only
be possible when artists are free to compete in an open
marketplace, not shackled by anticompetitive practices of the
conglomerates.
And in conclusion, I want to say this. What is the
definition of liberty and freedom? What is the definition of a
free market? Is it being able to own as much as you can own
even if it runs counter and contrary to the public interest?
Historically, the FCC's definition of the public interest is
threefold: diversity, localism, and competition. And we believe
that consolidation is undermining this.
The radio conglomerates have usurped and they have coopted
the people's airwaves. And they get them for free. They build
multi- billion dollar empires on the public airwaves for free.
You talk about a ``takings'' issue. To me this is a ``taking.''
So, Congress must address these issues as quickly as
possible because the future of musical creativity and artistic
expression in this Nation depends upon your action. And I thank
you again for this opportunity to discuss these important
issues.
[The prepared statement of Mr. Henley follows:]
Prepared Statement of Don Henley, Representing the Recording Artists'
Coalition
Mr. Chairman and Members of the Committee:
I am honored to be here and I thank you for the opportunity to
speak today on behalf of recording artists and the Recording Artists'
Coalition (RAC).
It is often said that radio airplay determines whether a recording
artist will succeed or fail. Even with the ascendancy of the Internet,
radio airplay is still the most important factor in an artist's career,
and this is especially true for new and younger artists. Getting on the
radio, in one way or another, is the holy grail of our business. In a
perfect world, merit would determine which records get played on radio,
but this is far from a perfect world.
When I started in this business, radio, especially FM radio,
offered a wide variety of stations, each presenting an interesting
array of musical genres. A listener could tune into a single FM station
and hear rock music, rhythm and blues music, folk music, soul music,
pop music and everything in between. The breadth of music on the
airwaves was varied and exciting and genres were not compartmentalized
and put into little boxes. Listeners were encouraged to explore
different styles and to stretch the boundaries of their tastes. The
idea was not to fragment society into what is now called demographics,
but rather to bring people together. The benefit to the public, our
culture and economy, was enormous. Artists could spread their wings,
reach audiences never reached before, and create self-sustaining
careers on an unprecedented scale.
But slowly the radio world along with the music industry has
changed. As local and independent radio stations were purchased by
larger corporations, radio playlists started to contract and become
much more uniform. In an effort to gain more control over the music
industry, radio conglomerates started to narrow playlists and
centralize the radio programming function that had traditionally been
done independently by each individual station. Radio consolidation made
it increasingly more difficult for an artist to get radio airplay.
Radio network programmers became more powerful and demanding. And not
only did they erode the vitality of American music, they placed
themselves in a singularly powerful position to extract additional
concessions from the labels and the artists.
As a result of this unprecedented consolidation, record labels must
now hire independent promoters on an even grander scale to help
convince radio networks and stations to play certain records. The
unspoken rule is that some form of special promotional or marketing
consideration must be provided by the independent promoters to the
radio station. The more consideration, the better chance a record has
of being represented by the independent promoter and getting airplay.
So, we all accept with great sadness the fact that merit plays only a
small part in the equation, if it plays any part at all. A recording
artist has a much better chance of getting radio airplay if the
promotional budget for a record is large, than if the record is good.
And then adding insult to injury, the promotional fees paid to the
independent promoters are recouped either in whole or in part, against
the artist's royalties. So essentially, the artist is still paying for
radio airplay--and paying more than ever.
The 1996 Telecommunications Act strengthened the conglomerates
position tenfold when it loosened the restrictions even further. The
consideration sought for radio airplay increased because there was less
competition among radio stations and networks--the more powerful the
radio network, the greater the pressure on artists and labels to spend
independent promotion money. These days, many radio stations are now
demanding exclusive promotional concerts from certain artists who are
on their way up the ladder of success. When these up and coming artists
refuse, there can be negative repercussions as evidenced in some of the
materials that I have provided--or will be providing--to Committee
staff.
In recent years, the problem has escalated unimaginably because
some of the same conglomerates that are buying radio stations at an
unprecedented pace have also embarked on a buying spree of venues,
agencies, and concert promotion companies. So, the company determining
whether or not a record is played on the air may be the same company
owning the venue and booking the tour.
This institutionalized conflict of interest places the artist in a
vastly uncompetitive and weak position. What happens when an artist
refuses to perform in venues that are owned by the radio network, or
chooses to go on tour with a promotion company not owned by the same
company that owns the radio network? Will the artist's records be
played on that network or will the company reduce or eliminate radio
airplay? Most artists cannot afford to find out.
This unprecedented control over the music industry by the
conglomerates is hurting the music business and the culture. It is
preventing talented, new artists from emerging and is generally casting
a pall over a business that has already been decimated by peer to peer
sharing, a faltering economy and fierce competition from other
entertainment industries.
Artists, managers and record labels are not the only ones speaking
out. William Safire, one of the most well-known, conservative
columnists in the country, has strongly condemned the unbridled
consolidation of the radio industry in a recent New York Times
editorial. Mr. Safire persuasively makes the case that further
deregulation will hasten the demise of diversity and competition on the
airwaves.
Because of the 1996 Act, and subsequent FCC deregulation, the two
largest radio chains in 1996 owned 115 stations. Today, those two own
more than 1,400. The top five radio chains used to generate only 20
percent of industry revenue; now they generate 55 percent of all money
spent on local radio. The number of station owners has plummeted by a
third. As a result, ``the great cacophony of different sounds and
voices on the radio is being amalgamated and homogenized.'' As Mr.
Safire points out, the radio airwaves are loaned by the public to the
radio station owners for the benefit of the public, as well as to
foster economic growth. When radio station owners engage in unbridled,
unregulated consolidation, clearly the public interest is not served,
and the industry as a whole stagnates. Deregulation in this regard is
not pro-business, it is anti-competitive, and like Teddy Roosevelt
before him, Mr. Safire's conservative economic religion is founded on
the rock of competition and endless consolidation harms competition.
Regulation does not always have to be anti-business.
The problem of radio consolidation will only get worse if the FCC
is allowed to remove the last limitations on ownership. The RAC not
only strongly opposes the proposed FCC action, we strongly advocate for
a reexamination of the effect of the 1996 Telecommunications Act, and
with that reexamination, propose the implementation of new restrictions
on the conglomerates. Artists can no longer stand for the exorbitant
radio promotion costs nor can we tolerate the overt or covert threats
posed by companies owning radio stations, venues and agencies. The
public interest is only served when the airwaves provide diverse and
exciting programming--our culture benefits and the economy is
strengthened. This will only be possible when artists are free to
compete in an open marketplace, not shackled by the anti-competitive
practices of the conglomerates. Congress must address these issues as
quickly as possible. The future of musical creativity and artistic
expression in this Nation depends upon your action.
I thank you again for this opportunity to discuss these important
issues with the Committee.
The Chairman. Thank you very much, Mr. Henley.
Mr. Short, welcome.
STATEMENT OF ROBERT SHORT, JR., PRESIDENT, SHORT BROADCASTING
CO., INC.
Mr. Short. Thank you. Good morning, Mr. Chairman McCain and
Members of the Committee. My name is Robert Short, Jr., and I
am the president of Short Broadcasting Company, Incorporated. I
am also a former member of the board of directors of the
National Association of Black Owned Broadcasters, Incorporated,
NABOB.
I thank you for inviting me to testify this morning. It is
a pleasure to have the opportunity to talk about the negative
effects on the American public of the excessive consolidation
of ownership in the broadcast industry since the passage of the
Telecommunications Act of 1996.
Short Broadcasting is a victim of the Telecommunications
Act of 1996. Short Broadcasting sold our only broadcast station
WRDS, Syracuse, New York in 2000 after a brief five-and-a-half
years on the air. We were a stand-alone radio station providing
a locally owned and programmed voice for the African-American
community of Syracuse. We provided local news and public
affairs programming without regard to oversight from any
distant corporate parent. WRDS carried news stories that other
media ignored. Through the public affairs programs that we
offered, we allowed individuals on our station who were not
invited to speak on other stations. We hired people with no
broadcast experience and we taught them the business.
It was not my desire to sell WRDS when we did. We sold
because we were unable to compete with Clear Channel. Clear
Channel had and continues to have more than a 50 percent
revenue share in the Syracuse market. With its ownership of
over 1,200 radio stations nationwide and 7 radio stations in
the Syracuse market, Clear Channel was able to exercise market
power with advertisers in a manner which rendered us unable to
compete. In addition, Citadel, which now has over 200 radio
stations across the country, had 4 stations in the Syracuse
market, and a 25 percent share of the revenue. The market
dominance of Clear Channel and Citadel made it impossible for
WRDS to continue to operate in this market.
WRDS went on the air in 1995 with an urban format and
became an instant success with the Syracuse urban community.
WRDS offered quality urban programming and lifestyle
information that had never before been available to the
Syracuse urban community. WRDS served the urban community on a
daily basis and was the most effective medium to reach the
African-American community in Syracuse. For many local business
owners, WRDS was the only viable outlet to reach their target
demographic at an affordable price. Yet, with all of the
community success that we experienced, it was difficult for
WRDS to survive.
WRDS was very successful in the Arbitron ratings. We ranked
number 1 or 2 with adults 18 to 34 years old in some day-parts,
and we usually had the highest time spent listening in the
market. Nevertheless, WRDS found it very difficult to convert
this audience rating success into advertising revenue and
financial success. WRDS was a stand-alone station that was
forced to compete against media giants with multiple stations
in the Syracuse market.
From the time Clear Channel entered the market in Syracuse,
it began the process of squeezing Short Broadcasting out of the
market. Among the most egregious acts were the following:
One, in 1996, as soon as Clear Channel came into the
market, they converted a country station to a format that
competed with WRDS.
Number two, Clear Channel used its national advertising
dominance to dominate local advertising in Syracuse.
Three, Clear Channel owns Katz Media, one of only two
national rep firms. This allowed Clear Channel to control
national advertising in Syracuse.
Number four, Clear Channel offered advertisers sales
packages in which, if they purchased the package, they could
receive advertising on stations that competed with WRDS at
little or no charge.
Today WRDS no longer exists. After nearly five-and-a-half
years of being unable to compete from a revenue and operational
standpoint, I was forced to sell WRDS to Galaxy Communications.
The Syracuse community lost an important source of diversity
when WRDS was sold. Now the only urban format in Syracuse is
WPHR, which is owned by Clear Channel, and the African-American
community in Syracuse is not as well served by this change.
Clear Channel, unlike Short Broadcasting, allows disc jockeys
to use profanity on the air. Clear Channel, unlike Short
Broadcasting, uses on-air positioning statements that contain
profanity. Additionally, much of the rap music that airs on
Clear Channel's urban and top 40 stations also has profanity in
it. These lax standards result in unsuitable programming for
children and teens. It is distasteful and degrading to women
and self-respecting African-Americans.
The issue now before Congress is this. Minorities were
virtually shut out of the ownership in the broadcast industry
until 1978 when, with Congressional approval, the FCC adopted a
policy to promote minority ownership of broadcast stations. The
Telecommunications Act of 1996 in a few short years has
eliminated many of the gains of the preceding 18 years. Now one
company, Clear Channel, touts itself as the largest programmer
to minority audiences. However, it has achieved this position
by driving small minority and local broadcasters out of the
business, and it has driven these small broadcasters out of the
business using questionable tactics, such as the discounted
group sales strategy that it used in Syracuse. Congress should
not allow one company to dominate the radio industry to the
exclusion of the small, minority-owned companies, and it should
not allow the American people to have their programming
dictated to them by a single company.
I am pleased that Senator Feingold has introduced
legislation to slow the continued consolidation in the radio
industry. I believe the legislation is long overdue and I hope
that it will be enacted so that other small minority
broadcasters will not be forced out of the business as I was.
The First Amendment guarantees that all Americans should have
diversity of viewpoint. We need your help to preserve and
guarantee that this right exists for all Americans, not just a
select few.
Thank you for giving me this opportunity to appear before
you today.
[The prepared statement of Mr. Short follows:]
Prepared Statement of Robert Short, Jr., President, Short Broadcasting
Co., Inc.
Good Morning Chairman McCain and Members of the Committee. My name
is Robert Short, Jr., and I am the President of Short Broadcasting Co.,
Inc. I am also a former member of the Board of Directors of the
National Association of Black Owned Broadcasters, Inc. (NABOB). I thank
you for inviting me to testify this morning. It is a pleasure to have
the opportunity to talk about the negative effects upon the American
public resulting from the excessive consolidation of ownership in the
broadcast industry since the passage of the Telecommunications Act of
1996.
1. Summary
Short Broadcasting sold our only broadcast station, WRDS, Syracuse,
New York, in 2000, after a brief five-and-a-half-years on the air. WRDS
is a victim of the Telecommunications Act of 1996. We were a stand-
alone radio station providing a locally owned and programmed voice for
the African-American community of Syracuse. We provided local news and
public affairs programming without regard to oversight from any distant
corporate parent. WRDS carried news stories that other media ignored.
We allowed individuals on our station in our public affairs programming
who were not invited to speak on other stations. We hired people with
no broadcast experience and taught them the business.
I understand that the Committee is considering whether
consolidation under the Telecommunications Act has resulted in excess
concentration of ownership in the broadcast industry. I also understand
the FCC is considering how it can demonstrate to the courts through
evidence to be developed by economists and lawyers whether there is a
need to have any rules limiting broadcast ownership. I know that NABOB
has addressed these issues in its Comments in the FCC's rulemaking
proceeding examining its ownership rules. NABOB identified several
research studies that demonstrated that minority ownership of broadcast
stations promotes diversity of viewpoints.
What I would like to do today is give you a specific example of the
diversity of viewpoint provided by my station, WRDS in Syracuse, New
York, and the market forces that forced us to sell. It was not my
desire to sell WRDS when we did. We sold because we were unable to
compete with Clear Channel. Clear Channel had, and continues to have,
more than a fifty percent revenue share in the Syracuse market. With
its ownership of over 1,200 radio stations nationwide, and seven radio
stations in the Syracuse market, Clear Channel was able to exercise
market power with advertisers in a manner with which we were unable to
compete. In addition, Citadel, which has over 200 radio stations across
the country, had four stations in the market and a twenty five percent
revenue share. The market dominance of Clear Channel and Citadel made
it impossible for WRDS to continue to operate in the market.
I believe the story of WRDS demonstrates clearly that Congress
should limit any further consolidation in the radio industry, and
should reverse some of the excesses that have been created by the
Telecommunications Act of 1996. The story of WRDS shows that one of the
principal reasons Congress should prevent any further consolidation in
the radio industry is because the ills of consolidation cannot be
measured by economists and lawyers. No one retains records of which
news stories stations cover. No one retains records of who is invited
to speak on the public affairs programs of radio stations. However,
from the letters, phone calls, and in-person expressions of thanks and
congratulations we received during our time on the air, I know that we
were able to provide a voice in Syracuse that had not been provided
before our arrival, and has not been provided since our sale.
2. Background
Short Broadcasting was formed in May of 1988, when I filed an
application at the Federal Communications Commission (FCC) for a
construction permit to build an FM radio station licensed to Phoenix,
New York, which is part of the greater Syracuse metropolitan area. I
was one of seven original applicants to compete for the new station. I
was required to participate before the FCC in a costly and time-
consuming comparative hearing. In November 1993, the FCC ruled that I
was the winning applicant for the new FM channel. In May 1995, I
completed the construction of the new station and was granted the call
sign WRDS.
WRDS-FM was locally owned and operated, and was the first African-
American owned radio station in Syracuse history. When WRDS debuted, it
was one of only three African-American owned commercial FM radio
stations in the State of New York. The other two African-American owned
commercial FM stations in New York State at that time were WBLS in New
York City and WDKX in Rochester.
3. The Format
WRDS had an urban format and became an instant success with the
Syracuse urban community. WRDS offered quality urban programming and
lifestyle information that had never before been available to the
Syracuse urban community. WRDS provided local entertainment programming
daily with a local live air staff, consisting of six air personalities.
Our local air personalities reported local news, traffic and weather
every half hour during morning drive-time, and we provided local
traffic and weather during afternoon drive-time.
We provided public affairs programming throughout the broadcast
day. Our air personalities would discuss issues of importance to the
local community as those issues arose during our regular programming.
These public affairs discussions would range from discussions of
current news stories to solicitation of funds for community
organizations. These impromptu discussions of public affairs were in
addition to the broadcast of programs specifically devoted to public
affairs, which we also did.
In addition, WRDS connected African-Americans in Syracuse to
African-Americans nationally by providing nationally syndicated shows
such as The Tom Joyner Morning Show, The Doug Banks Show, On The Air
With Russ Parr, and was an affiliate of ABC Radio Networks, the
American Urban Radio Network, and Superadio Network.
I was the general manager and program director for WRDS. I
exercised ultimate control over all programming and music. We did not
play songs that were overly controversial or had explicit lyrics. In
many cases, we refused to play songs that were hits across other parts
of the Nation, solely because we strongly believed the songs would be
considered offensive by the majority of our audience.
4. The Benefits of Diversity
WRDS brought diversity to the Syracuse airwaves. WRDS served the
urban community on a daily basis, and was the most effective medium
available to reach African-Americans in Syracuse. Public service
announcements were being aired on WRDS that no other radio or
television station carried. For many local business owners WRDS was the
only viable outlet to reach their target demographic at an affordable
price.
With the exception of the years that I was in college, I have lived
in Syracuse, New York since 1968. I used my long-standing residency to
build a strong working relationship between WRDS and the Syracuse
community.
WRDS specialized in providing programming designed specifically for
the Syracuse urban community. News stories that were unreported or
considered minor stories by other mainstream media outlets were often
the lead story on the WRDS morning news. WRDS preempted regularly
scheduled programming to cover issues of local concern on a frequent
basis.
It was common practice for WRDS to interview African-American
elected officials, as well as those who were running for office, during
our drive time programs, regardless of whether it was during an
election period. When problems such as gun violence or bomb threats
became commonplace in the inner city schools and neighborhoods, I would
personally give editorials or put professional counselors on the air to
address these issues and offer strategies and solutions to these types
of problems.
WRDS was a business partner with the Syracuse City School District.
WRDS frequently publicized issues and activities regarding the public
schools. WRDS sponsored numerous Syracuse City School field trips and
provided tours of the radio station for elementary students. WRDS
offered teenagers and young adults the opportunity to shadow our staff
so that they could learn first hand about the job duties and
responsibilities of a radio broadcaster. WRDS sponsored many other
youth oriented events such as a citywide Halloween Party at the
Carousel Center, Syracuse's largest mall. I was invited to speak at
most of the Syracuse public high schools, as well as at middle schools
and elementary schools. At Solace Elementary School, I was asked to
speak numerous times, including at graduation.
WRDS sponsored an on-air promotion that sent approximately five
hundred youth to see an NBA exhibition basketball game between the New
York Knicks and the Cleveland Cavaliers at the Carrier Dome. WRDS also
sent an estimated one thousand young children and their parents to an
ice hockey game with the Syracuse Crunch, a minor league professional
hockey team. After the game, all of the children were invited to skate
on the ice with the Syracuse Crunch players and given a souvenir.
WRDS promoted on-air and sponsored family and unity days at a
county park, along with numerous plays, concerts, dance recitals, and
comedy shows. WRDS co-sponsored events hosted by civic organizations,
such as the NAACP and the Urban League. In 1999, I was the keynote
speaker for the Utica, New York NAACP Annual Awards Banquet.
For three years, I represented WRDS by serving on the board of
directors for the Urban League of Onondaga County. WRDS worked closely
with the Urban League and the NAACP to discuss on-air events such as
voter registration drives, and attempts to find missing persons, such
as in the case of April Gregory, a young woman who was missing for a
year before being found dead. While I served on the board of directors
for the Urban League, WRDS also co-sponsored an urban job fair that led
to African-Americans being hired at area companies. WRDS also teamed up
with the Urban League to sponsor a family picnic at Kirk Park, which is
in the heart of the inner city of Syracuse.
WRDS promoted on-air and sponsored several health fairs in
conjunction with the Syracuse Community Heath Center and the Veterans
Administration Hospital. At the health fairs, WRDS worked with
corporate partners to provide free immunizations to low-income
individuals and free bicycle helmets for children under sixteen to
increase safety during the summer months. WRDS assisted individuals
being tested for diabetes, high blood pressure, and gave out
information about ways to prevent the spread of HIV and AIDS.
WRDS air personalities regularly promoted on-air and served as
masters and mistresses of ceremonies for events such as the Urban
League's Harriet Tubman Awards Dinner and nearly every major urban
concert or gospel play that came to Syracuse. When, Dr. Jennifer
Daniels, an African-American and native Syracusan, had her medical
license suspended by the State of New York, WRDS brought the issue
before the entire urban community, hosted rallies, and spoke on her
behalf. WRDS took the position that Dr. Daniels was the only doctor
with a private medical practice in the heart of the inner city, and
argued that the State's decision to revoke her license to practice
medicine was unjust, given that all charges stemmed from her prescribed
treatment to just one patient. We pointed out that she had many inner
city patients, all of whom were satisfied with her services. WRDS
assisted Dr. Daniels with her appeal that went before Governor George
Pataki.
While operating WRDS, I also served on the board of directors for
the Inner City Little League. WRDS solicited funds on-air and donated
money to the Inner City Little League in order to allow the teams to
purchase uniforms and equipment, provide insurance for the players and
assist with covering the cost to have league umpires. We did this
because many of the youngsters came from families that were unable to
pay the required league fees.
We assisted the Inner City Baseball League with letter writing and
visits to the Syracuse Commissioner of Parks and Recreation, city
counsel members, and ultimately the mayor, in order to get an outfield
fence and portable toilets installed at Homer Wheaton Park, the home
field for Inner City Little League. I also coached a team in the Inner
City League for three years. WRDS has also sponsored the Biddy
Basketball League at the Syracuse Boys and Girls Club. Each year WRDS
purchased uniforms or trophies for each player. WRDS would also
broadcast live from the Syracuse Boys and Girls Club and give away
promotional items to the children. WRDS used this opportunity to allow
its disc jockeys to talk to the children about the importance of
abstinence from drugs, sex and violence. We also encouraged the
children at the Syracuse Boys and Girls Club not to drop out of school.
On several occasions, I was invited to speak to students at the
Syracuse University Newhouse School of Communications about what will
be expected of them upon graduation and their entrance into the
broadcast industry. I also spoke at Le Moyne College, of Syracuse, at
an Upward Bound Program about how to prepare yourself for college and
success.
WRDS also co-promoted on-air Black College Fairs with local
African-American sororities. WRDS assisted fraternities such as Kappa
Alpha Psi and Omega Psi Phi with scholarship fundraisers. WRDS co-
sponsored organizations such as Fire Fighters of Color United in
Syracuse with scholarship drives.
5. The Disadvantages Created by Consolidation
Yet, with all of the community success that we experienced, it was
difficult for WRDS to survive. Because of all of our hard work to serve
the community and develop a connection with the community, WRDS was
very successful in the Arbitron ratings. Initially, we usually received
approximately about a 3.5 to 4.0 audience share, which would rank us
approximately 10th out of the 19 stations Arbitron listed in the
market. In our last year of operation, we managed to obtain a 5.1
share. In addition, we ranked number 1 or 2 with adults 18-34 years old
in some day-parts, and we usually had the highest time-spent-listening
in the market. Nevertheless, WRDS found it very difficult to convert
this audience rating success into advertising revenue and financial
success.
WRDS was a stand-alone station that was forced to compete against
media giants with multiple stations in the Syracuse market. Clear
Channel Communications is one of the giants that competed directly
against WRDS. Clear Channel had two stations in the Syracuse market
that competed for the WRDS audience. These stations were, WWHT, a top
forty pop/rhythmic channel that played many of today's young urban
artists, and WHCD, now WPHR, which was an urban/smooth jazz station.
WHCD played many of the adult urban artists with a blend of
contemporary jazz.
As a stand-alone operator, WRDS was always at a huge disadvantage.
WRDS could only offer advertisers one audience, and even then, it was
fragmented by age groups. WRDS was day-parted to reach different age
groups during specific times of the day. This was done in order to
serve the entire urban community. In the mornings and middays, WRDS
targeted adults, and during the afternoons and evenings, it targeted
young adults and teenagers.
WRDS's group owner competitors, particularly Clear Channel,
Citadel, and Radio Corporation (now Galaxy), were able to deliver a
specific age demographic all of the time by targeting a station to each
of their desired target audiences, which was often the same age group
as that targeted by WRDS. This allowed WRDS's competition the
opportunity to combine the ratings from each of their stations, and
then show advertisers how many more listeners they attracted than WRDS.
It is reported that Clear Channel captured more than fifty percent
of all radio advertising dollars in Syracuse, and that Citadel brought
in at least twenty-five percent. Radio Corporation captured an
estimated thirteen percent of the radio ad revenue. Buckley
Broadcasting took in an estimated nine percent of the market. This left
only a very small amount of ad revenue for the remaining broadcasters,
including Short Broadcasting, Salt City (also African-American owned),
Crawford Broadcasting, and CRAM Broadcasting.
6. Lack of Access to Station Representation Firms
Radio stations receive their advertising revenue from national,
regional and local advertisers. In order to reach national and regional
advertisers, radio stations hire station representation firms, which
have offices in the major advertising markets around the country, such
as New York City, Los Angeles and Chicago. The rep firms act as the
sales agent for the stations in these distant cities to obtain
advertising from advertising agencies and national advertisers with
offices in these cities. Without a national rep firm, it is virtually
impossible for a radio station in Syracuse, or any market, to obtain
national advertising.
As a stand-alone operator in Syracuse, it was impossible for WRDS
to obtain representation from a national rep firm. There are only two
major national rep firms, Interep and Katz. Katz is owned by Clear
Channel and, not surprisingly, treats representation of Clear Channel
owned stations as its primary business. While Katz represents other
non-Clear Channel owned stations, many broadcasters question whether
Katz's other clients receive representation equal to that provided to
the Clear Channel owned stations. However, this was never a direct
problem for WRDS, because, as a standalone station, WDRS was rejected
by both Katz and Interep in favor of representation of stations owned
by group owners, Clear Channel and Citadel. Interep and Katz would
enter into non-compete agreements, preventing them from also
representing independents such as Short Broadcasting.
7. Advertising Woes and Promotional Gimmicks
As noted above, usually the larger fortune five hundred companies
spend most of their advertising budgets working through national
advertising agencies and national rep firms, such as Interep or Katz,
to place their buys. With such a system in place, the small independent
broadcaster rarely gets significant national ad revenue. Unfortunately,
WRDS faced this same problem at both the national and local levels.
Locally, most of the ad agencies took an approach similar to that taken
by the national ad agencies. The local ad agencies regularly placed ads
for the biggest local advertisers on Clear Channel and Citadel stations
because they offered a large package of stations.
My sales staff heard that Clear Channel would offer sales packages
to advertisers that priced their urban radio station far below what
WRDS was charging for advertising. It appears to me that such a
practice should be prohibited by the antitrust laws. Unfortunately,
Short Broadcasting was not in a financial position to take on Clear
Channel, so we were never able to follow-up on these reports. Instead,
we attempted to survive on small advertisers. Rarely, did WRDS receive
advertising from the large local ad agencies.
In addition to the difficulties that WRDS experienced attracting
major national and local advertisers, it was faced with the challenge
of offering competitive on air promotions. Clear Channel and the other
large broadcasting companies offered listeners chances to win large
sums of money. In some cases, the prize advertised in the Syracuse
market was up to $1,000,000. These types of contests are deceptive and
often misleading. Generally, big prize contests are tied into a
national promotional campaign, with many listeners believing that the
contest is local. These tactics often influence listeners and the
ratings, because a contestant must listen to the station with the big
prize for the clues and the signal in order to win. This hurts
independently owned and operated stations such as WRDS, which cannot
offer similar big prizes.
8. Denial of Access to Capital
As the owner of WRDS, I experienced many difficulties attracting
capital from local and national banks, venture capital firms and
private investors. It was very difficult to attract capital from these
sources, because operating a stand-alone station was a high-risk
investment. Most investors wanted to invest in broadcast companies that
owned a significant share of both market revenue and audience. This
prevented WRDS from being able to expand like its competition.
9. Joint Sales Agreements
Many of the services that we wanted to add, such as a local talk
show, expanded news coverage, etc., could not be added because the
capital was not available to do so. At one point, Short Broadcasting
entered into Joint Sales Agreements with Salt City Communications and
Radio Corporation in an effort to counter the stranglehold Clear
Channel and Citadel held on the market. Under both Joint Sales
Agreements, WRDS maintained control over its programming, but allowed
Salt City Communications and Radio Corporation to sell WRDS's
commercial time rate and agreed upon commission rate.
Arbitron requires each station in a Joint Sales Agreement to
subscribe to its service if at least one station is an Arbitron
subscriber. Because Radio Corporation was a subscriber, WRDS was
required to subscribe to Arbitron. This created an additional annual
expense of $55,000 for a period of two years. The net impact of this
added expense exceeded the total volume of sales brought in by Radio
Corporation and Salt City combined. This set WRDS further back
financially than it was when it entered into the Joint Sales
Agreements.
Because of the lack of success of the Joint Sales Agreements, Short
Broadcasting was not able to pay Arbitron. Arbitron threatened to force
the sale of WRDS if necessary, to recover the money owed to them. WRDS
was forced to borrow money from Radio Corporation in order to pay
Arbitron. This created a problem with the structure of the Joint Sales
Agreement between Short Broadcasting and Radio Corporation.
Consequently, because of the debt owed to Radio Corporation, WRDS was
forced to let Radio Corporation keep all revenue it generated from the
sale of airtime on WRDS until the loan we took out with Radio
Corporation to pay off Arbitron was fully repaid. This meant many
months passed during which WRDS received no commission from any sales
made by Radio Corporation for WRDS. This strategy proved to be a major
setback for WRDS and eventually led to the termination of the Joint
Sales Agreements.
10. No Room for Stand-Alones to Make any Mistakes
I learned at this point that the greatest reality facing the small
independent stand-alone operator is that mistakes can result in having
to get out of the business. If the stand-alone operator loses a
substantial sum in any given year, that company may be forced to sell
the station to avoid experiencing bankruptcy both on the business and
personal side. This is especially so if the stand-alone operator does
not have a line of credit or access to capital. On the other hand,
major companies who are publicly traded are able to absorb tremendous
losses and slowdowns in the economy and remain in business. When this
happens, there is very little that the stand-alone operator can do to
recover.
11. WRDS is Gone
Today, WRDS no longer exists. After nearly five and a half years of
being unable to compete from a revenue and operational standpoint, I
was forced to sell WRDS to Radio Corporation, now renamed Galaxy
Communications. Interestingly, Galaxy, a company that owned six
stations in the Syracuse market, felt it needed to purchase WRDS in
order for it to compete against Clear Channel and Citadel.
Since purchasing WDRS, Galaxy has changed its call letters to WZUN
and has changed its format three times in an unsuccessful effort to
capture a sizeable audience. In fact, the WZUN ratings are now among
the lowest in the market, significantly lower than when it was WRDS.
Now, Galaxy has nine stations in the Syracuse market, none of which
caters to the urban community. In addition, none of the four stations
owned by Citadel cater to the urban community, and Buckley Broadcasting
has two stations in this market and neither of its stations caters to
the urban community.
Clear Channel Communications has seven stations in the Syracuse
market, one of which, WPHR, has an urban format. With Clear Channel's
recent purchase of a television station in Syracuse, the FCC has ruled
that Clear Channel has exceeded the ownership limits in the Syracuse
market and must divest either one of its radio stations or its Syracuse
television station. If Clear Channel divests WPHR, there is a
possibility that the new owner would change its format and leave the
Syracuse community without an urban station, once again.
12. Short Broadcasting Co., Inc. vs. Clear Channel Communications
When WRDS was African-American owned and urban formatted, it better
served the Syracuse community than Clear Channel is currently doing
with WPHR. WRDS was much more than a station that simply played hit
music. Clear Channel, unlike Short Broadcasting, allows its disc jockey
to use profanity on the air. Clear Channel, unlike Short Broadcasting
uses on air positioning statements that contain profanity.
Additionally, much of the rap music that airs on Clear Channel's urban
and top forty stations has profanity in it. These lax standards result
in unsuitable programming for children and teens. It is distasteful and
degrading to women and self-respecting African-Americans.
In addition, radio in Syracuse is quickly becoming a high tech
jukebox with piped in syndicated programs that displace local broadcast
professionals. Many of these stations appear to be heavily cluttered
with frequent and lengthy clusters of commercials. I believe these
factors are being driven by more stringent demands from corporate
management and stockholders to generate higher profits and possibly due
to heavy debt service obligations with the banks and investors.
Certainly, the public at large is not the beneficiary of canned music
programming combined with a bombardment of commercials. The
broadcasters desire to cut costs and increase profit margin is coming
greatly at the public's expense.
13. Conclusion
The Telecommunications Act of 1996 was a terrible change in the law
that has resulted in taking the control of the airwaves out of the
hands of local residents, and placing control into the hands of a few
national media giants. Short Broadcasting, and many other minority
owned companies have attempted over the years to serve the minority
community. NABOB cited the FCC's own study which concluded that there
is ``empirical evidence of a link between race or ethnicity of
broadcast station owners and contribution to diversity of news and
public affairs programming across the broadcast spectrum.'' The study
focused on news and public affairs programming, rather than
entertainment programming, because it is news and public affairs
programming which is most important to promotion of the Commission's
diversity goals. The study provided empirical evidence that minority
owned stations: (1) tailored their coverage of national news stories to
address minority concerns, (2) covered major news stories their
competitors did not cover. Minority owned stations pay special
attention in public affairs programming to events or issues of greater
concern to ethnic or racial minority audiences. Minority owned stations
place greater effort into live coverage of government meetings, and
into coverage of issues concerning women, particularly health issues,
and to broadcasts in languages other than English. Minority owned
stations staff their public affairs programming with minority
employees, and use call-in formats, which enhance audience
participation. Minority owned stations participate in minority-related
events in their communities.
Approximately 11 percent of Americans report that radio is their
primary source for news. This is about 24 million Americans. The
primary source of news for 24 million Americans should not be in the
hands of a small group of companies. Diversity in ownership will bring
more local programming back to the airwaves. Diversity of ownership
will create healthy business competition among broadcasters that will
benefit the public at large.
The Telecommunications Act of 1996 caused nearly half of the
country's 12,000 radio stations to change hands by the end of 1998 and
led to many African-Americans and other minorities being forced out of
the broadcasting industry. Aside from the current loss of service to
the public this loss of African-American owners reflects, it also has
negative implications for the future of minorities in new technologies.
The companies that are leading the way in new technologies are
primarily the companies currently in technology businesses. The loss of
minority owned companies in the current technologies means that these
companies will not be in place to lead the way into the new
technologies.
The facts are clear and indisputable. The majority of all radio
audiences receive programming provided by a handful of companies. In
addition, the majority of all radio ad revenue is controlled by a few
companies. Greed, control and power, have landed in the hands of a
select few broadcasters at the expense of the American public.
The issue now before the Congress is this. Minorities were
virtually shut out of ownership of the broadcast industry until 1978,
when, with Congressional approval, the FCC adopted a policy to promote
minority ownership of broadcast stations. The Telecommunications Act of
1996, in a few short years, has eliminated many of the gains of the
preceding eighteen years. Now, one company, Clear Channel, touts itself
as the largest programmer to minority audiences. However, it has done
this by driving small, minority and local broadcasters out of the
industry. And, it has driven these small broadcasters out of the
business using questionable tactics, such as the discounted group sales
strategies it used in Syracuse. Congress should not allow one company
to dominate the radio industry to the exclusion of small, minority
owned companies, and it should not allow the American people to have
their programming dictated to them by a single company.
I am pleased to see that Senator Feingold has introduced
legislation to slow the continued consolidation in the radio industry.
I believe the legislation is long overdue, and I hope that it will be
enacted so that other small and minority broadcasters will not be
forced out of the business as I was. The First Amendment guarantees all
Americans diversity of viewpoint. We need your help to preserve and
guarantee that this right exists for all Americans, not just a select
few.
Thank you for the opportunity to appear before you today.
The Chairman. Thank you very much, Mr. Short.
Ms. Toomey, welcome.
STATEMENT OF JENNY TOOMEY, EXECUTIVE DIRECTOR, FUTURE OF MUSIC
COALITION
Ms. Toomey. Thank you very much.
I, too, must respectfully disagree with Senator Brownback.
There are at least three documents on the Future of Music
website that are current with the webcasting conflict which
explain clearly that we are granted licenses which would
protect the rights of small webcasters. And one of our board
members is also an active webcaster. So we would not do what
Senator Brownback alleges.
Good morning. On behalf of the Future of Music Coalition, I
want to thank you for the honor of testifying today. This
hearing is much needed and we applaud you for holding it.
My name is Jenny Toomey. I am a rocker, a businesswoman,
and an activist. I speak to you today as a working artist and
the Executive Director of the Future of Music Coalition, which
is a nonprofit think tank that pursues initiatives to benefit
citizens and musicians.
Most working musicians are not superstars. Rather, they are
independent and local. For the past 3 years, FMC has worked
with musicians and citizens groups on issues from webcasting to
health care, but one issue unites our entire constituency and
that is access to commercial radio.
Given these concerns, last February we began an 8-month
research project to examine the problem. In the study we asked
the basic questions. How has ownership of commercial radio
changed and does the radio still serve the essential regulatory
principles of localism, competition, and diversity?
The radio study is over 150 pages, and we have entered it
in the record today and filed it as public comment with the
FCC. And it is available on our website at
www.futureofmusic.org for all to see. The lead authors of the
study, Kristin Thomson and Peter DiCola, are here to clarify
any questions you might have. And I cannot summarize this in 5
minutes, so I am going to confine my comments to three themes
that must alter the focus of future debate on radio
concentration.
First, the broadcast industry defends the radical
restructuring of the radio by pointing at the other
entertainment industries and saying, ``hey, we are not as bad
as those guys.'' But they are not those guys. Radio is not
private property. It is a public resource regulated by the
government on behalf of citizens. For decades it was based on a
model of local ownership. In 1996, the national cap was 40
stations per conglomerate. So it is distressing that in only 6
years, Clear Channel owns 1,240 and five other groups each own
over 100 stations. At the same time, we have also lost 1,700
radio station owners since 1996.
But the more distressing numbers are those of local
concentration. In New York City, 79 percent of revenue is
controlled by four companies. In Washington, D.C., 79 percent.
In New Orleans, 90 percent. In Austin, 92 percent. In virtually
every local market of the country, four companies or fewer
control 70 percent of the market. In many cases these owners
are not locally based. This means we have less competition
since deregulation, not more.
Second, the broadcast industry claims that deregulation has
brought us more formats and thus more diversity. But formats
are a poor measure of diversity. Measuring music diversity by
counting the number of radio formats is like measuring the
variety of food in your pantry by counting the number of cans
without looking at what is inside them.
We found substantial overlap between supposedly distinct
formats. In the most extreme case, in the week of August 2,
2002, the national charts for two distinct formats overlapped
at a 76 percent level, which means that 38 of the 50 songs on
both formats were the same.
Third, the broadcast industry claims that fewer owners in a
market leads to more diversity. They say that radio companies
will avoid competing against themselves in a single format.
On the surface, this makes sense. Why would a company that
owns seven stations in a market want to compete with
themselves? But this misses the fundamental logic of the value
of a station group. The primary goals of a radio group are:
one, to attract the largest number of listeners in the most
attractive demographics; and two, to ensure that if a listener
changes the station, they will change to another station owned
by the parent company.
The economic incentive is not to provide diversity of
programming. Rather, radio companies seek to assemble
overlapping and economically lucrative audiences that will
generate the most revenue. On the expense side, the incentive
for radio companies is to centralize operations using more
syndicated programming and apply new technologies like voice
tracking to cut costs.
For example, in Denver, Colorado, Clear Channel owns seven
stations. Instead of offering blues, classical, jazz, folk,
bluegrass, zydeco, or other formats, this is what they program:
talk, news/talk, rock, classic rock, modern rock, contemporary
hit radio, and adult alternative.
We know that radio companies spend enormous resources to
draw the largest possible audience in preferred demographics.
But is that really how we define the public interest?
We have heard concern about radio consolidation expressed
by musicians, unions, record labels, consumer and religious
groups, small broadcasters, industry employees, and elected
officials. There has been concern about the loss of local
voices, concern that stations are burying public service
announcements in off hours, allegations of pay-for-play,
concern about increased advertising time, concern that public
officials have fewer outlets to reach citizens, allegations
that talk shows will not allow questions from callers who sound
old because it alienates young listeners, concern that
community-based low power radio licenses were scaled back
because of a powerful broadcast lobby, and concern that
musicians who publicly criticize the industry might be
blackballed.
But the burden of proof should fall on the broadcast
industry who pushed for these changes and now they must explain
how these changes serve localism, competition, and diversity.
I want to thank Chairman McCain and the Committee. Mr.
Chairman, we can do better. I hope today's hearing inspires
citizens around the country to contact Members of this
Committee and explain that our communities need access to the
radio. There are hundreds of thousands of musicians in this
country, and while they may not all have a hit record in them,
each of them has a vote. And while they disagree about many
things, they agree that something is tragically wrong with what
has happened to radio and they agree it has to change.
Thank you again for inviting me to testify today. I look
forward to answering your questions.
[The prepared statements of Ms. Toomey and Mr. Lee follow:]
Prepared Statement of Jenny Toomey, Executive Director, Future of Music
Coalition
Good morning. On behalf of the Future of Music Coalition, it is my
honor to testify this morning on the critical issue of how radio
consolidation is affecting musicians and citizens. This is a timely
hearing, and we applaud you for holding it. We also applaud the
participation of the other witnesses, as we firmly believe that the
public deserves an open, honest discussion about these issues,
especially in an environment where further deregulation is under
consideration at the FCC.
First, I will provide a quick background about myself and the
Future of Music Coalition. Second, I will outline some of the
conclusions of our recently released study on the impact of radio
consolidation on musicians and citizens. Finally, I will talk about the
importance of radio as a medium, and what we can do to make it better.
About Jenny Toomey and the Future of Music Coalition
My name is Jenny Toomey. I am a musician, entrepreneur and
activist. I have released seven albums and toured extensively across
the United States and Europe. For eight years, I co-ran an independent
record label called Simple Machines. I know first hand both the
difficulties that independent artists face in getting their music
played on commercial radio and the opportunities that are presented by
non-commercial radio stations that--thankfully--have been very
supportive over the years.
I speak to you today both as a working artist and as Executive
Director of the Future of Music Coalition, a not-for-profit think tank
I co-founded three years ago with Michael Bracy, Walter McDonough and
Brian Zisk. The Future of Music Coalition examines issues at the
intersection of music, technology, law, economics and policy, in search
of policies, technologies and business models that can benefit
musicians and music fans. The FMC is built on the idea that the music
industry is broken at a very basic level, as the very artists who
create the works that are the hallmark of our culture struggle against
structural impediments that make it difficult to achieve economic
survival. It is our hope that increased awareness and engagement among
artists, combined with thoughtful implementation of new technologies,
will lead to new structures in a digital future that won't replicate
the failures of our terrestrial present.
The Importance of Understanding the Effects of Radio Deregulation
As our organization began working on a wide range of issues--major
label contract reform, healthcare for artists, webcasting royalties,
peer-to-peer file trading--one issue continued to rise to the top:
commercial radio. Everywhere we turned, there seemed to be another
article, another letter to the editor, another emerging artist
complaining about what was happening with radio in his or her specific
community.
Radio is, of course, a critical hub of communications,
entertainment and information in our society. The technology is
ubiquitous--nearly all Americans own a radio. Historically, radio has
been the most effective means of making new music available to local
audiences, as program directors and disc jockeys kept the pulse of the
industry in search of the next new act or the next new sound. When you
read interviews with great musicians, they often reflect on the
inspiration they found in their youth as radio connected them with
sounds and words from across the world.
For many others, radio is primarily a business, where corporations
seek to maximize profits by offering targeted programming intended to
reach specific audience demographics preferred by advertisers. In this
model, the argument goes, the public is served because broadcasters
research what their targeted audience wants to hear, then deliver
programming designed to maximize listener share.
We argue, however, that this is not the reason that radio has
become such an important part of American culture. Rather, radio has
worked over time because of the fundamental regulatory priorities of
localism, diversity and competition. Certainly, we believe the
strongest demonstrations of localism and diversity are found in non-
commercial radio, where a wide range of musical genres and public
affairs programs flourish. We encourage the Congress to pursue
strategies that maximize the potential of non-commercial radio
regardless of this discussion of consolidation of ownership.
In November 2002, the Future of Music Coalition released a study
entitled ``Radio Deregulation: Has it Served Citizens and Musicians?''
The lead authors of the study, FMC board members Kristin Thomson and
Peter DiCola, are both here today. We would like to enter the study
into the record along with our testimony. The study is also available
on our website at http://www.futureofmusic.org, and was entered as a
public comment in the FCC's media ownership proceeding.
Background: The Goals of Deregulation
Radio is a public resource managed on citizens' behalf by the
Federal Government. This was established back in 1934 when Congress
passed the Communications Act. This Act both created the Federal
Communications Commission (FCC) and laid the ground rules for the
regulation of radio. The Act also determined that the spectrum would be
managed according to a ``trusteeship'' model. Broadcasters received
fixed-term, renewable licenses that gave them exclusive use of a slice
of the spectrum for free. In exchange, broadcasters were required to
serve the ``public interest, convenience and necessity.'' Though they
laid their trust in the mechanics of the marketplace, legislators did
not turn the entire spectrum over to commercial broadcasters. The 1934
Act included some key provisions that were designed to foster localism
and encourage diversity in programming.
Although changes were made to limits on ownership and FCC
regulatory control in years hence, the Communications Act of 1934
remained essentially intact until it was thoroughly overhauled in1996
with the signing of the Telecommunications Act. But even before
President Clinton signed the Telecommunications Act into law in
February 1996, numerous predictions were made regarding its effect on
the radio industry:
Fewer Owners
First, industry analysts predicted that the number of individual
radio station owners would decrease. Those in the industry with enough
capital would begin to snatch up valuable but under-performing stations
in many markets--big and small.
Greater Financial Benefits for Radio
Second, station owners--given the ability to purchase more stations
both locally and nationally--would benefit from economies of scale.
Radio runs on many fixed costs; equipment, operations and staffing
costs are the same whether broadcasting to one person or 1 million.
Owners knew that if they could control more than one station in a
market, they could consolidate operations and reduce fixed expenses.
Lower costs would mean increased profit potential. This would, in turn,
make for more financially sound radio stations which would be able to
compete more effectively against new media competitors: cable TV and
the Internet.
More Diversity
Third, there was a prediction based on a theory posited by a 1950s
economist named Peter Steiner that increased ownership consolidation on
the local level would lead to a subsequent increase in the number of
radio format choices available to the listening public. According to
Steiner's theory, a single owner with multiple stations in a local
market wouldn't want to compete against himself. Instead, he would
program each station differently to meet the tastes of a variety of
listeners.
The Results of the Telecommunications Act
These were the predictions made prior to the passage of the
Telecommunications Act, and clearly part of the argument made by
broadcasters and their representatives on the importance of
deregulation to the health of their industry. But what really happened?
Enough time has lapsed to evaluate early predictions and note actual
outcomes for the radio industry, musicians and citizens. Let's revisit
these assumptions:
More Stations, Fewer Owners
Well, one prediction certainly came true: the 1996 Act opened the
floodgates for ownership consolidation to occur. Deregulation has
allowed a few large radio companies to swallow many of the small ones.
Ten parent companies now dominate the radio spectrum, radio
listenership and radio revenues, controlling two-thirds of both
listeners and revenue nationwide.
Source data: Media Access Pro, BIA Financial Networks, data as of
May 16, 2002.
You can see from the revenue pie chart that ten firms control 67
percent of industry revenue. The rest of the industry--a total of 4,600
owners--controls just 33 percent.
One gets much the same picture from the numbers on listenership.
The same Top 10 firms control 65 percent of radio listeners:
Top 10 Parents, Listeners and Listener Share, Winter 2002
------------------------------------------------------------------------
Nationwide
Arbitron share of
Listener rank Parent company listeners (in listeners (in
millions) percent)
------------------------------------------------------------------------
1 Clear Channel 103.4 27.0
2 Viacom 59.1 15.4
3 Cox 13.2 3.5
4 Entercom 13.1 3.4
5 ABC Radio 12.6 3.3
6 Radio One 11.3 2.9
7 Emmis 10.6 2.8
8 Citadel 10.5 2.7
9 Hispanic Brdcstg. 8.7 2.3
10 Cumulus 7.2 1.9
------------------------------------------------------------------------
Source data: Media Access Pro, BIA Financial Networks, data as of May
16, 2002. The statistic for listeners is known in the radio industry
as ``Metro Cume Listeners.'' Generally speaking, the BIA database has
metro cume listener figures only for stations in the Top 289 Arbitron-
rated markets. Many stations with religious formats do not appear to
report listenership or revenue figures to BIA.
An industry is an oligopoly in our terminology if the four largest
companies control more than 50 percent market share. As you can see
from the charts, the top four companies in radio control 52 percent of
the revenue, making the radio industry an oligopoly. This means that we
have less competition than before deregulation, not more. Oligopolistic
control and socially beneficial competition are opposites. In general
oligopolies can raise prices above competitive levels, restrict
quantities of goods offered to the public, and--as we'll see in the
radio industry--reduce the quality of what's offered to the public.
Two parent companies in particular--Clear Channel and Viacom--
together control 42 percent of listeners and 45 percent of industry
revenues. Clear Channel has grown from 40 stations to 1,240 stations--
30 times more than Congressional regulation previously allowed. No
potential competitor owns even one-quarter the number of Clear Channel
stations. With over 100 million listeners, Clear Channel reaches over
one-third of the U.S. population. These two firms tower over the radio
industry, and even over the other consolidators. Both own businesses in
other media and advertising-based industries, such as network
television, cable television, concert venues, and billboards.
Radio at the Local Level
Even bleaker is the picture at the local level, where oligopolies
control almost every geographic market. In smaller markets,
consolidation is more extreme where the largest four firms in most
small markets control 90 percent of market share or more. These
companies are sometimes regional or national station groups and not
locally owned.
This next chart shows the extent of consolidation in these market
size categories. Each market size category is broken down by the extent
of consolidation in its markets. Let's take an example. Among the
markets ranked 101-289, 40 percent of the markets have four companies
controlling 100 percent of the market share. Twenty-four percent of the
markets have four companies controlling 95 to 100 percent. Eighteen
percent of the markets have four companies controlling 90 to 95
percent, and so on. Clearly consolidation is most extensive in the
smallest markets.
Source data: Media Access Pro, BIA Financial Networks, data as of
May 16, 2002.
But the larger point is that consolidation is extensive in all
sizes of local markets. In 98 percent of all local markets, the top
four companies control a 70 percent market share or greater. Such large
shares for the biggest companies indicate that very strong oligopolies
exist locally.
Benefits From Economies of Scale Aren't for Everyone
What about those benefits of economies of scale? They've certainly
borne out for some, but not for everyone. Only the few radio station
owners with enough capital to buy additional stations have benefited
from deregulation. Station owners have consolidated their operations on
a local level, frequently running a number of stations out of a single
building, sharing a single advertising staff, technicians and on-air
talent. In some cases, radio station groups have further reduced costs
by eliminating the local component almost entirely. These group owners
are benefiting from economies of scale, but what are the drawbacks?
Local DJs and program directors are being replaced by regional
directors or even by voice-tracked or syndicated programming,
explaining a marked decrease in the number of people employed in the
radio industry. Listeners are losing as well. With an emphasis on cost
cutting and an effort to move decision-making out of the hands of local
station staff, much of radio has become bland and formulaic.\1\
---------------------------------------------------------------------------
\1\ See the following articles for more information about voice-
tracking, loss of localism, and regional-based programming: Anna
Mathews, ``Think Your DJ is Local? Think Again.'' Wall Street Journal,
February 25, 2002. Randy Dotinga, ``Good Morning [Your Town Here],''
Wired.com, August 6, 2002. http://www.wired.com/news/business/
0,1367,54037,00.html. Denny Lee, ``Disc Jockeys Are Resisting Taking
the Local Out of Local Radio,'' New York Times, August 25, 2002. Eric
Boehlert, ``Radio's Big Bully,'' Salon.com, April 30, 2001, http://
www.salon.com/ent/feature/2001/04/30/clear_channel/index.html. Greg
Kot, ``Rocking Radio's World,'' Chicago Tribune, April 14, 2002. Jeff
Leeds, ``Clear Channel: An Empire Built on Deregulation,'' Los Angeles
Times, February 25, 2002. Todd Spencer, ``Radio Killed the Radio
Star,'' Salon.com, October 1, 2002 http://www.salon.com/tech/feature/
2002/10/01/nab/print.html. Dale Smith, ``Hello Honolulu and Amarillo,
my Austin Secret is... I'm Your DJ,'' Austin American-Statesman, July
22, 1999.
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Less Regulation Has Not Led to Greater Market Competition
The economic argument for the need for increased competition in the
radio industry is specious. Prior to 1996, radio was among the least
concentrated and most economically competitive of the media industries.
In 1990, no company owned more than 14 of the 10,000 stations
nationwide, with no more than two in a single local market. But we
found that local markets have consolidated to the point now that just
four major radio groups control about 50 percent of the total listener
audience and revenue. Clearly, deregulation has reduced competition
within the radio industry.
More Diversity?
Finally, we raise questions about Steiner's theory that an owner
would not want to compete against himself and would, therefore, operate
stations with different programming. Our analysis of the data finds
otherwise. Radio companies regularly operate two or more stations with
the same format in the same geographic market. Using stations' self-
reported formats, we found 561 instances of format redundancy
nationwide--a parent company operating two or more stations in the same
market, with the same format--involving 1,190 stations in Arbitron-
rated markets, as of May 2002.\2\ This amounts to massive missed
opportunities for format variety, which might in turn enhance
programming diversity.
---------------------------------------------------------------------------
\2\ Source data: Media Access Pro, BIA Financial Networks, data as
of May 16, 2002.
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Format Variety versus Format Diversity
In addition, we need to be clear about the difference between
format variety and format diversity. Often, the radio industry measures
diversity in programming by counting the number of formats available in
each local market. In our report we show, in accordance with other
studies, that format variety counted this way increased for a while
after deregulation. But we also find that format variety has become
stagnant over the last two years.\3\
---------------------------------------------------------------------------
\3\ For an analysis of format variety 1996--2002 please see ``Radio
Deregulation: Has it Served Citizens and Musicians?'' Chapter 3 pp. 44-
48.
---------------------------------------------------------------------------
Regardless, format variety is a flawed measure that doesn't capture
the more relevant concept of programming diversity. A format is just a
label--it doesn't necessarily describe the contents or imply that the
contents are different than anything else. Increased format variety
does not ensure increased programming diversity.
We tested this theory by analyzing data from charts in Radio and
Records and Billboard's Airplay Monitor. Using radio playlist data,
Radio and Records magazine computes weekly charts for 13 categories of
music formats. We took these charts from one week in August 2002--which
show the top 30, 40, or 50 songs played on a given format--and
calculated the number of overlapping songs between formats.
The charts revealed considerable format homogeneity--playlist
overlap between supposedly distinct formats. Note that the formats are
grouped in clusters. First, there's the pop cluster. It features seven
overlapping formats. For example, Urban and CHR/Rhythmic overlap at a
76 percent level. Thirty-eight of their top 50 songs are the same.
Then, there's the rock cluster. Rock, Alternative, and Album-Oriented
Rock overlap considerably, between 36 percent and 58 percent depending
on which pair among those three you consider. Only Country, Christian,
and Smooth Jazz stand alone.
This high level of homogeneity shows that simply counting format
names will overstate programming diversity. Adding a CHR/Rhythmic
station to a market that already has an Urban station adds format
variety. But it doesn't add any programming diversity. Thus, the radio
industry has measured itself--and encouraged policy makers to measure
it--with an inadequate statistic. If the FCC or the NAB are sincerely
trying to measure ``diversity'' the quantity of formats is a flawed
measure. That's like counting the number of jars on a shelf without
taking the time to look inside.
Format Oligopolies
In addition, viewing each format as its own product market, every
format category charted by Radio and Records is controlled by an
oligopoly.
We studied format oligopolies by considering the radio stations
nationwide within each format as a separate market. We simply tallied
the listener share and revenue share within each format nationwide. As
you can see from this chart, every format is controlled by four
companies with a 50 percent market share or greater.
Format Consolidation in the 13 Radio and Records-based Categories, by Listener Share
----------------------------------------------------------------------------------------------------------------
Listeners (in Top 4 share
``R & R'' Category millions) Top 4 firms, by listeners (in percent)
----------------------------------------------------------------------------------------------------------------
AC 38.5 Clear Channel, Viacom, Bonneville, Entercom 56.3
CHR Pop 37.3 Clear Channel, Viacom, Entercom, Citadel 69.8
Country 33.9 Clear Channel, Viacom, Citadel, Cox 52.6
Rock 28.8 Clear Channel, Viacom, Citadel, ABC Radio 52.3
Hot AC 19.3 Clear Channel, Viacom, ABC Radio, Entercom 57.9
Alternative 17.8 Viacom, Clear Channel, Emmis, Citadel 60.5
Urban 15.5 Radio One, Clear Channel, Inner City, Viacom 64.9
CHR Rhythmic 14.4 Clear Channel, Viacom, Emmis, Cox 71.8
Urban AC 13.1 Clear Channel, Radio One, Emmis, Cox 67.1
Active Rock 9.2 Clear Channel, Viacom, Entercom, Greater Media 65.5
Smooth Jazz 6.1 Clear Channel, Viacom, Radio One, ABC Radio 69.7
AAA 3.6 Viacom, Clear Channel, Susquehanna, Entercom 53.8
Christian Contemp. 2.7 Salem, Crista Ministries, Crawford, Clear 68.9
Channel
----------------------------------------------------------------------------------------------------------------
Source data: Radio and Records website, www.radioandrecords.com, and Media Access Pro, BIA Financial Networks,
data as of May 16, 2002.
The format oligopolies reinforce the homogeneity of the product
offered to listeners. They also result in a small number of gatekeepers
deciding which musicians have their music played on the air.
Importantly, these format oligopolies include many of the same
companies. For instance, Clear Channel is one of the top four firms in
each of these 13 formats. Viacom is one of the top four firms in 11 of
these formats.
In fact, only 15 companies populate this chart of format
oligopolies. These 15 gatekeepers determine to a very large extent what
programming will reach the airwaves. And this just looks at music. Four
companies own a 67 percent share of News format listeners nationwide.
Consolidation has not resulted in a greater number of viewpoints
represented on the air; instead, it has reduced the diversity of
viewpoints considerably.
This final point may be the most critical one as we face an FCC
that is poised to deregulate media even further in the next few months.
It is time to put to bed the commonly held yet fundamentally flawed
notion that consolidation promotes diversity as that radio station
owners who own two stations within a marketplace will not be tempted to
program both stations with similar formats.
In sum, consolidation has resulted in a small number of dominant
companies, not competition; it has resulted in extensive local
oligopolies, not localism; it has resulted in format homogeneity, not
diversity in programming; and it has resulted in small number of
gatekeepers for music and news, not a diversity of viewpoints. Clearly
something has gone wrong. From the perspective of citizens and
musicians, deregulation has failed to achieve its goals. Radio needs a
new direction to restore its status as a live, local, diversely owned
and diversely programmed medium.
Where Do We Go From Here?
Over the past year, we have heard concern about radio consolidation
expressed by musicians, unions, record labels, consumer groups,
religious groups, small broadcasters, current and former industry
employees and elected officials. Concern about the loss of local
voices. Concern about business practices like ``pay for play'' that
appear to make eligibility for radio play contingent on an artist or
label coming forward with huge ``promotional'' fees. Concern that the
local stations that used to provide a platform for public service
announcements now turn them away. Concern about the seemingly incessant
advertising. Concern that small stations that have programmed an
eclectic mix are changing formats or selling out because they can't
compete. Concern that elected officials have fewer outlets available to
communicate directly with voters. Concern that talk radio stations
won't allow questions from callers who ``sound old'' because it will
send the signal that their station is targeted for older consumers.
Concern that parents can't listen to the radio with their kids in the
car because the content has become so overtly sexual. Concern that
alternate models to commercial radio, like community-based Low Power
FM, are scaled back because of the power of the broadcast lobby. And
concern that musicians who speak publicly about troubling business
practices will be in essence signing the death warrant for their
careers.
In the end, we come back to this point: radio is a public resource.
It belongs to the citizens of the United States. It is not simply a
tool for corporations who are interested in maximizing profits.
We do not question that broadcast conglomerates spend enormous
resources in attempts to draw the largest possible audience in the
specific demographics that their stations are targeting. But is that
really how we define serving the public interest? Huge ratings?
We need to return to the traditional priorities of localism,
diversity and competition. Can local artists have a legitimate chance
to get on commercial radio in their hometown? Is there not only
diversity of format, but also diversity of ownership and, dare we say,
diversity of programming targeting populations who may not fall into
the most attractive marketing demographics? And is there a competitive
environment that allows for the kinds of small, independent stations
that tend to focus on local content and genres of music that are rarely
seen from the conglomerates?
We have been joined by our colleagues in the music community to
raise these questions. In particular, we are greatly appreciative of
the support and cooperation of AFTRA--the union that represents on-air
talent--the AFM, the Recording Academy, Just Plain Folks, the Artists
Empowerment Coalition and the Recording Artists Coalition. On many of
these issues, we even agree with the RIAA. But the onus of proof should
not fall simply on the complainers. The broadcast industry pushed for
these changes, and now they should be able to step forward to fully
explain their impact on localism, competition and diversity. To this
date, their participation in public discourse regarding the present and
future of the radio industry has been sadly lacking.
In the end, it is clear that the broadcast conglomerates have one
primary mission--maximizing shareholder value. They maximize value by
utilizing the latest research techniques in an effort to build the
largest possible audiences in their targeted demographics. Their mantra
is that they give the people what they want. They play the hits.
But do they give the people what they want? According to Duncan's
Radio Report, radio listenership is at a 27 year low.\4\ And not one
but two companies are now selling a satellite radio service based on
the notion that consumers are so disenfranchised with radio today that
they would pay $10 a month to subscribe to their service. And what if
you don't fit into the demographics they pursue--what if you are old,
or poor?
---------------------------------------------------------------------------
\4\ ``12+ Radio Listening At 27-Year Low'' Radio and Records
website, September 4, 2002.
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Has the restructuring of the radio industry been a success? This is
the crux of the great disconnect. On one side, artists, record labels,
consumer groups, religious organizations, community groups, unions,
elected officials and music fans say ``no.'' On the other, broadcasters
say ``yes.'' But you can't even say all broadcasters, since it seems
that an increasing number of those left are expressing concern about
their ability to compete in this consolidated marketplace.
Radio is too precious to let this happen. It is universal, and it
is cheap. It is part of our culture. And communities are begging for
the opportunity to better utilize it for noncommercial means. Thanks in
great deal to the efforts of Chairman McCain, roughly 1,000 rural
community groups, schools and churches are launching Low Power Radio
Stations in their neighborhoods or towns. The FCC was stripped of its
ability to place these stations in urban areas pending further signal
tests, and hundreds of urban groups are eagerly awaiting their shot.
Mr. Chairman, the problem is not radio, it's what has happened to
radio. We can--we must--do better. I hope that today's hearing serves
as an inspiration for citizens around the country to contact you,
Members of this Committee and other Members of Congress to inform them
of how they would like to see radio better utilized in their community.
Thank you again for inviting me to testify today.
______
Prepared Statement of Thomas F. Lee, President, American Federation of
Musicians of the United States and Canada
On behalf of over 110,000 members of the American Federation of
Musicians of the United States and Canada, I would like to thank
Chairman McCain and the Committee for focusing on the issues that have
arisen out of the increasing consolidation of radio ownership in this
country. This hearing is an important milestone for musicians, artists,
consumers and citizens who are adversely affected by consolidation in
radio ownership. I also would like to thank Senator Russ Feingold (and
his original co-sponsor, Senator Zell Miller) for introducing the
Competition in Radio and Concert Industries Act in the 107th Congress,
and reintroducing it in the 108th Congress. The AFM believes that
enactment of Senator Feingold's legislation will help to ameliorate the
problems our members have seen and experienced.
The American Federation of Musicians is an international labor
organization composed of over 250 affiliated local unions across the
United States and Canada. It represents professional musicians across
the full spectrum of industries and genres. AFM members perform live
musical engagements in every size and type of venue and consisting of
every kind of music, from classical to hip-hop, from major symphony
orchestra concerts to Broadway and traveling theater to local lounges
and bars--and everything in-between. Our members also record music for
the recording, motion picture, television, radio and jingles
industries. Our members include successful celebrities, struggling
young artists, and performers at every economic level. And, of course,
our members also are residents of their local communities--and music
consumers who buy tickets, attend concerts and listen to the radio.
Senator Feingold has said that when he introduced his legislation
last summer, he saw a groundswell of interest among artists, consumers
and local promoters. From my vantage point as the International
President of the AFM, I can affirm the existence of tremendous
grassroots concerns about radio, as well as support for radio reform. I
hear these concerns when I talk to local union leaders and AFM members
across the country. The unfortunate fact is that radio deregulation has
not fostered innovation, competition or programming diversity. Instead,
it has reduced the number of radio station owners across the Nation and
in each geographical market. And, it has enabled those stations to
flood the airwaves with the same few ``hit'' songs that are well-funded
and heavily marketed. What gets left off the airwaves is everything
else--music that is varied, innovative, independent, less well-funded
or local. There is almost no place left on the radio dial for jazz
musicians, symphony orchestra musicians, local acts, and the wide range
of diverse music that falls outside the ``boxes'' established by
centralized playlists. This hurts our members artistically and
economically--and it also hurts the American public by depriving it of
rich and varied musical offerings. The development of new forms of de
facto payola systems raises the financial bar to radio airplay so high
that even established artists suffer economically and many new artists
have little hope of ever reaching a radio audience. Again, both
creators and ``consumers'' of music suffer as a result.
Our members also are harmed by the fact that large radio ownership
groups have the ability to lock up huge portions of the live music
business when they also own concert promoters and live performance
venues. AFM members have experienced a variety of horror stories across
the country--including bands that are pressured to play only in venues
or to hire only promoters that are connected with the radio station
group from which they hope to get, and desperately need, airplay, and
local musicians who see higher theater ticket prices and diminished
competition (and thus diminished live theater performance work) when
the same entity has ownership stakes in the theaters in town, the shows
that will come to town, and the radio stations whose promotion is
necessary for a successful run.
It is extremely difficult for individual musicians in need of radio
audiences to speak out on these issues. But their organizations--
including their labor unions, the AFM and AFTRA, as well as other
organizations including the Future of Music Coalition, the Recording
Academy, the Music Managers Forum, the Recording Artists Coalition,
Just Plain Folks, the Nashville Songwriters Association International
and other music industry organizations joined together on May 24, 2002
to issue an analysis of the problem in a ``Joint Statement on Current
Issues in Radio.'' In addition, the Future of Music Coalition's
important study of radio deregulation does a superb job of documenting
what struggling musicians have seen over the last several years.
Much about the contemporary radio industry is bad for recording
musicians and live-engagement musicians. It also is bad for American
society, and, moreover, consumers don't like it and want it to end.
Musicians and consumers deserve a radio industry that serves the public
better. The AFM looks forward to working with our fellow artist and
other music industry groups, and with this Congress, to bring about
positive change.
The Chairman. Thank you, Ms. Toomey.
Mr. Fritts, in your written testimony you state that NAB
believes that the payola laws in 1960 remain effective today
and that no Congressional intervention is needed. The system of
independent promoters is largely the record companies' creation
and the record companies should be responsible for ending the
practice. That is your written testimony.
Do your member companies take cash and/or gifts in exchange
for airplay?
Mr. Fritts. Not that I am aware of. All of them would be
subject to severe FCC sanctions if they did.
The Chairman. So they do not.
Mr. Fritts. They do not as far as I am aware.
The Chairman. In your written testimony, you state that
deregulation has allowed radio stations to maintain financial
stability while giving it the ability to ``prosper in the face
of new competitors.'' Yet, the NAB opposes the relaxation of
other media ownership regulations such as the 35 percent
national television station ownership cap. Is that not some
kind of a contradiction there?
Mr. Fritts. Well, I appreciate your asking that question,
Mr. Chairman. Indeed, we do oppose the increase of the 35
percent cap. As you will recall, the 1996 Act increased the cap
for network ownership of local stations from 25 percent to 35
percent. There are currently 1,300 television stations. There
are currently 13,000 radio stations. And while they are both
regulated by the FCC, they clearly are two different mediums.
And as a result, broadcasters have taken a look at the
horizontal and vertical concentration by the networks and
concluded that 35 percent is an appropriate level for network
ownership.
The Chairman. I am very interested in your statement that
your Members do not take cash or gifts in exchange for airplay.
Mr. Mays, does Clear Channel have any plans to obtain more
radio stations?
Mr. Mays. We do not have any stations pending at this time.
The Chairman. Do you have any plans to obtain more radio
stations?
Mr. Mays. I would suggest to you that if we felt that there
was----
The Chairman. Do you have any plans to obtain more radio
stations? I would like to ask the question for the third time.
Mr. Mays. If we can serve the local community better and we
see an opportunity, yes.
The Chairman. Do you believe there is any limit to the
number of radio stations that a company should be permitted to
own?
Mr. Mays. I think the 1996 Telecom Act established those
limits by limiting the number of stations in each local market.
The Chairman. I will repeat my question again, and I have
not got a lot of time and I would like you to try to answer the
question directly. Do you believe there is any limit to the
number of radio stations that a company should be permitted to
own?
Mr. Mays. I do not think there should be a limit within the
Telecom Act of 1996.
The Chairman. Have you ever instructed Clear Channel
employees to use the threat of withholding air time from
artists to negotiate exclusive promotional concerts or any
other concession from artists?
Mr. Mays. No, sir. We never have. Let me explain why we do
not do that. Radio is our principal business. The concert
promotion business is less than 7 percent of our income. Our
business is in serving what our audiences want to hear in all
of our different markets. We see ourselves as an aggregation of
a number of small businesses throughout this country that serve
those local communities and play what our audience wants to
hear and inform them with news and information. And as long as
our audience wants to hear Mr. Henley's music, he has no threat
of retribution from what he said, even though he said, Mr.
Chairman, some things that were very untrue.
And for the record, I would like to say that two companies
do not control 52 percent. As I said, the top 10 control 44
percent. We have nowhere near 82 percent of the pop market that
he suggested. And I hope that he files our letter within this
record which states that the San Francisco matter was
absolutely false. Whether that was colored by his manager being
a principal in one of our major competitors, I do not know, but
what he said was false.
The Chairman. Thank you.
To your knowledge, has any other member of Clear Channel
senior management given this instruction to Clear Channel
employees?
Mr. Mays. No, sir.
The Chairman. Does Clear Channel have a policy to refuse to
play songs from artists who are not on a Clear Channel tour or
use non-Clear Channel venues?
Mr. Mays. No, sir, we do not. I will give an example of one
such incident. When the manager of Britney Spears alleged that
we had less airplay during the tour that she did with a
competitor, Concerts West, who I think Mr. Henley tours with,
we did an exhaustive research study and found that her airplay
went up 73 percent when she was touring with Concerts West than
when she was touring with Clear Channel the year before.
The Chairman. Does Clear Channel accept payments or gifts
from independent promoters in exchange for radio airplay?
Mr. Mays. Absolutely not, Mr. Chairman. We have a zero
tolerance to pay-for-play.
The Chairman. Does Clear Channel require its employees to
sign affidavits or to otherwise certify that they will not
accept cash and/or gifts in exchange for airplay?
Mr. Mays. Every single air talent, every single program
manager in our company, which numbers maybe 5,000 people, every
year sign an affidavit that forbids them to accept any pay for
play.
The Chairman. The Los Angeles Times recently wrote--and I
quote--``Clear Channel Communications has figured out a way
around the rules that has left its smaller competitors fuming.
By cutting deals to take over programming of five Mexican
stations, Clear Channel has grabbed 50 percent of the San
Diego's market radio advertising dollars. Since the FCC exempts
foreign-owned stations from being counted toward the maximum
number of eight, loopholes have allowed Clear Channel to take
control of 13 stations in San Diego. While it may be within the
letter of the law, many would probably argue that this was not
the intent of the law.''
Is this true? And if so, are there other markets that Clear
Channel engages in misbehavior?
Mr. Mays. Mr. Chairman, let me say that Clear Channel is in
partnership with and is the largest broadcaster in Mexico, so
we have great ties to the Mexican broadcasting market. It is
true that we own eight stations in San Diego. We also program
another five in Mexico. And I think those 13 stations represent
13 of the 36 to 40 that are in that San Diego market.
We think that encourages additional benefits to the
community simply because whether it is the Mexican side of the
border or the English-speaking side of the border, the
diversity of formats that we have provided the San Diego market
benefits that community.
The Chairman. But it is clearly in violation of the intent
of the law if you have 13 stations when 8 was the maximum.
Does Clear Channel use voice tracking?
Mr. Mays. Yes, we do in a small way. I think it is some 15
percent or less of our programming. We export some of our
larger market talent to some small markets basically because
the smaller markets cannot afford it. Most of that is done
overnight or on the weekends. It is not a significant part of
our programming.
The Chairman. Do you allow non-Clear Channel radio stations
to advertise on the 770,000 billboards owned by Clear Channel?
Mr. Mays. I am sorry, Mr. Chairman?
The Chairman. Do you allow non-Clear Channel radio stations
to advertise on the 770,000 billboards owned by Clear Channel?
Mr. Mays. Yes, sir. They are very, very good customers of
ours in all of our markets.
The Chairman. Mr. Short, did you and your station ever
encounter any anticompetitive behavior from larger stations in
your market?
Mr. Short. None that we could actually prove as hard
evidence.
The Chairman. Thank you.
Senator Dorgan.
Senator Dorgan. Thank you, Mr. Chairman.
I do not have the foggiest idea where to start with these
questions. This is the most interesting set of testimony we
have received.
Mr. Fritts, let me start with you, if I might. Was Mr.
Short a member of the National Association of Broadcasters at
one point?
Mr. Fritts. I do not know. Were you?
[Laughter.]
Mr. Short. No.
Senator Dorgan. Shoot. I was going to ask how you reconcile
this if you have two members saying what Mr. Mays and Mr. Short
said.
Let me go to the point you made, Mr. Short. You talked
about the methods by which national accounts would advertise,
and I do not quite remember the terminology, but they bundled
advertising packages and promotional packages?
Mr. Short. Yes. For instance, if you own seven stations in
the market and the competitor owns one, even if the competitor
is doing well, you can offset all of that success by going to
the advertisers and saying, so what if he has 5 or 10 percent
of the market share. Add up the seven stations that we have and
you get 35 percent. Therefore, you have over one-third of the
market, and you do not need this guy at all. Just do business
with us.
Senator Dorgan. So they are saying with this package you
can get the same reach with our stations----
Mr. Short. Absolutely.
And then going further, they take similarities in format.
For instance, let us say I am an urban format, and they are a
top 40. They will say, well, some of the same songs are being
played on our station Bob is playing. So you are really not
getting anything unique by doing business with Bob. Come do
business with us on that station that plays a similar format as
Bob, we will even give you a discount, if necessary, to get you
to do business with us.
Senator Dorgan. Mr. Mays, let me ask you about localism
just a moment. I mentioned to you when we talked last in Minot,
North Dakota, there was a train carrying anhydrous ammonia that
derailed at 1:39 in the morning, sending a cloud of anhydrous
ammonia over nearly the entire City of Minot. A pretty
dangerous situation early in the morning in Minot, North
Dakota. Much to everybody's surprise, the emergency alert
system that the authorities were supposed to use to put
emergency information on the air immediately malfunctioned. I
do not quite know why that happened, but it did.
So they attempted to call the radio stations and they could
not get anybody there. Apparently they were playing piped-in
music from somewhere else. There was one person there who would
not answer the phone I guess because he was a maintenance
person.
But in any event, the point is this. When you have large
broadcasting enterprises and you pump in homogenized
programming from central locations--and I know that happens
around the country--and you do not have people working the
boards like you used to have, is that not troubling in terms of
localism and service to community and so on?
Mr. Mays. Senator, let me say that the stations were manned
that evening and let me explain to you what happened. There was
a switch from the emergency broadcasting system to the
emergency alert system. Our air staff person there on that
station said that apparently they called the wrong number, the
hot line, and they did not understand the technology of how to
interact with the EAS system. Every station across our whole
company has that technology that allows the police department,
the fire department to immediately go into those stations,
including the one in Minot, to broadcast emergencies.
And what I am told happened that night was that listeners
started calling. The lines got jammed. The sales people and the
administration that were not at the station at 2:00 a.m. in the
morning, although there were people there, came to the station
to help answer the questions.
In addition to that, we had our Minneapolis engineers come
and do individual seminars and instructions with the Minot
police department, fire department on how to access the
technology that they could not access for some reason that
evening.
So I think that was an anomaly and I am sorry that that
happened, but the station was staffed.
Senator Dorgan. Would you provide for the record for this
hearing what you just described from your perspective?
Let me just also say in the old days I suspect those
engineers would have been Minot engineers rather than
Minneapolis engineers coming in later. I am very concerned
about this issue of localism.
Mr. Mays. We have a very strong staff of engineers in
Minot.
Senator Dorgan. Let me put a chart up and ask several of
you for your comments. This chart is actually a chart that
shows concentration. It shows five very large companies and it
shows their holdings in broadcasting and other areas. You
cannot read it, but----
[Laughter.]
Senator Dorgan. Well, yes, that is the point.
[Laughter.]
Senator Dorgan. But it is pretty obvious. I do not have
room. If I were going to put all these names on a chart that
you could read, it would consume most of the room. But most of
these are companies that have accumulated a substantial amount
of broadcasting properties and we have very substantial
concentration in the hands of just a few. The question I think
this Committee asks is, what does that do to competition? What
does it do to localism? What does it do to diversity?
Mr. Mays, you have heard some very serious charges leveled
today by other members of the panel with respect to your
company, how large it is and its practices. I would hope that
you will submit for the record--and I expect you will--specific
responses to each and all of the charges.
Let me ask the question that I was thinking about as these
charges were made. Do you have specific procedures, written
procedures, in your company that respond to the questions have
been raised, the allegations that have been made about
conflicts of interest and promotional deals that seem untoward
to me? Are you confident that you have in place specific
procedures to prevent that? Are you confident that what they
are saying has never happened?
Mr. Mays. Well, I am not going to say anything never
happened, but yes, and we will provide that for the record,
policies and procedures. But just the simple fact of how we run
our business and how we localize our business, we would never
tie airplay into performances or into concert tours. It just
does not make sense that we would penalize the major part of
our business and risk the ratings that would have a dramatic
effect on our revenues to enhance some promotion or some tour.
You speak of competition, and this chart which you cannot
see now because----
Senator Dorgan. I did see the chart earlier.
Mr. Mays. I am sorry?
Senator Dorgan. I saw that chart earlier. It was up.
Mr. Mays. It is basically who we compete with right here in
this Washington market. There are 56 radio stations here with
some 30 to 35 different formats. We do own 8 of those 56. But
those are not our only competitors for audience. There are six
or seven cable companies that offer hundreds of channels of
programming. There are 9 daily newspapers and 20 weekly
newspapers in this market. There is satellite radio that offers
200 channels of radio stations into this market. The cable
companies that I talked about have 50 channels each of audio in
their cable services.
So the competition is robust. I heard that it should be,
and we think it is robust and we compete as hard as we can. But
certainly our eight radio stations within this large media pie
here in Washington is not a concentration of power or a
consolidation that affects competition.
Senator Dorgan. If I might ask one more question, Mr.
Chairman. I asked last week, when it was alleged that there
were many voices, whether it was many voices from one
ventriloquist or a few ventriloquists.
I guess the question the Chairman asked at the start of
this is very important. How much further? If we have another
hearing 5 years from now, will we see the largest radio group
owning 3,000 stations, 2,000 stations? What will we see with
respect to television? Will we see similar galloping
concentration that already existed? Where do you think this
stops, and where do you think there ought to be legitimate
concern about those of us who care about free markets and the
market system and competition?
Mr. Mays. Well, as I mentioned to the Chairman, I think
that certainly there are limits that are within the 1996 bill,
and I think that is certainly a restriction that prevents us
from owning any more than 8 of those 56 radio stations here in
Washington.
But I would like to----
Senator Dorgan. Except, Mr. Mays, if I might just interrupt
just for a moment to say that in Minot, North Dakota, you own
all six commercial radio stations. So what has happened, of
course, in some circumstances, the FCC, through its own
incompetence and definitional exercises has allowed you, at
least in my state, to own all the commercial stations in one
city, just to give you an example.
Mr. Mays. Well, and that is because of the definition of
market rule, which we are making comments with the FCC which is
looking at that. And I believe Minot is considered part of the
Bismarck as well as other surrounding cities around Minot, and
it is a definition of market.
But I think it is a perfect case for deregulation because
when we bought those stations from the previous owner, there
were three formats in Minot. There were two country stations.
There were two adult contemporary stations. There was a news
talk station and a station that simulcast one of the country
stations. Today there is a classic rock station. There is a
country station. There is a hit station. There is an adult
contemporary station. There is an oldies station, and there is
a news talk station. Much, much more diversity in Minot than
prior to deregulation.
Senator Dorgan. I have questions for other panel members,
but I will wait until the second round.
Mr. Mays. Could I also, Senator, touch on one other thing
that you alluded to in consolidation? Mr. Short said that he
could not compete as a ``stand-alone'' station, so he sold his
station for millions of dollars to another party. Since that
format in that community was denied the urban format,
principally because the owner which he sold it to changed the
format, we established a format that would appeal to that
audience.
In Philadelphia, where we have a number of stations as
well, there is a broadcaster that owns one station in
Philadelphia. That is all he owns. It is the number one station
in Philadelphia. He is very, very profitable, much more
profitable than we are. So I think throughout this country, all
of those who own one station, if they do it right, can make
money.
The Chairman. Mr. Short, you deserve the opportunity to
respond to that.
Mr. Short. Absolutely. I look at it this way. I would call
it you have a lot of audacity. You put someone out of business
using tactics that are basically strong-arm tactics, and then
after you put them out of business, you rebuild what they
built, and then you say, look what a great thing we did and
look what a great service we provide to the community. The
great service was already being provided. There were no
complaints. You can check the FCC's records. There is nobody
saying we have got to get Mr. Short out of there other than
maybe Mr. Clear Channel or maybe Mr. Citadel so that we can own
everything that Mr. Short was getting.
The Chairman. Senator Lott.
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. Well, thank you very much, Mr. Chairman.
Obviously, this has been an interesting hearing and I think an
important one as we try to make sure we understand how the 1996
Act is being carried out and the impact that it is having in
all of our media and that does have to include radio.
I am sorry I did not hear all of the witnesses' testimony.
I have tried to glance over it quickly while I have been
listening to some of the questions.
Over the years I have been concerned about radio
broadcasting because it is such an important part of America
and our media outlets. It means a great deal in terms of
entertainment, obviously, the way we get news, and we want to
make sure that our policies encourage a strong and healthy
radio ownership, as well as the other segments of the media.
That is one of the reasons why in the 1996 Act I thought we
should pay particular attention to the radio broadcast industry
and see if we could do some things that would help the industry
which was struggling at the time. It was weak, I think,
economically. I must say I was hearing a lot of complaints from
the people at the local level and the people who were trying to
make the radio stations a success.
My chief concern in evaluating media ownership is always to
make certain that local communities are being properly served
and they are not being adversely affected. Certainly I take a
look at what is happening in my own state.
I think as a result of the Act, the industry is stronger
than it was. It has actually been revived. Is it a perfect
revolution or improvement? No, but I think it is healthier
today than it was just a few years ago, and I want to make sure
that we do not stop that strengthening and turn the tables
back.
It sounds to me like what I have heard the time I have been
here and from the testimony I have read that part of the
problem here is not really about levels of competition. It is
this other issue of how the concerts are handled. I think that
may be what prompted the legislation that has been offered
today or by Senator Feingold and the Congressman that testified
and what has contributed a lot to this hearing itself. So I
think maybe these two should be treated separately. If there
are concerns over here in the other area, then let us take a
look at that.
With regard to ownership rules, I should note--I presume
others have noted--the FCC is reviewing this right now. I do
not know when they would make any recommendations or if they
would act, but they are looking at their ongoing, comprehensive
media ownership proceedings, and I think we would be
precipitous at this time if we moved out and started to advance
some legislation that would preempt that.
Let me just ask two or three questions of the witnesses
then.
Mr. Fritts, is there a distinction in your mind in your
position at NAB between ownership consolidation in the radio
industry and other media and entertainment industries? In my
mind there is, but I would like to hear how you would describe
that.
Mr. Fritts. Certainly, Senator, I would agree with you that
there is indeed, just by virtue of sheer numbers. There are
13,000 radio stations, 1,300 television stations. There are
almost 4,000 separate owners. I think what the overview, if you
will, or the 35,000-foot review of what is taking place here
today is really the question, has the 1996 Act worked? And we
believe it has. It has provided more diversity. It has provided
more diverse formats. It has continued to allow radio to be
strong at the local level. I think that is the strength of
broadcasting today.
There are now 200 new competitors in the sky coming to
every single market in the United States through direct
satellite radio. So if local broadcasters are not local, we
will soon be out of business. So the important thing for us to
do is to be local, to serve the local community.
And I think that is reflected by the surveys that show that
95 percent of the American public listens to radio every single
week. That is an extraordinarily high number, and 75 percent
indicate that they believe that radio is doing a good job. So
we are very pleased with those numbers. We would like for them
to be slightly higher, obviously, but we believe the 1996 Act
has worked and worked well.
Senator Lott. Well, we specifically permitted unlimited
national ownership of radio stations by a single company in
that Act, but there was a sliding scale of limits for
individual markets. I presume you all talked a little bit about
that in my absence. I think that is a critical point to make,
though, is it not?
Mr. Fritts. And those limits remain today. What the FCC is
doing--and I think all of us recognize that this hearing is
certainly appropriate because the FCC every 2 years is required
by the statute which you enacted, the Congress enacted, to
review the bidding, if you will, to look at the landscape and
to see what the ownership limits should be and is it working
well. And they are in that process right now. Presuming that
they make some modifications in this biennial report, there
will be another biennial report 2 years from now where they
will review the same thing. I am sure that if the system
warrants it, that Members of Congress will hear about it and
will ask the FCC or certainly provide comments to the FCC along
these lines.
Senator Lott. Mr. Mays, just again from glancing over the
testimony, I kind of have the impression it has been inferred
that since you do have these 1,200 radio stations that maybe
you have not been meeting the need for public service
activities or programs that would benefit the communities, that
you do address the local needs. How do you respond to that?
Mr. Mays. Well, as Mr. Fritts said, Senator, our local
involvement with the community is the lifeblood of our radio
stations. As I said earlier when you were out of the room, we
consider ourselves an aggregation of a few hundred small
businesses that serve their local community. And if we do not
do extensive research in every market like we do and determine
what the audience wants to hear, whether it is music genre or
news and information and weather and public service work, we
are absolutely not going to be able to sustain our business.
You brought up an interesting point about the music tie to
our company. Let me address that, if you will, just for a
moment, as far as what we think the record companies are
insufficient at and that is producing new music. So we have
taken a number of our stations that concentrate on new artists
only. In addition to this because of those five record
companies not producing enough new artists, we provided a
website where new artists could uplink their music and then we
could draw it down and play on our radio stations, and we play
new music on--I think 70 or so of our stations have new music
only programs. Right here in D.C. on DC101. In Detroit every
night at 9 o'clock they play only new music.
We have 1,000 bands. This uplink has only been there for 4
or 5 months. We have 1,000 bands up until 2 weeks ago of new
artists sending their music up so we could download it, and
every other radio station in the world could download it.
Within the past 2 weeks, we have 1,000 more bands, and we are
only promoting this because we are trying to roll it out slowly
on our radio stations in 20 markets. Basically what they say is
new artists, we are going to play you, upload your music to the
website. And it has moved to 2,000 new artists in the past 6
months.
Senator Lott. Let me apologize. The red light is on here.
But I would like just a couple of brief questions, if the
Chairman would allow me a little latitude.
The Chairman. Yes. Just let me add for the record. Mr.
Fritts mentioned there are 4,000 owners. One owner gets 27
percent of the revenue. I think that completes the picture a
little bit more accurately.
Senator Lott. Mr. Short, I take it that you feel like we
have lost some of the local focus and the public service
programming and that sort of thing, and maybe you have already
touched on it. I apologize to ask you to repeat, but it
directly relates to the question I just asked Mr. Mays. Do you
feel like we are losing some focus there?
Mr. Short. Yes, I do feel that. I am a Syracusean. I have
been in Syracuse since 1968. I grew up in a town that hardly
played any R&B on the radio. That is what got me into the radio
business. I was so frustrated that there was no diversity. I
kept asking why do we not have a--at that time it was called a
soul station. It just dawned on me no one is going to do it, so
I did it.
All right. Now you got a guy who has been there for 30-plus
years. I know people if I walk in the grocery store, the
church, or the schools. They will hand you an announcement
saying, can you get this on radio? I need to come by and see
you, Mr. Short. Call Bob up. He will get this on the radio for
you. And it is almost small town radio, even though a lot of
Syracuseans do not like to think of themselves as small town,
but it really is small town.
And now you have a situation where everything is programmed
and regimented. A program director from Texas says, no, we play
18 songs per hour. Who is Willy? We do not have time for Joe.
What is this? How much money does he have? What kind of a
schedule is he willing to pay? Well, maybe it is the NAACP.
Maybe it is the Urban League. Maybe it is the little Boy Scout
troop or something.
And it takes someone that is sensitive to that community
that says, okay, I know this guy, I know the family. Sure I
would like to sell him a $5,000 schedule or a $20,000 schedule.
But he is not Coca-Cola. He is not McDonald's. He is Joe. Let
him come on the air. We will make something work. We will bring
him in, sit him in the studio, and we will talk about the
issues for that particular situation. So that is an element
that I think is completely gone, especially in Syracuse.
And he talked about voice tracking. I would question that
15 percent voice tracking. I think if you could just
simultaneously listen to every station in the country that they
program, you will hear that same voice all over. I mean, this
guy is in Texas. He is in Syracuse. He is in Alabama. I do not
know who the guy is, but it is the same voice. So I find it
hard to believe that he is doing 15 percent of his time in
Syracuse and he has got----
Senator Lott. He must have a great voice is all I can say.
Mr. Short. Yes. It is the voice, the voice of the station.
Senator Lott. Well, I understand what you are saying. I do
think times have changed, though. One of the first jobs I ever
had was with the local radio station, WPMP-WPMO Pascagoula,
Moss Point.
The Chairman. Great place.
[Laughter.]
Senator Lott. Yes. You get a whole different voice. My
mother did the logs. In fact, I think the first woman's voice I
ever heard on radio was my mother's voice, and she was working
before mothers worked quite that much.
And it was different. Those days you had a local furniture
store open. They went down and did a simulcast right there at
the local radio station, and they would interview people as
they walked by and tell what the price of the living room suit
was.
I think people now are looking for something a little
different. That was nice, but I am not sure that that is what
the market needs or what the people want now. I am looking now
and I think most of my neighbors are--frankly I want heavy
news. I want all news. I listen every morning to an all news
station here in Washington, D.C., and when I listen to music, I
listen to a station out of New Orleans. I listen to WWL, a
powerful station out of New Orleans, even though I live 90
miles away. Times have changed and I think we have to allow the
radio industry to reflect the demands of the times and, by the
way, be able to make a profit so they can stay in business.
Let me ask Mr. Henley a question, if I could.
The Chairman. I think Mr. Short wanted----
Senator Lott. Oh, you want to add another comment?
Mr. Short. Yes, I do.
Your implication is that times have changed for the better.
It is a presumption. First of all, they have never in Syracuse,
since they have changed to urban, gotten the ratings that I had
with my back woods' approach of just bringing Willy on. They
have got all the research. They have got the voice. They have
got all the connections. They subscribe to Arbitron. They have
got billboards all over the place. They have got everything
that supposedly makes you a new millennium professional radio
station. But they do not know the format, not in Syracuse. They
may understand what Billboard says on the top 40 and somebody
says that DMX or Ja Rule or whoever is a good artist--play them
72 times. Do not ask me any questions.
Whereas I am answering the phone. Sometimes it is because I
do not have a huge staff, so you get lucky and you get the
general manager to answer the phone, and it is some guy who is
saying, hey, you played a record. It goes something like this,
and he starts singing it. And you say, I know that record. Hey,
can you get that on for me? And you know what? When you do
that, you are the greatest station. You know why? Because you
cannot get that done over here. You have got to go through on
levels of management, and it is considered unprofessional.
But, hey, what is the difference in that and a regular
call-in sophisticated talk show? You said the number is 1-800-
whatever. Call Rush Limbaugh. The listener is participating. So
I really question that particularly since they cannot achieve
the ratings that we have had.
Senator Lott. I apologize to all of you and I thank you all
for being here. This is extremely interesting. It is an
important subject.
Mr. Henley, I made an observation at the beginning and
maybe you addressed this. But is this really about ownership
caps and limits of competition, or is this about the problem
with concerts and how that is handled?
Mr. Henley. Well, I think it is about both, Senator. I
think they are both very real problems. In 1996 there were
5,133 owners of radio stations. And today, for the contemporary
hit radio format, which is again the ``make it break it''
format, only four radio companies, Clear Channel, Viacom, Cox
and Citadel, control access to 69 percent of that format's 51
million listeners nationwide. And for the country music format,
the same four firms control access to 53 percent of that
format's 34 million listeners.
Now, I remember back when I first got in the business,
professionally that is, back in the late 1960s, early 1970s,
there was a thing called the seven-and-seven rule. No one
company could own more than seven radio stations and seven TV
stations. Period. And then somewhere along in the 1980s--I
believe it was during the Reagan administration--those rules
were relaxed to allow each company to own two radio stations in
a given market but no more than 40 radio stations total. But
after the 1996 Telecom Act, this thing has just jumped
exponentially. I do not see the wisdom in letting it go that
far.
And from an artist's point of view, I think it has really
harmed music. I think it has really made it very difficult,
again because of the millions of dollars it costs to get a
record on the radio. And I know that there is payola because I
get billed for it. My record company bills me back for the
independent promotion monies that they have to give to the
independent promoter. And they have worked out a very
sophisticated system to skirt the current payola laws, a very
sophisticated system where the money is paid to a middleman.
And what happens after that is very privileged information. But
I know that these things exist.
So Mr. Mays alleged in his testimony that they are really
in the radio business, that the concert business is not really
that big a deal for them. But I want you to understand that
before another company called Concerts West was formed in which
I am a minority--a small minority shareholder--and I will
probably never see a dividend. We formed Concerts West in order
to provide a viable alternative to the Clear Channel monopoly.
We wanted to give artists a choice and have another place to go
to promote their concerts. Before we formed Concerts West,
Clear Channel Entertainment, according to Poll Star's reported
concerts--Poll Star is an entity that reports on all the
concerts and the revenues that happen in the industry.
According to Poll Star, Clear Channel Entertainment had a 95
percent market share of all reported concerts. So they are in
the concert business big time.
Mr. Fritts. Mr. Chairman, I really have to respond to what
Mr. Henley said about payola at this point in time. The record
industry is controlled by five record companies. His beef is
with the record companies. His beef is not really with the
broadcasters.
The Chairman. I guess he could speak for himself.
Mr. Fritts. Fine, but I wanted to----
The Chairman. Thank you.
[Laughter.]
Mr. Henley. My beef is with both.
The Chairman. Mr. Mays, this is an equal opportunity
Committee. You have heard some comments by both Mr. Short and
Mr. Henley, and before we move to Senator Wyden, we would be
glad to have your response if you would like to.
Mr. Mays. Well, I think I have covered most of the points.
In all due respect, Mr. Chairman, we have about 20 percent
of the radio revenues rather than 27 percent.
The Chairman. Only how much?
Mr. Mays. I am sorry?
The Chairman. Only 20? Excuse me.
Mr. Mays. I understand we are a big company, sir.
Let me also say that we are here again only sustainable as
it relates to the community service that we deliver. In
Syracuse in our urban format, we have an African-American
program director that picks every single thing that goes on the
air. We make absolutely no Syracuse decisions in San Antonio.
We make no Phoenix decision in San Antonio. We certainly make
no New Orleans decisions in San Antonio. And that African-
American has a feel for the market, just like Mr. Short does,
and he is intertwined with that African-American community,
just like Mr. Short was. And we feel that he is doing a great
job.
As it relates to the tour business, as I said, it is less
than 7 percent of our income.
The Chairman. Which is how much?
Mr. Mays. I am sorry?
The Chairman. Seven percent of your income is how much? $5
million, $10 million, $50 million?
Mr. Mays. Maybe $100 million or so.
The Chairman. Go ahead, please.
Mr. Mays. Our radio income is substantially higher than
that. I am not arguing that we are not a big company, and I am
happy that Senator Dorgan said he did not feel that big was
necessarily bad.
But I think that if you put things in perspective, that we
would never, never jeopardize our radio local roots to play or
not play an artist because he is or is not touring with us. As
I mentioned, the Britney Spears situation is absolutely to that
point, where when she toured with Mr. Henley's company, she got
73 percent more airplay on Clear Channel radio stations than
she did when she toured with Clear Channel Entertainment. And
that is true with every artist because we are not going to
jeopardize our principal business and ignore what our audience
wants to hear for the benefit of a concert artist. We are just
not going to do that, Mr. Chairman.
The Chairman. Thank you, Mr. Mays, and as a father of
teenage children, I will not comment on whether you should be
airing Britney Spears or not.
[Laughter.]
The Chairman. And I apologize to my colleagues, but I think
it is important, when serious comments are made, that other
witnesses be allowed to respond to those comments so that we
can get a full story.
Senator Wyden.
Senator Hutchison. Mr. Chairman, could I just say I am
going to have to leave.
The Chairman. I am sorry, Senator Hutchison. I apologize.
Senator Hutchison. No, no. I agree that it is good to have
the ebb and flow. I have certainly learned a lot from the
hearings. I will have to go before I can ask any questions.
The Chairman. Could we indulge Senator Hutchison to make at
least a brief comment, Senator Wyden?
Senator Wyden. Sure.
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. I did not intend to do that.
But let me just say that I do have two constituents here
who are saying exactly the opposite things. And I would like to
know more about the payola. Mr. Mays says there just isn't any.
Mr. Fritts agrees with that. Mr. Henley and other artists say
it is absolutely there. It appears to me that there is some
sophisticated way that an artist is required to pay money to be
on a major station.
My question is, how does this occur, and should we be
looking at the laws on payola maybe separate from any issue of
ownership?
And my second question would be, how does a new artist get
into the market? Now, Mr. Mays says that there are a lot of
just new market programs which appears to make sense. So I
would ask Mr. Henley why doesn't a new market program that is
pretty widely dispersed make a difference.
And then I would ask Mr. Mays how can you say there is no
payola when artists have to pay.
Those would be my two questions, and if you would prefer
those to be for the record----
The Chairman. If Senator Wyden does not mind, I would like
to have a response to those questions.
Senator Hutchison. Thank you.
The Chairman. Please. Who do you want to answer first? Mr.
Henley or----
Senator Hutchison. Let me just ask first Mr. Mays. It just
seems to me that there is some form of payola. Maybe it is not
called payola. Maybe it does not violate present laws. But if
an artist has to pay to be on the air in a major station, I
think that there is a problem. I would ask that question of Mr.
Mays first.
Mr. Mays. And I would be happy to address that, Senator
Hutchison. I understand the record companies have come to
Senator Feingold and to possibly people on this panel with a
plea to save them from themselves. In other words, they write
the checks to these independent promoters, and they do not like
to do that, but they are not willing to stop doing that because
they are afraid I guess some other record company will continue
to do it.
We have, as I said, a zero tolerance to pay for play.
Absolutely a zero tolerance for pay-for-play. We have our 5,000
disc jockeys sign affidavits every single year. We have our
program directors in every single market sign affidavits every
year that they will not accept any pay for play or they will be
fired.
Independent promoters do interact with the corporate office
in terms of actually buying our research and information, and
they pay us for that. We do research every night in every
single market, and that is valuable information to them because
of what it means the audience wants to hear.
As far as the new artists are concerned--and I think you
were here when I talked about our uplink, but something you
might be interested in--I was at a meeting in New Orleans night
before last, and I asked our manager of our Austin radio
station KVET why he has been so wildly successful. And he said,
well, gee, we have two country stations in that market. One is
an up-tempo country station and his is one that plays new
artists, the Texas, kind of the Willy Nelson, Waylon Jennings
genre of music.
The Chairman. What you are saying, Mr. Mays, is that there
is no payola. In response to her question, there is no payola.
Mr. Mays. Absolutely none.
The Chairman. Thank you.
Mr. Henley.
Senator Hutchison. Mr. Henley.
Mr. Henley. Thank you.
The new payola practices take two primary forms. Radio
consolidation has created the first type. Radio station group
owners establish an exclusive arrangement with an independent
promoter who then guarantees a fixed annual monthly sum of
money to the radio station group or the individual station. In
fact, some stations rely solely on that as a majority of their
budget for the year in some cases. In exchange for this
payment, the radio station group agrees to give the independent
promoter first notice of new songs added to the playlists each
week. And there is some implication in there. Stations in the
group also tend to play mostly records that have been
``suggested'' by the independent promoter, by the way. And as a
result of the standardization of this practice, record
companies and artists generally must pay the radio station
through independent promoters if they want to be considered for
airplay on those stations.
I mean, the record companies do not like this either, and I
wish they would stop doing it, but until all of them stop doing
it, none of them are going to stop doing it because if one guy
breaks ranks, then he gets an unfair advantage. However, none
of the independent promoters and none of the radio stations are
sending the checks back. So I have got a beef with both the
record companies and the independent promoters and the radio
stations. I have got a beef with all of them.
The second payola practice occurs after the music labels
hire an independent promoter to legitimately promote their
records to a specific station for a fee. And reportedly,
certain independent promoters use the label's money to pay the
stations for playing the songs on the air. I do not have any
proof of that. I have never been involved in it, but I know
that I get billed back by my record company for a certain
amount of independent promotion.
Furthermore, this new form of independent promotion which
are these concerts that the artists are asked to do for radio
stations is simply another form of payola. Now, Mr. Mays has
characterized these concerts as charity concerts and
interaction with the local community. The radio stations ask an
artist to come and play a concert, and they give a relatively
meager sum to a local charity, but somebody should ask Mr. Mays
and other radio conglomerate owners how much they make a year
on these concerts where artists are forced to play for free.
The Chairman. Go ahead.
Mr. Mays. I would be happy to address that, Senator. And
thank you for bringing that up, Mr. Henley.
Yes, we do ask and we have hundreds of people coming to
events like Wango Tango in Dodgers Stadium. 76,000 people are
into the Meadowlands at what we call Zootopia where we ask a
whole range of artists to come for all day long, most of which
are new artists, but those that complain about going are those
who do not get to go because there are only so many that we can
have within that venue during those many hours. So the ones
that go love it because they get exposure to thousands of
people in the Meadowlands Stadium or Dodgers Stadium, and the
new artists love it because they are on what we call the side
bands and they love to do it for the exposure and what money we
pay them. But we have never had a complaint from those that
gain the exposure and the promotion on the radio. We are sorry
we cannot put all of the artists there that would like to, but
we just cannot.
Mr. Henley. I am sorry. My point was that some of the money
from those concerts goes to the radio station and not all of it
goes to charity. That was the point I was trying to make.
If I might just comment on the new music program. Mr. Mays
said they have a program that comes on at 9 o'clock at night. I
would bet that that program only lasts for an hour, and I would
bet that it goes one night a week.
Mr. Mays. In Detroit, it goes every night a week.
Mr. Henley. Okay, in Detroit.
Senator Hutchison. Thank you very much, Mr. Chairman. I
really appreciate the indulgence. Thank you, Mr. Wyden.
The Chairman. Thank you.
Senator Wyden. Thank you, Mr. Chairman.
Mr. Mays, the Wall Street Journal ran a front page article
not too long ago, and in the headline it said, perfecting the
art of seeming local. And it essentially is about your company.
You have described in discussions with several of my colleagues
that your view is that it does not go on very often. You do not
have these virtual radio stations where the deejays are located
out of town, but the program looks, of course, like it is
appearing locally. And that is certainly not what the Wall
Street Journal is talking about in its front page article.
In fact, Mr. Chairman, I would like to ask unanimous
consent that this article be made a part of the record.
The Chairman. Yes.
[The information referred to follows:]
The Wall Street Journal, February 25, 2002
From a Distance: A Giant Radio Chain is Perfecting the Art of Seeming
Local
By Anna Wilde Mathews
On Feb. 15, disc jockey ``Cabana Boy Geoff'' Alan offered up a
special treat for listeners of KISS FM in Boise, Idaho: an interview
with pop duo Evan and Jaron Lowenstein. ``In the studio with Evan and
Jaron,'' Mr. Alan began. ``How're you guys doing?''
The artists reported that they had just come from skiing at nearby
Sun Valley, then praised the local scene. ``Boise's always a nice place
to stop by on the way out,'' Evan Lowenstein said, adding that the city
``is actually far more beautiful than I expected it to be. It's
actually really nice, so happy to be here.'' Mr. Alan chimed in:
``Yeah, we've got some good people here.'' Later, he asked Boise fans
to e-mail or call the station with questions for the performers.
But even the most ardent fan never got through to the brothers that
day. The singers had actually done the interview in San Diego a few
weeks earlier. Mr. Alan himself has never been to Boise, though he
offers a flurry of local touches on the show he hosts each weekday from
10 a.m. to 3 p.m. on the city's leading pop station.
This may be the future of radio. The Boise station's owner,
industry giant Clear Channel Communications Inc., is using technology
and its enormous reach to transform one of the most local forms of
media into a national business. In fact, Boise's KISS 103.3--its actual
call letters are KSAS-FM--is one of 47 Clear Channel stations using the
``KISS'' name around the country. It's part of an effort to create a
national KISS brand in which stations share not just logos and
promotional bits but also draw from the same pool of on-air talent. Via
a practice called ``voice-tracking,'' Clear Channel pipes popular out-
of-town personalities from bigger markets to smaller ones, customizing
their programs to make it sound as if the DJs are actually local
residents.
``We can produce higher-quality programming at a lower cost in
markets where we could never afford the talent,'' says Randy Michaels,
the chief executive of the company's radio unit. ``That's a huge
benefit to the audience.''
It's also a huge benefit to Clear Channel, which can boast of a
national reach and economies of scale to advertisers and shareholders.
The voice-tracking system allows a smaller station in Boise to
typically pay around $4,000 to $6,000 a year for a weekday on-air
personality, while a local DJ in a market of Boise's size would have to
be paid salary and benefits that might run five times as much. That's
why Clear Channel is developing multiple identities for a battalion of
DJs like the 29-year-old Mr. Alan, who is based at KHTS-FM in San
Diego, but also does ``local'' shows in Boise, Medford, Ore., and Santa
Barbara, Calif. Mr. Alan does research to offer up news items and other
details unique to each city.
The new sound of radio is tied to big changes in the industry
brought on by a 1996 law that got rid of the nationwide ownership cap
of 40 stations. The law also allowed companies to own as many as eight
stations in the largest markets, double the previous limit. The shift
sent broadcasters into a frenzy of deal-making, as stations rapidly
changed hands. A fragmented business once made up mainly of mom-and-pop
operators evolved quickly into one dominated by large publicly traded
companies that controlled stations around the country.
No one took advantage of the new law more aggressively, or
successfully, than Clear Channel. The company started out with one FM
station in San Antonio. A relatively little-known firm before 1996, it
rapidly grew into by far the biggest player on the airwaves. Today, it
operates more than 1,200 U.S. stations, compared with 186 stations
owned by its biggest publicly traded rival, Viacom Inc. Privately held
Citadel Communications Corp. has 205 stations, mostly in midsize
markets. Clear Channel has combined its radio clout with a growing
array of other media assets, including the nation's leading concert-
promotion company and a major outdoor-advertising operation.
Now Clear Channel is moving to exploit its size by linking up its
different businesses and wooing major advertisers with the promise that
it can deliver nearly any combination of geography, demographics and
radio format. Part of that effort is the move to create national brands
such as KISS, which can become familiar touchstones for big national
advertisers and, eventually, listeners. While voice-tracking is not a
new practice in radio, Clear Channel is pushing the concept on a far
grander scale than ever before, extending well beyond the 47 KISS
stations to encompass most of its empire.
Mr. Michaels compares his model to McDonald's Corp.'s franchise
system. ``A McDonald's manager may get his arms around the local
community, but there are certain elements of the product that are
constant,'' he says. ``You may in some parts of the country get pizza
and in some parts of the country get chicken, but the Big Mac is the
Big Mac. How we apply those principles to radio we're still figuring
out.''
Indeed, as Clear Channel has moved to take advantage of its reach,
it has run up against traditional ways of doing things in radio. To
create a national brand based on a Federal trademark, for instance, it
has had to mount legal challenges in several markets, chasing off
stations that had been using versions of the KISS name locally. (The
U.S. station that actually has the call letters KISS-FM is an album-
rock station based in Clear Channel's corporate hometown of San
Antonio, owned by rival Cox Radio Inc.) Clear Channel is facing
objections from union locals representing on-air talent, which likely
stand to lose jobs as the company phases in more virtual programming.
The company also drew an investigation by the Florida Attorney
General's office into whether it was portraying national call-in
contests to listeners as local. Clear Channel admitted no wrongdoing,
but in 2000 it paid the state an $80,000 contribution to the Consumer
Frauds Trust Fund and agreed not to ``make any representation or
omission that would cause a reasonable person to believe'' that
contests involving numerous stations around the country were actually
limited to local listeners.
Mr. Michaels argues that much of the static his company hears,
particularly from competitors, is simply a battle against progress. He
compares it with another point in radio's history: when the industry
began phasing out live orchestras and in-studio sound-effects experts
in favor of recorded music. ``The guy making buggy whips and installing
horse shoes should have gotten into making tires,'' he says. Change, he
says, is ``inevitable. All we can do is exploit it.''
Nothing better illustrates Clear Channel's efforts to do that than
its drive to develop the KISS brand. It's derived from Clear Channel
pop powerhouse KIIS-FM in Los Angeles. The wider rollout was begun by
Mr. Michaels' Jacor Communications Inc. before Clear Channel bought it
in 1999. It kicked off by introducing the KISS format in Cincinnati,
among other cities. Each had its own frequency and call letters,
usually something as close as possible to KISS.
At the same time, radio technology was changing rapidly. In the
mid-1990s, stations began buying software and hardware that allowed
them to run their on-air programming with computers that contained
entire catalogues of digital songs. Using such systems, DJs could also
digitally record voice bits and drop them into a preformulated schedule
of songs and commercials. Stations had long been able to prerecord some
materials, using tape setups. But now a disc jockey could put together
a perfect five-hour shift in less than an hour, using a computerized
system that lets the DJ hear just the end of one song and the beginning
of the next.
Clear Channel and its predecessor companies began installing the
technology in all its stations in the late 1990s, and linking them
together into a giant high-speed digital network to move digital
recordings around seamlessly. Gradually, the company started piping
major-market DJs into smaller cities. It even did the same with some
news stations, which used local reporters feeding information to
announcers in different cities, who would then send back their
newscasts digitally to be put on the air.
An early indication of the impact came in Dayton, Ohio, in 1999.
Dozens of teenagers showed up at a Clear Channel pop station early one
morning looking for the Backstreet Boys, after hearing an interview
with the band that morning. The teenagers were politely told that the
band wasn't available and given promotional items. The interview was
actually done earlier in Los Angeles.
``That's when we knew this could be huge,'' says Sean Compton,
Clear Channel vice president and national program coordinator.
Boise's 103.3 was one of the early KISS converts. KARO, as it was
called, had been playing classic rock. But it was competing in a
crowded niche and ratings were lagging. So, in early March 2000, Clear
Channel decided to switch it to a pop format and use the KISS brand.
It took only about two weeks to create an entirely new station. The
logo came from a KISS station in Las Vegas, with a Boise artist simply
replacing the Las Vegas station's frequency with the local one. Clear
Channel pop stations in other cities digitally imported their own song
catalogues to Boise's hard drive. A programmer in Dallas helped prepare
the first song list.
Before the format change, the station was using one voice-tracked
show from Salt Lake City on weekdays, as well as some national
programming. After the station went KISS on March 13, 2000, it began
importing all of its DJs. Weekday mornings came from Los Angeles,
middays from Cincinnati, afternoons from San Diego and evenings from
Tampa, Fla. Two of the old rock station's DJs were laid off. Later, one
out-of-town KISS DJ moved to Boise to do a live afternoon show. As
costs went down, ratings went up.
``You can deliver a better product than a live station,'' says Hoss
Grigg, who was an on-air personality under the old format before
becoming the program director for Boise's KISS. ``If they get it, they
get it, no matter where it comes from.''
Indeed, Mr. Grigg, who comes from the area and has worked in Boise
radio on and off for a decade, quickly learned how to operate a virtual
station. The station hired a Boise State University student, who it
dubbed ``Smooch,'' sending him to local KISS events because the real
DJs weren't available. To handle phone calls that came in for the out-
of-towners, the station first tried to maintain separate voice-mail
boxes for each. But Mr. Grigg eventually gave up and just set the
studio line to ring busy unless he or another station employee was
actually in the studio.
Mr. Grigg also devised ways to keep his air talent up to date on
events in Boise. He created a guide with helpful pronunciation tips
(``BOY-see . . . no Z'') and descriptions of ``Boise Hot Spots,'' like
the Fort Boise skateboard park featuring a ``sweet bowl.'' Major
thoroughfares, local sports teams and the names of area high schools
were also included. Mr. Grigg created a special Web site, which he
updated constantly, to inform his outlying DJs about coming concerts
and station promotions.
But even as he works to keep the station sounding local, Mr. Grigg
draws much of his station's identity from around Clear Channel. Many of
the contests he runs are national. The remixes of big songs to promote
KISS come from Chicago, as does the voice used on most promotional
messages.
The music selections for Boise's KISS are made in San Diego by
brand manager Diana Laird, who also programs other stations as well,
including ones in San Diego and Santa Barbara. Mr. Grigg advises her on
what's popular with call-in listeners, but Ms. Laird says she always
takes such requests with ``a grain of salt, considering maybe 1
percent'' of listeners call in. She instead relies on instinct,
national tastes and research in markets with demographics similar to
Boise. She says the Santa Barbara station gets far more hip hop and
dance music than the mainstream pop that is heard in Boise. But KISS
listeners in Boise and Medford hear identical playlists, because their
demographics are similar, Ms. Laird says.
It was Ms. Laird who helped connect ``Cabana Boy Geoff'' to Boise.
Mr. Alan, who works long hours as promotions coordinator at KHTS in San
Diego as well as being an on-air personality, wanted to raise his
profile and earn the extra money that voice-tracking a few stations can
provide. To squeeze it all in, he typically arrives at Clear Channel's
meticulously landscaped San Diego office before 7 a.m., not long after
his 2 a.m. sign-off from a live air shift. A recent day began even
earlier with a cellphone call from Mr. Grigg, who told him of a Boise-
area Olympic hopeful and recapped a station-sponsored party the night
before at a Boise restaurant.
Sipping a large cup of coffee, Mr. Alan tried to convince himself
it was 10 a.m., the time his show would air. With Mr. Grigg's briefing
in mind, he told the Boise audience that last night's event was ``a
wild and crazy party,'' though of course he hadn't attended. ``I
personally saw a number of you hook up with people you had never hooked
up with before.'' Then came the Evan and Jaron interview. (A
spokeswoman for the singers said they couldn't be reached for comment.)
Mr. Alan wrapped up his five-hour shift in just an hour, but he
returned later that afternoon to do a Boise show for the next Monday,
when he would be out of the office for the President's Day holiday.
This one was harder, since it took place three days in advance. Mr.
Alan also had to make a convincing on-air handoff to a live person--
Smooch, the station's street promoter, who would be doing a live
appearance during Mr. Alan's show.
Again, a phone call helped. Smooch, whose real name is Troy
DeVries, reported that he would likely be hanging out at a nightclub
called The Big Easy sometime that weekend. So, Mr. Alan, who has never
met Mr. DeVries in person, riffed a bit: ``On Saturday night, me and
Smooch, we were hanging out at The Big Easy,'' he said, launching into
a bit that made fun of Mr. DeVries's dancing. ``Just thinking about it,
I'm cracking up.'' (As it turned out, Mr. DeVries went to the nightclub
on Friday instead).
Mr. Alan also used phone calls he had recorded during his live show
in San Diego, editing out local references to make them usable in
Boise. He typically greets Boise listeners by using names taken from e-
mails he gets from Boise, or sometimes from San Diego callers. Then, he
puts them in a situation using a real local place drawn from his
research. Sometimes he does a bit less, though. After greeting
``Dawn,'' who ``is stuck at work today,'' he admitted off the air that
she was ``somebody I just made up right now.''
Mr. Alan says his voice-tracked shows sound just as good as his
live ones, and listeners ``don't get cheated out.'' Still, he admits
that he was concerned when his fiancee told him that if she had a crush
on a DJ and found out that he wasn't really in her city, ``she'd be so
disappointed, she'd be heartbroken and stuff.''
Indeed, several Boise KISS listeners said they couldn't tell that
many of the station's on-air personalities weren't in town. ``If you
can't tell, it's not that big a deal,'' says Jennifer Hardy, 24, who
has gone to KISS events with her five-year-old son. ``They are involved
with the public.'' But Hope Brophy, a manager at a local hair salon,
said that, even though she couldn't tell the difference, the idea
``irritates me. . . . I think if you don't live here, you don't
understand it.''
In Boise, KISS's pop rival, KZMG-M, ``Magic 93.1,'' is gambling
that there is an advantage in having more live presence. The station,
which is owned by another big company, Forstmann Little & Co.'s
Citadel, has live DJs on nearly all the time on weekdays, except for
midnight to 5:30 a.m. KZMG promotes itself as the ``live and local''
station that always takes calls from listeners, but KISS is still ahead
in the ratings.
Mr. Michaels, the Clear Channel radio chief, says he's not aware of
the details of Mr. Alan's situation, but that it sounds like ``this
would be an example of a personality being a little too creative.''
Mr. Michaels says that he himself usually can't tell when a show is
voice-tracked from another city and when it's live. ``I don't think
it's at all wrong or deceptive to put together terrific programs that
reflect local communities and sometimes use talent who may physically
be somewhere else,'' he says. He compares the radio shows to films,
which wouldn't be ``nearly as much fun if the camera kept turning
around to show you it was just a set. I don't know that the radio
experience would be as good if we said every five minutes, `By the way,
I'm not really here and I taped this 20 minutes ago.' But that's all
part of the magic of creating entertainment.''
Senator Wyden. This article goes into considerable detail,
Mr. Mays, in effect on how you deceive the listeners. I will
talk briefly about a station in Boise. It says they handle the
phone calls by setting up separate voice mail boxes so that
people cannot tell the deejays are out-of-towners. Then at one
point they set up a studio line to ring busy, and finally if
somebody came in, they would free up the line.
I guess my question to you is--whether you think it is 15
or 20 percent or whatever is not the important question. To me
it is going up, number one. And number two, I would just be
curious about whether your stations disclose this to people
locally. I mean, do people locally know that the deejays are
not from there?
Mr. Mays. Let me say, Senator, that I agree with I think
what you are getting at. Even though that article in the Wall
Street Journal had many inaccuracies and it was not all
correct, the fact is that it appears that we were in that one
case deceiving our listeners by leading them to believe that
that talent was in Boise instead of San Diego. No, we do not
attempt nor would we allow by company policy, since we heard of
that particular incident, to deceive any listener.
If a voice track is done and if it is done overnight, say,
and the talent is in Denver and it goes to Fort Collins or
whatever, we ensure that every piece of information, the news,
weather, sports, is done correctly in order that we can have
all of the local information there for the public.
Senator Wyden. That is not what I am asking.
Mr. Mays. Now, whether or not they know that that talent is
in Denver rather than Fort Collins, possibly not. But it is
company policy not to try to deceive the person by suggesting
that the Denver talent that is doing the news in Fort Collins
at 2:00 a.m. in the morning is actually in Fort Collins. That
is against company policy.
Senator Wyden. But you are not telling me that you have a
policy to disclose to the local listener that the deejays are
not there locally. Do you have a company policy on that point?
Mr. Mays. No, we do not.
Senator Wyden. Thank you.
Question 2 is you said in response to the Chairman with
respect to ownership limits and cited the 1996 law that you
would respect those limits. And of course, that is the law and
acquisitions continue. I am just curious whether you think as a
policy, if three or four companies end up owning the majority
of radio stations in this country, is there any down side in
that?
Mr. Mays. I would say that as long as those companies--
certainly I do not think the other concentrated companies in
the entertainment business like the record companies are
serving their customers and their audiences. But I would say
that if those individual radio stations throughout this Nation
are aggregations of small businesses dedicated to their
community and as long as there is robust competition with other
media, which there is in every market, then it really does not
matter who the ownership of those individual stations are if
they are run locally for the benefit of the community. So if
you had the top 10 owning 80 percent instead of 44 percent, I
do not think that would be bad public policy.
I think deregulation has been a huge benefit to the
diversity and to the audiences in all of our markets. If you go
to the audiences in Medford, Oregon and do a survey--and we
would be happy to do it for you--of how they enjoy radio and
the diversity in that market, it is going to be very positive.
And that is market after market because, as I said, we do that
because it is our lifeblood to keep our customers, your
constituents, happy whether those be the audience or whether
they be the advertisers.
Senator Wyden. I have a question for the panel. The reason
I asked Mr. Mays that question is I think that that is a
relevant question for radio, but it is a relevant question for
the communications business generally. And Mr. Mays just said
in his opinion there were not any down sides if you had three
or four companies owning the vast majority of radio stations.
Well, we are on the eve of the Federal Communications
Commission looking at changing the concentration rules
generally for a whole host of media, and I am very troubled
about the prospect that in a lot of communities in this
country, you are going to have one or two people owning
virtually everything in sight. They are going to own the radio
station. They are going to own the newspapers. They are going
to own the TV. They are going to own the Internet networks. And
I find this very troubling, contrary to what Mr. Mays has
talked about.
I would just like to go down the row for this panel and say
what are the lessons radio that the Federal Communications
Commission ought to pick up as it deals with media
concentration generally because I for one think that this
country ought to be pretty reluctant to repeat the radio
experiment in other areas of communications policy. Why do we
not just go down the row and begin with you, Ms. Toomey.
Ms. Toomey. Thank you very much, Senator.
First of all, I want to emphasize that I think we are
closer to that three and four company ownership than you think.
When you count the number of stations nationally, it looks like
a really big number. But when you cut it down to local markets,
as I did in my testimony, we are looking at four companies
owning over 70 percent of listeners nationally in all markets.
And then when we get to smaller markets, it is more and more.
And then we get to the case of something like Minot where all
of them are owned by one company. So I think this is the
direction we are moving in, and we should begin to look at
concentration instead of numbers of owners because that is when
we can see where the damage is taking place.
Next, I need to say that radio is different than other
forms of media, and we need to always keep that in mind because
it is the easiest and cheapest to produce. It is licensed at a
local level, which means that it is one of the final media
forms that is specifically programmed locally. So if we lose
this one, as there are large concentrations in all the other
media forms, we are just concentrating the problems. And if you
looked at that really beautiful chart behind there, we already
see that happening incredibly.
And these recent trends also have made it harder and harder
for grassroots folks to compete, as we have seen from the
table, and mom and pops sell out. We have less minority
ownership. We have fewer women running stations. We have less
local news and, as our study illustrates, fewer musical
choices.
I think the most frightening thing for the Senators would
be a quote that Congressman Foley said at Future of Music's
summit conference just a couple of weeks ago where he said in
his own market there used to be five stations he could go to to
get some policy news on the air, and now that has been reduced
to one. So within 6 years, he has lost 80 percent of access to
his own local radio stations. And that makes a really damning
picture for people who want to know what our public
representatives stand for.
Senator Wyden. Mr. Fritts.
Mr. Fritts. Thank you, Senator. I had not planned to do
this but I think because of Ms. Toomey's comments, I need to,
for the record, state that there are numerous studies that
contravene the FMC's conclusions, including a November 2002
report by Bear Stearns, a September 2002 Federal Communications
Commission white paper, and a July 2002 Arbitron-Edison Media
survey. In addition, there was a poll in December conducted by
the Mellman Group that found very wide listener satisfaction
with what was taking place in radio.
Having said that, what I would focus on to your question
quite frankly is that the NAB has never asked for wholesale
deregulation. We have never asked for deregulations like the
truckers or the airlines or the banks. What we have said is
that the FCC has appropriate jurisdiction and oversight and
that they should and do review these limits on a regular basis.
Obviously, recently they have reported to you and to this
panel.
We believe that the safeguard for you as a Senator and for
you as Members of Congress is that the FCC, the oversight of
jurisdiction for radio and television, has appropriate
abilities and safeguards in all of these areas to regulate and
to oversee the expansion or the contraction of radio or other
markets in this process.
So we are comfortable that the FCC, with its now five
commissioners led by Chairman Powell--and we are comfortable
that this oversight Committee, as well as one in the House,
will continue to monitor these progressions and to make sure
that the American public is well served.
Senator Wyden. Mr. Henley.
Mr. Henley. First of all, I think the FCC needs to take
another look at how it defines a particular market. As was
stated before, when Minot is included in the same market as
Bismarck and those two in combination are considered to be one
of the largest radio markets in the Nation, something is wrong
with all due respect to Minot and Bismarck. I think the FCC
needs to reevaluate and take another look at how it defines a
market and delineates a market.
I still have some things I want to say about localism, but
in the interest of time I am just going to skip it. I want to
say one thing. There has been a lot of talk today about
localism and how radio stations are locally programmed to serve
the interest of local people. There have been intimations that
local program directors actually decide what is played on a
local radio station. There has even been the implication that
deejays have a say in what is played on a local radio station.
I can tell you from experience that all the deejays I have
talked to are worried about two things primarily. They are
worried about their severance and they are worried about their
noncompete clauses. They get nothing whatsoever to say about
what is played on the radio.
And despite the examples that Mr. Mays has cited about
individual programming, if you could compare a cross section of
the Clear Channel playlists from a cross section of their
stations across the country in the same format, you would find
that that playlist is virtually identical from station to
station to station, with maybe a few aberrations here and
there. But the playlists are virtually identical. Everybody
gets the same McDonald's hamburger. And if you like hamburgers,
then you should just eat hamburgers, I guess.
I just want to read one thing in conclusion. The FCC is
charged with protecting what the Supreme Court referred to as
an uninhibited marketplace of ideas. And I want to read from
the seminal First Amendment decision which says, ``it is the
right of the public to receive suitable access to social,
political, aesthetic, moral, and other ideas and experiences
which is crucial here. That right may not constitutionally be
abridged by either Congress or by the FCC.'' And I think it is
being abridged.
Senator Wyden. Mr. Short.
Mr. Short. Thank you.
In response to your question, Senator, I genuinely believe
that if Clear Channel could press a button and program all
radio stations at the press of that button, they would just for
the sake of getting rid of the labor costs, driving up profit
margin and making more money than they are already making.
Enough is enough. I mean, there is no limit here. We are
seeing stations become eliminated and replaced with jukeboxes,
sophisticated computers. For some reason, they feel they have
to go to every city and serve that city as though the city was
advertising nationally saying, come, serve us, we need your
help. So what is happening now is you have this audacity that
says, we can own as many as we want and we can lay off as many
people as we so desire because we can control these stations
from anywhere.
Syracuse is a market that Clear Channel is currently
basically over the limit in terms of ownership. I think they
have gotten a waiver to allow them time to spin off one of
these stations. But I question whether or not they really are
looking for the time to spin one off versus looking for time
for that cap to be lifted so that there is no need to spin one
off and you just keep owning.
And then what you do is you put all stations in one
building. You call it economies to scale, if you will. And you
have one secretary, one telephone expense, one market manager,
and you run 9 or 10 or whatever they let you run--7 legally--
and then you run 2 by redefining what is in your market, as Mr.
Henley said, and what is really outside of the market. For
instance, you can put a station 20, 30 miles out of your city
of license and through sophisticated technology with repeaters
and things like that, you could actually hear it where it
initially was not intended to reach and then that makes it
usable in that market.
So what you are seeing is economies to scale for the
benefit of profitability more so than the benefit or serving
the public needs. And I am not saying you should never use
automation, but I think what the intent is, go buy this
station, lay off seven or eight of the people, or more, and
just replace it with the one program manager.
Mr. Mays mentioned the gentleman that is doing a good job
of programming in Syracuse. What about the sales staff that
they brought in? What happened is the sales manager for the
urban station is no longer there because there is no need for
him. They can use their other station sales managers to sell
that urban station. So they are taking out and not necessarily
putting back, but making it appear that whatever they replace
it with was needed and is of the public interest, which I do
not think it is.
And then on top of that, I think you really risk the danger
of not really having diversity. You have Mr. Lowry Mays'
viewpoint of the world, and I am not sure that everybody is
ready for that.
I do not want to go from the plantation to the ranch just
to say, well, I have a place to live. I would like to own. And
that is the issue here. You have Americans who actually believe
in the American dream, that if you do certain things, own your
business, serve the public, stay out of trouble, educate
yourself, that there will be a reward, not a penalty, not some
guy coming in and saying, eliminate all little guys. Or he may
not say it exactly that way, but implementing tactics that
result in the elimination of independent operators.
So now you have no diversity. You have answering machines
sitting there running busy instead of an individual providing
customer service. How many of you have dialed a 1-800 number
and it is frustrating. You say, where are the people that work
at this place? We do not want to leave a message and have them
get back to us. They are not going to get back to us unless you
leave a number saying I am willing to buy some commercials,
please call me. Then someone will get back to you.
So I think it is a tragedy to have diversity of ownership
suffer by eliminating these owners, putting Mr. Mays' opinion
of what that community should have in that market for the
benefit of basically Mr. Mays and his shareholders. It is all
bottom line, and if you, the lawmakers, allow Clear Channel to
own 3,000, you will be sitting here 5 years from now, again
with Mr. Mays, and he will have 3,000 stations probably.
Senator Wyden. Mr. Mays, I am sure you want to respond.
Mr. Mays. Well, I think I have covered the point that Mr.
Short has accused us of running some automated jukeboxes around
the country which could not be further from the truth.
Certainly we have a sales manager in that station in Syracuse.
I would just say that it is just common sense that each one
of our radio stations has to be independently serving their
local communities or there would be no reason why we would have
your constituents listen to our radio station and like the
information and the entertainment that they are receiving and
our advertisers who use that audience to sell products to. It
is just inconceivable to me why anyone would think that we
would tear down that commitment to the local community for
every single one of our radio stations and not do the research
in every single market to support the information, news, and
entertainment that we put on each individual radio station.
Whether it is in Illinois, Oregon, or Arizona, it is all the
same. It is a commitment to the local community and we are not
in business unless we adhere to that.
We do not run automated answering machines. We have huge
staffs in every one of our markets. Smaller markets are
somewhat smaller than here in Washington.
But let me just say that when you are at the maximum limit
in Washington, D.C. with 8 out of the 56 radio stations and you
have 200 satellite radio stations, 9 daily newspapers, 20
weekly newspapers, 13 television stations, and you are trying
to compete to sell your customers' products, which is our
business--we are in the business of selling our customers'
products and through our audiences, the advertising that we
sell, we hope that we do accomplish that. It is our absolute
commitment to be a public service conduit to every single
market that we are in, which we do achieve in every single
market that we are in.
But to be accused of playing some homogenized McDonald's
format on every one of our stations would be a way to the road
to disaster. We just cannot do that, and I do not understand
why people at this table assume that we can.
Senator Wyden. My time is up. I would just say, Mr. Mays,
we know that you do your homework, that you do research on
various communities. What concerns me is whether or not the
industry is going to be straight with the listeners, and that
is why I asked whether your station had a policy of disclosing
when the deejays were not there locally. You were candid, which
is to your credit, that you do not have the policy. That is the
kind of thing that I want to see in the future because I think
the public has got a right to know.
Thank you, Mr. Chairman.
The Chairman. Senator Smith, thank you for your patience.
STATEMENT OF HON. GORDON SMITH,
U.S. SENATOR FROM OREGON
Senator Smith. Thank you, Mr. Chairman. I have been in and
out this morning trying to cover commitments in three different
committees, but I particularly appreciate your holding this
hearing because I think it is so interesting and it is an area
I am trying to get up to speed on.
But it frankly strikes me that if it was not this industry,
we could bring the airlines in here and have the same
discussion. We could bring the banks and the credit unions in
here and have the same discussion. We could bring the farmers
in who complain about packer concentration. Then we could bring
the packers in to complain about retail store competition. This
is called the marketplace and it seems to be working.
This area is new to me and it is fascinating to me. I
earned my living growing and processing peas. I remember when I
first got into my business, there was Green Giant and there was
Bird's Eye, and they dominated everything. Now they are just
labels. They do not even produce anymore because some of us
figured out how to pick up the crumbs falling from their table,
and little businesses want to become big businesses.
It does seem to me what I want to focus on, is there
anything in this system that prevents little guys from becoming
big guys like Clear? That I think is the real central question
we have to ask because right now United is bankrupt and JetBlue
and Southwest are prospering. They figured out how to undercut
those guys to provide customers quality service and price.
I just think it is impossible for us as U.S. Senators to
figure out the intricacies of every industry. What we have to
make sure of is that the door is open to newcomers, that
monopolies do not exist, or at least there are the abilities to
stop illegal activities which prevent newcomers and new capital
from coming in. I guess that is really my central question.
I think the proposal here is that we have ownership caps.
My question is, how do ownership caps actually translate into
getting more local people on local stations? I am not sure I
understand that nexus.
I also think, Mr. Chairman, one of the benefits of your
having this hearing is that Mr. Henley, whose music I have
loved since I was a little boy----
[Laughter.]
Senator Smith. Actually we are probably the same age. But
he has the ability to come here and complain and express the
fear that he might have retribution. I bet you will not because
we are going to be watching to make sure you do not. So I thank
you for your courage to come here.
I frankly plead with the industry generally to make sure
that if there are features in how you do your business that
look like payola, look like a bribe, that you purge yourself of
those things.
But I guess my question is, is there a proposal here like
ownership caps that actually makes sense to help local artists?
And what is the nexus there? I ask that just for information.
Ms. Toomey. Mr. Chairman, in the interest of fairness, I
want to address first Mr. Fritts' attempt to discredit our
study. We are not a rogue organization. We represent over a
dozen artists' organizations, and we have 40 letters of support
for the study with everyone from all the unions, Don Henley's
group, the Arts Empowerment Coalition, Just Plain Folks,
everything from very big and small organizations, consumer
groups, Consumer Union, Consumer Federation, Media Access
Project, et cetera. All of them have looked at our study and
said the numbers ring true.
Now, Mr. Fritts does raise an interesting issue. We cite
most of the studies that he offered up in comparison to our
studies within our study because we say these studies tell us
half the picture. They just do not tell us the next. It is
almost as if the detective has chased the thief into the
drawing room, but then does not look in the closet, and what
our study does is it goes into the closet and says this is
where the problems are.
The problem is, as soon as we put our study out, the NAB
said, well, you have got the wrong numbers. Now, the reason it
has taken so long for us to do a study like this is because it
is expensive to buy industry data, and it was very important to
get a grant to do that kind of work. But the fact of the matter
is this should be public data, and if anything really good can
come, if we can understand how these dramatic changes are
affecting the landscape, what we need to know is publicly what
is happening at all of these radio stations.
So one thing that I would suggest maybe come from a hearing
like this is the idea that we make, as a requirement of a
station's license, that they file certain pertinent bits of
information that tell publicly so citizens groups and musicians
and artists can all see the statistics that it took so long to
bring forward. I think if we could see them and anticipate what
trends are coming down the line, we might be able to adjust for
them and make sure that the full diversity of citizens are
being served by the public airwaves.
Senator Smith. What you are asking in law is some
regulation that requires so much local content in what is
presented by these stations.
Ms. Toomey. Even more basically, just information about the
stations themselves so that we can know what percentage of
marketplace they are controlling, what other connections they
have, whether they are actually programming stations whose
licenses they do not own but who they have a relationship with
which extends the number of stations they have in a market.
Senator Smith. Mr. Fritts, is there anything about
ownership caps that in your view assures the local producers of
music get on the air?
Mr. Fritts. Well, I am not a very good singer, but if I
wanted on the air, I would have to get on on the merits, quite
frankly. Put it this way. If there is a worthy artist, they
will make their way onto the air.
I used to own and operate a chain of small town radio
stations, and I know the system pretty well. Our stations were
so small that no independent record promoter wanted to come to
us. We programmed for the local community just as radio is
doing now.
I think the overview here is that the FCC has in the public
record documents that Ms. Toomey was talking about, and we
would be happy to provide a response to the myths that are
sometimes alluded to in these studies.
The problem, I would submit, that Mr. Henley has, is not
with the radio stations but, indeed, is with the record
companies. There are only five record companies and they
operate as monopolies, and they dictate to the artist what the
terms and agreements will be. And if it is different than that,
then I would like to hear it.
Senator Smith. So after the food industry and then the
banks and credit unions, we ought to bring the recording folks
in here too.
Mr. Fritts. Just one final point. Mr. Mays has not always
been a large company. He started with one radio station many
years ago and built his company in the American system.
Senator Smith. Is there anything in the system that would
prevent a start-up operation--like Mr. Henley may want to start
a radio station--is there anything that Mr. Mays can do to him
to prevent him from going into this business if he so chooses?
Mr. Fritts. Not that I am aware of.
Senator Smith. Mr. Henley.
Mr. Henley. Well, if I was going to get in the radio
business, I should have done it in the 1970s.
[Laughter.]
Mr. Henley. But you and I have more in common than just my
music. I know something about farming and I know something
about peas because I grew up on a farm in East Texas picking
peas for my father. And what has happened to the radio industry
is exactly what has happened to the agriculture industry. I am
a member of the American Farmland Trust, and I know about the
decimation of the small family farms in this country. They have
virtually disappeared. Why? Because big agribusiness has taken
over the industry, and that is exactly what has happened in the
music business.
You can do all these research models and you can
concentrate on the business factor, but what is left out of the
equation is the impact on the culture. In my humble opinion,
research has ruined the radio business because of the way they
do it. They do call-out research. They do focus groups. They
will bring people into a room or they will call them up and
play 10 seconds of a song to them, and they will say, do you
like this? They will do even galvanic skin response, for
Christ's sake, and see if the heart rate increases. That is not
the way people listen to music. People have to become
acquainted with a song. It has to grow on them, and music does
not get a chance to do that anymore.
So in my estimation, research has ruined radio. It is not
realistic. It does not have a human element or a human factor
in it. Everything is built on a business model, and that does
not take into account our culture and our feelings as human
beings and our emotions and our need for creativity and
expression.
Senator Smith. Thank you.
Mr. Short. To answer your question, I think it is similar
to me saying could someone, one individual, start the next
Microsoft or start the next General Motors or next whatever
giant corporation that exists? Technically the answer is yes,
but realistically how can you do it, particularly given that
you have a monopoly in place. Many of these companies I just
mentioned were kind of like the first and that was their in.
Now that everybody knows how to do it, it is unlikely, since
everybody knows the secrets, that there is going to be the next
one anytime soon.
Clear Channel was basically first. You know, they were in
position. When the law changed, they were out of the gate. They
did whatever they had to do quickly and, maybe to their credit,
they saw a loophole and they took advantage of it. Now that
other people see this loophole, they say, well, let us try to
jump through it. Well, the knot is a little smaller now and you
might get hung trying to go through there.
There are other reasons. Access to capital is extremely
difficult. Who is going to lend a small entrepreneur first time
out of the gate many, many millions of dollars to go up against
a giant? I would not risk my money with that scenario and most
other prudent businessmen or women would not either.
I think Senator McCain had mentioned earlier, when he
started, about the legislation for a tax certificate or
something of that nature. I think that we do need to look at a
tax certificate with some provisions for small businesses and
particularly for minorities.
One of the things that happened, if you look at the history
of the telecommunications acts in the past, from 1934 through
1978, hardly any stations were owned by African-Americans. It
was not because no African-American thought of the idea. Who
was going to lend you the money? And then who was going to
advertise after you got it? But they made provisions with the
tax certificate that allowed a significant growth in minority
ownership from 1978 through 1996. That is probably the greatest
growth in terms of African-American and other minority
participation in the broadcast industry.
And then came the bolo punch, the knockout punch in 1996.
While they had all these supposedly great intentions, it for
practical purposes was no better than the guys who invented the
leisure suit. I mean, it was supposed to be a nice style, but
who needs it now? Get rid of it. If it is no longer
appropriate, if it is no longer relevant, make adjustments.
The 1996 Telecommunications Act was supposed to be an
amendment to the 1934 Act, not a replacement so that the new,
smart lawyers can figure out a way to make one or two or three
companies control not only the media but control--look at the
elections--control the public viewpoint. If you own the
airwaves, you can basically push whatever agenda that you have
personally, and it may not necessarily be the agenda that is
best for the country.
So I would say institute a tax certificate, make banks and
lending institutions lend money. And if you take away some of
these stations--Clear Channel has what? I have information that
says--well, correct me. He has got his information. But Clear
Channel has an estimated revenue of over $3 billion annually.
Senator Smith. But if you want to go into Mr. Clear
Station's business, can you do that?
Mr. Short. Can I do what?
Senator Smith. You may have to have a business model. You
may have to go get a loan. Can you get into the business? Can
you get a license?
Mr. Short. Yes, you can. If you are a U.S. citizen, no
felony, and you have a few bucks in your pocket, yes. Will you
survive?
Senator Smith. Can you be a JetBlue? I do not know. That is
just a question I am asking. I want to make sure that we have
the kinds of regulations that give people ins to it, but in the
end we cannot guarantee that anybody succeeds.
The Chairman. Can you be a family farmer?
Senator Smith. That is a great question. I know some family
farmers that are doing very, very well, and there are some that
just do not. And I know a lot of food processors very
frustrated with Wal-Mart because they absolutely dominate the
market. But eventually somebody is going to figure out how to
do better what Wal-Mart does.
Mr. Short. But it is frustrating. I did that. I was the guy
who was an accountant. I was the guy who believed the American
dream that, yes, you could own a radio station. When I had my
station--and Jim Winston is behind me sitting here--there
probably were not 100 African-Americans who owned a station at
that time. And Mr. Mays talks about more African-Americans
owned stations. Well, I think there are more African-American-
owned stations, but the number of African-American owners is
down. You have maybe Radio One, Inner City, and a few companies
like that that have a lot.
So now the chances--if you are an African-American growing
up in this country, and you say, you know what, this guy over
here made $3 billion in radio advertisement, I think that is
what I want to do, I do not want to be a teacher, I do not want
to be a scientist, I want to be a broadcaster if they have got
that kind of money in broadcasting, how can that person do it
with monopolies in place, limited access to capital? There
seems to be no end in sight.
Senator Smith. Monopoly is a legal term of art.
Mr. Short. Oligopoly, monopoly. If it walks like a duck,
quacks like a duck, it is a duck.
Senator Smith. But that is why we have the Sherman
antitrust law, and I assume that they are going to enforce it.
I guess what I want to find out, are they enforcing it?
Mr. Short. That is a great question.
Senator Smith. Are there things that are going on in this
industry that make it impossible for others to compete against
monopolies? Maybe there are, maybe there are not. But if they
are big businesses, they tend to be called monopolies, and I
want to make sure that little businesses are not impeded from
becoming big businesses by some structural impediment.
Mr. Short. Right. The DOJ had said that, I believe, if you
exceeded the 40 percent ruling, if you owned more than 40
percent of the market, many of these companies that were trying
to buy more in that market were denied because you were
considered to have enough market dominance.
Syracuse is a good example that either the DOJ has kind of
looked the other way or there are new rules or something,
because they have greater than 40 percent. And then you go out
and you combine your strength in radio by purchasing television
stations in the same market. So it just goes on and on.
Senator Smith. Just an editorial comment.
The Chairman. I think Mr. Mays is eager.
Senator Smith. I think he wants to talk.
I just want to say big is not always better. Bigness does
not always equal most profitable. So sometimes when you get too
big, you are going to find all kinds of inefficiencies that
come from scale and they are going to break you down and you
are going to get some competitors coming in that have figured
out how to take you down.
Mr. Mays, is anybody working at taking you down?
Mr. Mays. I do not know, but certainly United Airlines
might have a different view of that.
Let me say that 20 percent of the industry revenues is not
a monopoly.
The Chairman. Mr. Mays, on that subject, according to Media
Access Productions, BIA Financial Networks data, May 16, 2002,
Clear Channel's revenue was $3.25 billion, 27.5 percent of the
revenue share. Now, if you have different information, I would
be glad to have it. But BIA Financial Networks is a reliable
gauge. That was for 2001. But $3.25 billion is a pretty good
amount of money. And big may be better or worse, but where it
is 27.5, I will be glad to get whatever information you have.
Mr. Mays. I think those industry revenues are wrong, and I
think----
The Chairman. So the BIA Financial Networks are wrong.
Mr. Mays. Yes. And I think since that was published, they
have come out and said that those industry revenues are wrong
and the industry revenues are $16 billion. I am looking at an
independent report here that says Clear Channel does, in fact,
have $3.2 billion in revenue, and that is 18.7 percent of the
industry revenue.
The Chairman. What independent organization is that?
Mr. Mays. This is a Bear Stearns source, BIA Financial
Networks.
The Chairman. I do not want to waste the time of the
Committee but we would be glad to hear your information. I am
proceeding on the information you got 27.5 percent of the
revenues by a reliable source. And if you have a reliable
source, we would be glad to correct the record.
Go ahead, please.
Mr. Mays. Okay, excuse me.
I would say it depends, Senator, on what that individual
radio owner would like to do. I think obviously with almost
4,000 owners, that you have a lot of one-owner radio stations.
I mentioned earlier that Jerry Lee in Philadelphia is the
number one station, the most profitable station in
Philadelphia. He operates one station. It is very successful.
He does not want to own 2 or 10 or 1,200.
But there are other companies that have recently entered
the market. Certainly Radio One, which is basically an African-
American-owned company, has grown considerably on a percentage
basis much faster than we. Spanish Broadcasting, Hispanic
Broadcasting, Telemundo. Salem, which is a religious
broadcaster has been growing their business. I think the answer
to your question is, yes, the barriers of entry are not
overwhelming for a person to build a large company within this
industry, and I think we are seeing that every day.
There are 10 percent more minority-owned stations since
1997 to 2002.
The Chairman. Is that an increase in minority owners or
minority ownership stations?
Mr. Mays. I am not sure, Senator. My data shows----
The Chairman. I am sure.
[Laughter.]
Mr. Mays. But minority owned companies. The difference is--
--
The Chairman. Please proceed.
Mr. Mays. Okay. And I am sorry I do not have that data, but
the data is they are 10 percent owned by minority-owned
companies since 1997.
I would like to also respond to what Mr. Henley----
The Chairman. Again, could I put that in a different
perspective since we are dealing with statistics? I think that
is from 2.75 percent of the market to about 3. some percent of
the market, that 10 percent increase you are talking about.
Mr. Mays. But let me say, Senator, we concentrated our
efforts in the divestiture required by the Justice Department
in our last large acquisition, and we sold $1.5 billion worth
of radio stations to the minority community. And there were a
number of different owners that we could have sold that $1.5
billion worth of properties to.
And then as I said, we also co-established a fund called
the Quetzal/Chase Fund and funded it ourselves with $15 million
to provide funds for minorities to buy broadcast properties.
And we strongly support your bill and we will be happy to do
anything that we can to help that get through these halls.
I would like to also say that Mr. Henley accuses us of
doing too much research and broadcasting to the mass audiences
in our individual markets based on research, and then says that
we do not play anything except what the record companies tell
us to play. I mean, it is inconsistent.
But I would say, again, that our whole focus is serving our
local communities and nothing can take us away from that, Mr.
Chairman.
And I really do appreciate you having us here today.
The Chairman. Well, thank you.
I just want to point out again it is interesting how we
talk about statistics. I think it is pretty impressive when you
say there has been an increase of 10 percent in minority
broadcasters. In a little different perspective, it was 2.7
percent of all broadcasters in 1991. It is now up to 3.8
percent. I understand that minority includes Hispanic as well
as African-American and other minorities. I do not think that
that is quite what we had in mind, is it, Mr. Short?
Mr. Short. I would certainly hope that such pathetic
numbers are what we had in mind.
The Chairman. That is why I am introducing the legislation
today.
Mr. Fritts, please, go ahead.
Mr. Fritts. Mr. Chairman, let me give you a success story.
One, we agree with you that the numbers for African-American,
for Hispanics and other minorities of ownership of stations is
under what it should be and could be, and we have a number of
programs in effect that we are helping to alleviate that
problem in terms of training, in terms of helping secure
capital access to the capital markets, but more especially, the
biggest boost will come when your legislation passes. We think
that is a very important part of that.
There is a gentleman named Al Vicente. He is a former NAB
board member. He is an African-American. He is currently buying
radio stations and has built up a group from about a year-and-
a-half ago until now, somewhere in the neighborhood of 20 radio
stations that he is buying and operating himself as local
stations in various markets. And while that is not enough to
move the number substantially by itself, it is a start, and it
indeed answers Senator Smith's question of is there an
opportunity and can it be done.
I would point out one final point. On a personal basis, my
son sells advertising for a radio group in competition to Mr.
Mays' group in Jackson, Mississippi. While it is tough
competition, as a salesperson he is doing quite well, thank
you, in a tough marketplace and does not have any complaints
about what is going on in the marketplace.
So it can be done. He would like to be an owner himself,
but unfortunately he does not have access to the capital
markets to buy where he would like to, but maybe some day.
The Chairman. Well, this has been long, and I apologize to
the witnesses for the length of this hearing. Obviously there
is a great deal of interest.
We intend, most likely, to have additional hearings,
including television, newspaper, other ownership issues. It is
topical because the FCC may be making some decisions and we
hope that we can add to their base of knowledge. We had a
hearing not long ago where we had five FCC commissioners, and
there were varying levels of concern amongst those five
commissioners about this issue of media concentration. So I
think we need to continue to look at it.
I think Senator Smith's point is well made, that things
have a tendency to balance out, but I also think in some cases,
such as minority ownership--I apologize that I do not know the
total percentage of the American population that are
minorities, Hispanic, African-American, Asian, et cetera, but I
would imagine it is significantly more than 3.8 percent which
is the percent of ownership of radio stations--of broadcasting.
And I think that that is an important factor because that is
where people get their news and information and everybody
should have the right to get different messages of different
kinds. This is really what this is all about.
We also do not want to stifle artists, especially new and
emerging artists, and I am sure, Mr. Mays, that you are
sensitive to that issue as well. I also understand some have
raised questions about fewer and fewer numbers of songs that
are being played on some stations, and that is an area that we
did not discuss. But I hope that this will spur more of a
national debate, more information being exchanged, better
information both for the Federal Communications Commission, as
well as Members of Congress in general, in this Committee in
particular.
I thank you for your contribution today. I thank you for
being here. And speaking as one Member of the Committee, this
has been a very important and very helpful hearing, and I hope
we have been fair to all.
This hearing is adjourned.
[Whereupon, at 12:41 p.m., the Committee was adjourned.]