Full Committee hearing scheduled for Tuesday, July 8, immediately following the Nominations hearing at 9:30 a.m. in room 253 of the Russell Senate Office Building. The hearing will focus on the Federal Communications Commission's new rules on local radio ownership. Senator McCain will preside. Witness list will be announced at a later time.
Witness Panel 1
Mr. Alex Kolobielski
My name is Alex Kolobielski, and I am the president and CEO of First Media Radio, LLC (“First Media”), a privately held radio broadcasting company headquartered on Maryland’s Eastern Shore. I have worked in broadcast programming, news, production, sales, and station management in small market radio all my professional life. Since January of 2000, First Media Radio has acquired 13 FM and AM small market radio stations in Maryland, Pennsylvania, West Virginia, and North Carolina. In addition, we have radio station acquisitions pending in North Carolina and Virginia. With the exception of three of our stations, all First Media’s radio stations are located in unranked, non-Arbitron markets. (A listing of all of First Media Radio, LLC’s radio stations is attached.) Given my small market radio background, I never in a million years would have dreamed that I would be called upon to appear before Congress to discuss the Federal Communications Commission’s (“FCC’s”) regulation of radio ownership. But I feel so strongly that the FCC’s recent decision to alter the definition of radio markets and possibly extend those changes to very small radio markets will have such disastrous effects on small market radio operators like First Media that I jumped at this opportunity. Small market radio, which is generally the province of smaller companies and ignored by the large radio consolidators, is unique. The biggest problems faced by small market operators are attracting good staff to operate profitably and adequate capital to grow. Experienced radio employees usually shy away from small markets, seeking more lucrative opportunities in larger cities. We generally have to recruit our staff from other fields and then train them extensively in the details of radio sales and operations. Once our “stars” develop, we are constantly at risk of having them recruited by stations in larger markets. Small market operators also find it difficult to attract capital since the volume of sales and the ultimate pay-offs for investors are usually more modest than those available from stations in large chains or larger markets. At the same time, small market radio plays a very important role in our society. Small stations in small markets are truly the voices of our local communities. First Media, like many of our counterparts, is dedicated to serving local needs. On average, 75% of the programming we present every day on our stations is locally originated. Over 90% of our advertising is drawn from businesses in the communities we serve. All of our stations have an “open mike” policy, and we encourage and air viewpoints from our listeners. Providing such quality, locally originated radio programming is expensive. We must employ on-air talent for all our locally originated shifts. On the sales side, we have between four and six local sales reps per market cluster. The advertising rates our markets will bear are a fraction of those in nearby large markets even though our fixed costs for electricity, equipment, and software are the same as those faced by stations in the larger markets. For instance, the stations in our closest cluster to the Nation’s Capitol, Easton, Maryland, find that for a :60 spot they can charge no more than 5% of the rate charged by the Top 20 stations located in Washington, D.C. As you know, since 1992, the FCC has been defining radio markets by reference to radio station contours. This definition was introduced at the time the FCC liberalized its local radio ownership rules to allow one entity to own more than one AM and one FM station per market. When Congress expanded the local radio caps in 1996, the FCC retained this contour-based approach to define which stations constitute a market for purposes of applying the new caps. A contour-based approach to defining markets is fair for all stations, no matter what the market size. It consistently measures the strength and reach of a particular station’s signal and the confines of its advertising market. Moreover, contours may only be changed after an extensive FCC process involving the submission, review, and then grant of construction permit applications. This process usually takes at least six months before a radio owner receives FCC permission to modify its facilities. The physical construction usually takes many more months. Thus, with a contour-based approach, other competitors in a market usually have ample warning before changes occur, and they can also rest assured that changes will only take place as part of an FCC supervised and regulated process. The FCC has now decided to define radio markets in Arbitron ranked markets based on Arbitron’s market definitions. This approach will make the legality of existing station clusters vulnerable to changes in Arbitron methodology, which unlike the FCC’s construction permit process, do not take place in an open public forum. Moreover, stations subscribing to Arbitron may designate whether they are to be listed in one Arbitron market or another. While the FCC’s new proposal says a group owner must wait two years before it can rely on the benefit of any such change to expand the number of stations it may own, the FCC proposal does not consider the detrimental and unintended consequences such changes may have on other station clusters in the market. Those stations may easily find the number of stations in their market reduced and themselves thrown into noncompliance through no fault of their own. For smaller communities in non-Arbitron markets, the FCC has also proposed to abandon the contour-based approach. Instead, the FCC has launched a rulemaking to substitute definitions based on political boundaries, or even cellular market boundaries, neither of which bear any relationship to radio broadcast signal strength or the advertising markets stations’ serve. Such a system would put small market radio operators at risk for unintended consequences over which they have no control. On an interim basis, in these smaller markets, the FCC has said it will continue to utilize contours to define markets but has put in place several protections to avoid the anomalies that occurred in some of the political “hot potato” situations, like Minot and Pine Bluff that have been discussed extensively in the trade press. The FCC’s new market definition and its proposed change for non-Arbitron markets will drastically disrupt the radio industry, particularly since the changes are being put in place at a time when, unlike 1992, the FCC is not liberalizing the local radio caps. The industry has adapted to the current radio market definition, and entities such as First Media, that entered the market since 1996, have based their competitive strategies on the existing approach. These new entrants and other growing companies must have the opportunity to develop efficient clusters of stations under the same rules that have been used to build the existing mega-companies. Small market and small company players, in particular, will be disproportionately harmed by any change in market definition. Large, mega-owners can spread the risk of a major change across one or more of their markets. Small owners seeking to compete with them cannot. The loss of a single station or a small company’s inability to transfer intact even a single cluster could have devastating effects. So, if Congress were to send any kind of signal to the FCC or adopt legislation in this area, what is it that small market players, like First Media, would want? Ø First, at least in small markets outside of ranked Arbitron markets, allow radio operators to continue to define markets based on contour overlaps just as we do today. (While I am testifying principally about small market concerns, as a matter of policy, we think the FCC should have kept the contour-based approach in all markets.) Ø If Congress disagrees and believes some changes to the contour-based approach are necessary, we think it should make permanent the interim policy the FCC has proposed for small, unranked markets. That approach involves continued use of contours but with adjustments that address what have been seen as some of the more troublesome aspects of the contour-based system. Under these adjustments, the FCC, to address the Pine Bluff problem, will exclude certain stations a buyer proposes to buy from the total number of stations that it counts in defining a market. In addition, to address the large signal anomaly, the Minot problem, the FCC will exclude from the count of stations in a market any station that has a transmitter site more than 92 kilometers or 58 miles from the area of common ownership of the stations being acquired, an approach that accurately depicts stations’ true markets. Ø Second, do not apply any new modified market definition approach to pending applications that were filed before June 2, 2003. Those deals were structured and negotiated based on the rules that applied before June 2nd. To apply the new standards, as the FCC has decided to do, to pending deals would be unfair to all parties. Such retroactive application of new rules is particularly tough on small companies that cannot spread the disadvantages that may result over numerous properties. Ø Finally, grandfather all non-conforming clusters. At least for smaller companies, there should be unlimited opportunities for them to bring in new investors, grow, or go public and at the same time be able to transfer their station clusters intact. Any other approach would create uncertainty and instability and lower station values. I appreciate the opportunity to appear before you today, and I am available to answer any questions you may have about small market radio. * * * * * First Media Radio, LLC’s Radio Stations WEMD(AM), Easton, Maryland WCEI-FM, Easton, Maryland WZWW(FM), Bellefonte, Pennsylvania (#246 State College, PA) WLAK(FM), Huntingdon, Pennsylvania WIEZ(AM), Lewistown, Pennsylvania WMRF-FM, Lewistown, Pennsylvania WOWQ(FM), DuBois, Pennsylvania WJLS(AM), Beckley, West Virginia (#282 Beckley, WV) WJLS-FM, Beckley, West Virginia (#282 Beckley, WV) WRMT(AM), Rocky Mount, North Carolina WSAY-FM, Rocky Mount, North Carolina WDLZ(FM), Murfreesboro, North Carolina WWDR(AM), Murfreesboro, North Carolina First Media Radio, LLC’s Proposed Acquisitions WLGQ(FM), Emporia, Virginia WSMY-FM, Alberta, Virginia WPTM(FM), Roanoke Rapids, North Carolina WCBT(AM), Roanoke Rapids, North Carolina WSMY(AM), Weldon, North Carolina WZAX(FM), Nashville, North Carolina WYTT(FM), Gaston, North Carolina WKTC(FM), Pinetops, North Carolina
Mr. Lewis W. Dickey, Jr.
My name is Lew Dickey. I am the CEO of Cumulus Media Inc., a publicly-traded company that is the second-largest radio company in terms of number of stations with more than 250 located around the country. The radio industry is now at a critical crossroad, and, as a second generation and life-long radio broadcaster, I appreciate the opportunity to come before this Committee to discuss the very important issues that underlie that crossroad because the resolution of those issues will have a profound impact on radio and the service it provides to the listening public. To a large extent, the crossroad in radio reflects a fundamental gap between perception and reality: ¡ñ Public spokesmen decry the evils of consolidation but ignore the substantial benefits that consolidation has brought to the listening public. ¡ñ Fingers are pointed at the alleged misdeeds of Clear Channel ¨C by far the largest radio company with 1200 stations ¨C and assumptions are incorrectly made that every radio company engages in the same practices. ¡ñ Critics point to an FCC rule on market definition that permits some anomalies ¨C such as Clear Channel¡¯s ownership of many stations in the relatively small market of Minot, North Dakota ¨C and wrongly assume that the FCC rule allows excessive consolidation in every market. ¡ñ Pressed by Congress to do something about the few anomalies that generate almost all of the publicity, the FCC adopts a solution ¨C the use of Arbitron-created markets ¨C that the FCC rejected more than 10 years ago because it would not adequately reflect the actual options available to radio listeners. ¡ñ Anxious to protect the public against the alleged dangers of a single large company ¨C Clear Channel ¨C the FCC has shot an arrow that strikes at the heart of smaller broadcasters whose practices have served ¨C and could continue to serve ¨C the listening public well. The flaws of the FCC¡¯s new market definition can be appreciated best by understanding the evolution of the radio industry in the last ten years or so. Radio historically has been an extremely fragmented industry. Prior to 1992, no single operator could own more than 20 of the more than 10,000 stations in the United States. Following the gulf war in 1991, the industry fell on hard times and more than half of the radio stations were losing money. There were simply too many stations in each market chasing a very small share of the advertising dollars spent on all media. There were in fact reports that 90% of the industry¡¯s profit was garnered by about 10% of the owners. Radio owners ¨C and the listening public they served ¨C needed relief if free over-the-air radio was to survive. Responding to this grave situation, the FCC permitted broadcasters to own up to 2 FM¡¯s and 2 AM¡¯s in each market with a maximum of 20 AM stations and 20 FM stations nationwide. It was a bold attempt to provide relief to a seriously troubled industry, and it revolved around a simple but critical concept ¨C consolidation. The FCC recognized even then that radio broadcasters needed the efficiencies of scale if they were to survive and hopefully improve program service. In order to implement its new ownership rule, the FCC labored long and hard to develop a market definition that would provide the most uniform and objective method of determining compliance. It considered many options ¨C including the use of Arbitron-based market definitions ¨C and ultimately decided in favor of the contour-based approach. Over the next four years, hundreds (if not thousands) of transactions were completed and billions of dollars of capital were invested as the radio industry completed its first wave of consolidation and produced the very efficiencies that the FCC had sought. As the industry attracted new capital, stations that had gone dark were revived by entrepreneurs who were banking on a new business model that enabled broadcasters to leverage fixed costs against multiple stations in a single market. In short, the FCC¡¯s action in 1992 proved to be a desperately needed regulatory relief package for a struggling and still very fragmented industry. Despite progress, there were many areas ¨C especially in medium and smaller markets ¨C where the FCC¡¯s expanded ownership rules had little or no impact. Then, in 1996, Congress passed sweeping reform legislation that further relaxed the caps on local ownership and removed the national cap on the number of stations a single company could own. Radio broadcasters could now own up to eight (8) stations in the largest markets and no more than half of the stations in the smallest markets. The expanded ownership opportunities under the 1996 Act relied on the same contour-overlap methodology that the FCC had adopted in 1992. And why not? There was no reason to believe that the methodology was ill-conceived. And so the Telecommunications Act of 1996 transformed radio in the smaller markets from a basically ¡°mom and pop¡± industry into a business that could now attract the large amounts of capital and investment needed to provide the improved program service that Congress no doubt sought. II. THE RESULTS OF INDUSTRY CONSOLIDATION Armed with both public and private capital, entrepreneurs have invested tens of billions of dollars and completed thousands of transactions since 1996 to begin to consolidate one of the country¡¯s most fragmented industries. Several large companies were created as a result of this consolidation, but even today, over seven years later, only five companies own more than 100 radio stations out of more than 12,000 that are now on the air. They are Clear Channel, Cumulus, Citadel, Infinity and Entercom. Clear Channel was by far the most aggressive of the consolidators, acquiring more than 1200 stations, or almost 1000 more than my company, Cumulus, which owns the second largest number of stations. On the revenue front the disparity is equally as great. With over $3.5 billion of radio revenue, Clear Channel has almost a billion and a half dollar lead over the next largest competitor, Infinity, and a $3 billion lead over the number three player in revenue, which is Cox. In short, Clear Channel is in a class by itself in terms of revenue and number of stations. As the proverbial 800-pound gorilla, Clear Channel has become the lighting rod for opponents of radio consolidation. While some of this criticism may be deserved, much of it is not. For example, concerns have been raised that ownership of so many radio stations by one company has homogenized program fare and turned radio service by all stations ¨C whether or not owned by Clear Channel ¨C into a McDonald¡¯s version of broadcasting. The truth is otherwise. There is more format diversity today than ever before, and there are more choices on the dial today than ever before. Our experience at Cumulus is illustrative. I have built our company - which focuses on midsize and smaller markets - from scratch through 130 acquisitions which now provides a format diversity in most markets that never previously existed. Like many other radio companies, Cumulus has been able to utilize the expanded ownership caps of the 1996 Act to develop market clusters that operate with greater economic efficiency and are able to pour much-needed money and resources into developing quality local programming with live disc jockeys and upgraded equipment. Critics today ignore the achievements of companies like ours and speak of those ¡°mom and pop¡± operations with great nostalgia on the assumption that those small operations provided reliable and responsive local service. Again, the truth was often otherwise. Many of the stations we acquired were automated juke boxes which had few local programs and instead relied on programming from syndicators via satellite or bare-bones automation systems. Oftentimes, these stations were operated as little more than sales organizations with little or no programming staff and with substandard transmission facilities that were in need of significant capital investment just to bring them into compliance with FCC rules. Notwithstanding the benefits achieved under existing rules, the FCC voted a month ago to adopt new radio market definition which had the unstated objective of tempering the dominance of Clear Channel and the stated objective of preventing a repeat of the now famous Minot anomaly. I believe that the new rules regarding radio ownership and market definition have missed on both counts and should be withdrawn or modified. III. GRANDFATHERING OF CURRENT CLUSTERS AND PENDING APPLICATIONS The FCC¡¯s new market definition means that some radio broadcasters will have market clusters that exceed the new limitation. The FCC is grandfathering everyone¡¯s current clusters, but requiring compliance upon transfer of radio properties. For Clear Channel, this is a most welcome development because it is probably not a seller and is in the ninth inning of consolidation. As a result, the presumed primary target of the FCC action is relatively unaffected. Clear Channel will, therefore, be allowed to continue to dominate an industry with unprecedented scale and will inevitably grow stronger with each passing day under the new rules as its competitors remain fragmented. This is bad news for those of us who have to compete against Clear Channel. We cannot hope to compete effectively against Clear Channel¡¯s mammoth organization unless we can grow. Preserving the status quo simply strengthens and emboldens the incumbent and that, in my judgment, is the unintended consequence of the FCC¡¯s new rulemaking decision. The point should not be lost amidst all the hysteria over consolidation: Clear Channel will be that much stronger five years from today if the ground rules of consolidation are changed in midstream and impede further growth by its competitors. To a large extent, this result is almost preordained by the FCC¡¯s refusal to grandfather a noncompliant market cluster if it is sold to someone other than a small business (which is unlikely to have the resources to buy a cluster in a market of any meaningful size). First is the question of fairness ¨C telling Cumulus and other radio companies that they cannot buy or sell intact a group of radio stations that were acquired in reliance on pre-existing rules. Second, there is the impact on needed growth for companies who want to compete with Clear Channel and other large radio companies. The inability of smaller companies to sell their clusters intact will cause them to hold on to their clusters rather than break them up and suffer the financial loss that could ensue. There will thus be fewer stations available for sale. The net result will be a slower pace of growth for Clear Channel¡¯s competitors ¨C all of which will help preserve Clear Channel¡¯s competitive advantage of scale. Conversely, the question could logically be asked, why not force all clusters to be brought into compliance and thereby level the playing field. The answer is obvious. This approach will hurt the smaller broadcasters and create hundreds of ¡°orphan¡± stations, many of which will inevitably go dark ¨C prompting an ironic reversion to the pre-duopoly situation of the early 90¡¯s where few radio companies could boast of profits. Due to the relative size of the competitors, requiring divestitures to bring a group into compliance will have a much greater adverse impact on Cumulus, Citadel, Regent, Saga or Next Media than it will on Clear Channel, because we, like many other broadcasters, derive the majority of our collective revenue from markets outside the top 50, which are the markets most likely to be affected. There is a similar inequity in the FCC¡¯s refusal to grandfather applications that were filed before the new rules were adopted. There are apparently hundreds of applications that are currently pending before the FCC that reflect deals constructed on the basis of the pre-existing rules. The practical ramifications of the situation should not be lost in the FCC¡¯s urge to change the definition of a radio market: before that change was adopted on June 2, many companies large and small invested substantial time and limited resources to fashion deals that would comply with the prior rules. As a legal matter, the FCC cannot apply the new rules to those pending applications, because the new rules are not yet effective and probably will not become effective until some time in August at the earliest. The FCC has therefore decided to defer action on non-compliant pending applications until the new rules do become effective. Parties to those pending applications can file amendments to show that their pre-existing deal complies with the new rules, but, in the absence of an amendment which shows compliance, the FCC apparently proposes to suspend the processing of the application until the new rules do become effective. For Cumulus, this means that many pending applications ¨C including some that were filed many months before June 2 ¨C are simply locked away in the FCC¡¯s files until the new rules can be retroactively applied. The FCC has explained that retroactive approach by the need for consistency, but the FCC decision fails to cite any harm that will befall the public interest if those pending applications were processed under the pre-existing rules ¨C which are still in effect today. IV. RADIO MARKET DEFINITION The FCC¡¯s decision to use Arbitron to define markets is also seriously flawed. At the outset, it is important to remember that the FCC rejected this very same approach in 1992 in favor of the contour-based market definition. Some 8,000 transactions later, the FCC now wants to change the rules to prevent a recurrence of the Minot anomalies. Instead of using the objective-based contour overlap methodology, the FCC is now telling radio broadcasters to rely on definitions formulated by a commercial enterprise whose overwhelming source of revenue is from the radio broadcasters themselves. This approach is inherently rife with conflicts and will be susceptible to manipulation similar to gerrymandering. For example, Arbitron could reduce the market in Macon, Georgia (where Cumulus operates stations) to expand the market in Atlanta because it would benefit large Arbitron customers like Clear Channel and Infinity in Atlanta. That result would obviously hurt Cumulus and the other independents in Macon. This hypothetical is not designed to impugn the motives or actions of Arbitron. But we should not lose sight of the most critical fact here: Arbitron is a private vendor understandably interested in maximizing its profit, and that kind of company should not be endowed with the power to be the official arbiter of radio market definitions and thus the ultimate regulator of industry consolidation. The difficulties with the FCC¡¯s new approach are compounded by Arbitron¡¯s failure to include 40% of the country¡¯s stations in rated markets. That means that the FCC now needs to devise yet another methodology for defining a market in the smaller markets. That situation also creates the potential for manipulation by broadcasters who may try to influence Arbitron¡¯s decision to rate an unrated market or to discontinue the service in a rated market when it suits the radio companies¡¯ expansion needs. This scenario may actually increase the amount of concentration in a market under the new rules ¨C hardly a consequence intended by the FCC. In an effort to combat manipulation of Arbitron data, the new FCC rules state that a broadcaster cannot rely on any changes in Arbitron markets until those changes have been in effect for two years. To be sure, that reservation will preclude broadcasters from immediately exploiting any inappropriate changes in the Arbitron definition; but that 2-year reservation will allow the exploitation after two years. And beyond that, the 2-year reservation will preclude a broadcaster ¨C and the FCC itself ¨C from immediately using Arbitron changes that do reflect legitimate changes in the radio marketplace. In short, the use of Arbitron can produce anomalies in both the short run and the long run. It is indeed ironic that the FCC was looking for an ¡°intellectually honest¡± solution to the Minot problem and, in its zeal to do something that would mollify the critics, jettisoned a rule that had produced relatively few anomalies in exchange for a new methodology which is subject to manipulation, draws a distinction between rated and unrated markets, and could actually lead to greater concentration in some instances, and all while unfairly restricting broadcasters ability to compete against the industry¡¯s dominant powerhouse. In short, the FCC¡¯s new market definition will surely produce far more anomalies over time than it will cure, and the new rules regarding grandfathering and transferability will only serve to embolden a company whose market power the FCC presumably wanted to curb. If the objective is to remedy the anomalous situations like Minot, it can be done under the existing contour-overlap methodology with a simple qualification based upon the proximity of the transmitters to the defined market. The NAB proposed a test that no station could be deemed to be in the market under the contour-overlap methodology if the station¡¯s transmitter was more than fifty-eight (58) miles from the ¡°market perimeter.¡± We then could have preserved and refined a market definition methodology under which over 8,000 transactions have occurred and under which local markets have already largely been consolidated. This final test would have the added benefits of consistency for ALL stations (both rated and unrated) and not being subject to manipulation. V. CONCLUSION In deciding whether to keep the existing rule or in fashioning a new rule, it must be remembered that the radio industry is a diverse industry with dozens of different companies who each have unique cultures and operating strategies. This Committee should not assume that all broadcasters behave similarly or that consolidation will only produce one way of operating a cluster. For example, at Cumulus, we believe in being live and local and have eschewed the practice of piping in talent from another market and pretending that they are right there in the local studio. That is a tactic that is used against us, and sometimes it works and sometimes it doesn¡¯t. But that does not affect our programming decisions. We believe that, in the long run, we will take share from companies who aren¡¯t predominately local because radio is truly a local medium, and we feel very strongly that a local and personal touch is critical to good public service and to our financial health. Therefore, I caution the Committee not to use some broadcasters¡¯ programming policies as the sole basis to define beneficial public policy for an entire industry. I would also ask the Committee not to tie our hands as we work to continue to grow so that we remain viable and continue to compete across the street from Clear Channel. Any action that impedes that growth will only serve to strengthen the industry leader as a greater share of advertising dollars increasingly shifts towards larger platforms. That will inevitably enhance Clear Channel¡¯s ability to lock up the best talent and the biggest promotions ¨C all of which will increasingly make it a more formidable competitor for audience share as well. That last point cannot be emphasized too strongly. Clear Channel will become a more powerful market force under the new rules. If the Committee is interested in fair competition and better public service, the FCC¡¯s new definition for rated radio markets should be changed. ###
Mr. Jon Mandel
Good Morning. I am here today to try to help you through some of the morass of twisted claims made by those with vested economic interests in the broadcast industry. Why would an advertising agency be willing to do this? Why would we have joined with others in filing at the FCC as the Coalition for Program Diversity? Some of our agency counterparts have told us to just keep quiet because the media companies could hurt our business if we aggravate them. And, because our clients pay us on a commission basis we make more money if advertising costs skyrocket. However, I am concerned about the future of not just the advertising industry but the broadcast industry as well. I am shocked that some would have you and others in this town make decisions based on half-truths and misconceptions. Let me clear up some facts and misstatements that have been made at the Commission and to this Committee. Because we are focusing on radio today, I will use radio examples. There is a belief in Washington that radio consolidation brought on by the 1996 Act saved the radio industry from demise. But as Michael Bergner, a station broker in Florida said in Business Week about the years since 1983, “Even if you knew nothing about the business, you would have had to go out of your way to lose money.” It was stated in this chamber that Clear Channel only owns 10% of the radio stations in the country. True but misleading. The industry source, Who Owns What (which is owned by Clear Channel) credits the company with having 32% of the national audience to radio. In the markets that Clear Channel is in, the percentage would be much higher. Clear Channel has implied that this is because they are excellent programmers and improved the stations they bought. Yes, in Washington they improved one station from #35 on its demo ranking to # 20. But in New York they own the top 4 stations, which is the same rank when they bought them in 1999. In San Diego, Clear Channel owns the top 6 stations, which is no improvement since they bought the top 6 in 2000. They also own 3 other stations in San Diego and sell the advertising time in another 6. And they also own one of the two radio rep firms that also sells ad time for competitors. The same lack of station building story holds in New Orleans and Minneapolis. In Austin and Atlanta they lost rank. Is this good radio management or good banking? In the interest of “free market,” regulators and Congress have deregulated which has instead caused a constrained market that has cost advertisers and the economy. Further, it has so limited the market that no one else can come in. The issue is both horizontal and vertical in nature. That is because the consolidated companies own multiple stations in multiple markets and program them in-house. Thus, advertisers and local economies suffer. Let me give you some examples. As a Clear Channel program director was quoted in Inside Radio before Clear Channel bought it and fired the editor, Clear Channel Stations “only buy syndicated programming from us…keep the money inside the family.” The Weather Channel had a syndicated radio package that Clear Channel would not run because it “was not appropriate for our market.” How many jobs were lost when the Gulf Coast or Arizona tourism offices couldn’t be as effective in running advertising in Washington saying “It’s snowing where you are but it is nice here.” When Clear Channel decided it was appropriate in their markets because they took over national ad sales in the show, how much more did the advertisers pay? Mike Savage is cleared on independent stations and is quite successful. Clear Channel is trying to get him to break his contract by promising upgraded clearances. How many advertisers will lose an outlet when those independent radio stations are no longer a viable outlet? How much more will those who want Savage’s audience have to pay on Clear Channel? How many advertisers will be blocked on a national basis from running product advertising or issue advertising that Clear Channel disagrees with? The consolidation in radio has caused large cost increases over what supply and demand would have caused in a free market. In Atlanta costs are 155% higher than free market, which is a consolidation tax of $144.5 million per year. New York radio is overcharged by 30%. $156 million per year. San Diego is also 30%. That means that the Mossy Auto Group overpaid by $600,000. Maybe they didn’t mind because the prices are so high the smaller auto dealers have trouble advertising. The people and businesses of Austin are overcharged by 95%. I would sure hate to walk into El Arroyo Restaurant if that fact gets out of this room. In New Orleans, the consolidation tax is only 7% because there are 10 non-consolidated stations as an alternative to the 3 big owners. Although that may change even for the worst now that Clear Channel traded outdoor assets with Viacom so Clear Channel also now owns the only non-broadcast alternative to radio. Ray Brandt and Bohn Bros are car dealers in New Orleans. They overpaid by $85,000 last year. Did they eat it or charge Louisianans more for their cars? Minneapolis pays a consolidation penalty of 78% because there are only four large consolidated sellers to choose from. In Washington, DC the Metro advertises for more riders and is probably a little starved for money but it was overcharged $250,000 last year because of radio consolidation. Las Vegas is 30%, $14 million per year. And in Tulsa, Atomic Burrito has to sell a lot more beans or lay a worker off to cover the $4200 per year, 12% consolidation tax on their radio advertising. Those are the facts. You can look them up. It is clear that the effort to create a free market has done anything but. It is analogous to letting a private citizen maintain the only public free road into the market and looking the other way when he puts a private toll up. The costs to the economy created by this closed market while winking that it is free is of paramount importance to advertisers and the people of the United States who have to pay the costs. We believe it should be to you as well. You asked about radio, but we have done the work and can prove the same problems in television. I welcome your questions.
Mr. Simon Renshaw
Mr. Chairman and Members of the Committee, My name is Simon Renshaw. I am honored to be here and I thank you for the opportunity to speak today on behalf of the Recording Artists’ Coalition (RAC). I am a full time music manager and board member of the Recording Artists’ Coalition. The Recording Artist Coalition is a non-profit recording artist advocacy group comprised of numerous well-known featured recording artists, including Tony Bennett, Clint Black, Jimmy Buffet, Sheryl Crow, Don Henley, Billy Joel, Stevie Nicks, Bonnie Raitt, Bruce Springsteen, and Trisha Yearwood. RAC was formed in 1999 in response to the effort by the Recording Industry Association of America in November 1999 to obtain an amendment to the work-for-hire provisions of the Copyright Act. Since then RAC has been involved in numerous legal and political issues affecting recording artists. I also want to note that my statements today reflect the viewpoints of other pro-artist groups such as AFTRA, AFM, the Future of Music Coalition, and NARAS. I have been in the music business for close to 30 years. I started in the business in 1974 and after initially working in live concert production, I have been a full time artist manager since 1986. Over the last 17 years I have been involved in the careers of musical artists in a wide variety of musical styles and genres, and of varying levels of success, from new artists to international superstars. A major par of the work of the manager is liaising with my clients’ record labels and assisting them with the design and implementation of strategies to create awareness and hopefully success at radio. My clients include, among others, The Dixie Chicks. As you may recall, Don Henley, another founding member of the Recording Artists Coalition, testified before this Committee last January and explained how artists and the public have suffered because of radio industry consolidation and the Telecommunications Act of 1996. Before the 1996 Telecommunications Act, artists and record labels worked well with the radio industry. Each side needed the other, and while each exerted as much influence and leverage over the other in the daily give and take between them, a delicate balance emerged. The artists had certain leverage over radio, and radio had certain leverage over the artists. This system, while imperfect, still worked. All of that has now changed. The mad rush to consolidate has dramatically tipped the balance in favor of the radio industry. They now have unprecedented influence and control over the artists and the record labels. So while the radio industry continues to prosper, the recording artist community, already devastated by unchecked music piracy, unprecedented record label cutbacks, and spiraling operational costs, is bearing an even greater financial and creative cost. Many in the artists’ community had hoped that the Internet would be able to ameliorate the problem. This has not happened. Radio airplay is still necessary to introduce new artists to the public, and to support established artists. Without radio airplay a new act has very little chance to succeed. Access to radio is absolutely essential. With real competition between radio networks and stations, there was always opportunity for young acts to emerge. The emergence of these young acts is the lifeblood of the music industry. But with rampant consolidation, it is becoming increasingly difficult for new acts to emerge. Unchecked consolidation is at the root of this problem. As networks consolidate, they homogenize playlists and engage in more centrally located programming. This harms the artist in numerous ways. With centralized programming, there are arguably fewer spots for new artists. This gives the radio networks enormous leverage to make ever increasing demands on the record label and the recording artist. These demands take various forms, ranging from increased financial support of the network – some call this payola or independent radio promotion - to increased demands on recording artists to perform or take part in radio promotions for little or no compensation. The implied penalty for not agreeing to pay higher tribute or to offer gratis services to the radio network, is decreased or no radio airplay. The pressure on artists and the labels to capitulate is real, and at times overwhelming. Consolidation, and the resulting homogenization of playlists and centralized programming, has also greatly diminished an artist’s reliance on breakout cities. Before consolidation, local DJs and program directors retained the power to create local, diversified programming. Sometimes a band’s success would be solely due to a single DJ or program director compelled to play music that is overlooked elsewhere. This was one of the beauties of the pre-1996 system. A band or act may receive inordinate attention from a lone radio station. The interest in that city in the act may be enormous because of the attention of the lone station, and oftentimes this attention would act as a catalyst for stations in other cities to add the song to their playlist. This would have a cascading effect, and all of a sudden a new act would achieve national success that would have otherwise been denied it in today’s radio world. The possibility of an act “breaking out” on a singular station or in a singular market has been severely diminished because of consolidation. The power to independently program – once a staple of the radio industry – has been replaced with more centralized programming that works against the dynamic of a “breakout city.” Thus, many new acts will never achieve success due in part to this new restrictive atmosphere. In addition to the problems that consolidation and centralized playlists have brought to individual artists, one should not overlook the cultural damage this is inflicted by these practices. One has to wonder whether any of the great musical trends in contemporary music could have happened in today’s radio environment. Would the Motown or Stax sounds have ever been heard, would the Beach Boys have exploded out of Southern California, would the grunge sounds from Seattle ever ignited a new generation of music lovers. Many of the most important musical styles have been ones that developed and matured locally and were brought to the forefront by local radio stations, championing their local music. I have always understood that there was to be an element of social responsibility between a radio station and the community that licensed that station the right to use the public airwaves. Whether that be by providing a strong local news service, fostering debate and dialogue of issues important to the community or promoting the arts created by and, or programmed and produced shows, where the only “local” aspect is the advertising sales team, are lacking in all of these responsibilities. I am sure many of you are aware of the controversy surrounding The Dixie Chicks. This incident received a good amount of press coverage. As a result of statements made by a member of the Dixie Chicks at a concert, two radio networks, Cox and Cumulus, banned The Dixie Chicks from their playlists at a chain level, while many other stations across the country banned them at a local/station level, many did not. In Colorado Springs, Colorado, two DJs were suspended for violating that ban when they played Dixie Chicks records. Whether you agree with my client’s statements or not, I know you support the First Amendment. Unfortunately, radio consolidation has provided radio networks with enormous opportunity to undermine free speech by boycotting records while they wage political wars with artists and labels. I appreciate that the networks also enjoy the same First Amendment rights as my clients. But we must remember that those who crafted the original limitations on ownership feared conglomerates exercising this kind of control over political speech. Ownership limits were intended, in part, as a way to prevent such a monopoly of thought and discourse. The public airwaves were to be used to promote a marketplace of ideas. A marketplace of ideas, the cornerstone of this democracy, can only be nurtured and sustained within a system promoting ownership diversity, not ownership consolidation. Even the perception of a radio network using power in this way, clearly demonstrates the potential danger of a system of unchecked consolidation that ultimately undermines artistic freedom and cultural enlightenment. What happened to my clients is perhaps the most compelling evidence that radio ownership consolidation has a direct negative impact on diversity of programming and political discourse over the public airwaves. Some in the radio industry have suggested that the recent FCC rule changes actually restrict radio networks from continuing their drive toward consolidation. I am not convinced that is the case. Some serious analysts have concluded that the intricate market rule changes do not make it harder to acquire new stations. I am attaching to my testimony comments from the Future of Music Coalition setting forth their conclusions. My personal view is that the recent FCC rule changes in market definition are relatively insignificant. This is not a local market problem. This is a national problem. As such, I hope the Committee will consider implementation of new “national” limits on ownership. Only by placing national limits on ownership, and perhaps limits that are more reflective of the pre-1996 world, will the harm caused by radio consolidation tend to diminish and hopefully disappear. I hope the Committee will also explore the harm caused by radio networks owning affiliated live promotion companies, venues, agencies, public relations companies, and management companies. As my colleague Don Henley stated “This institutionalized conflict of interest places the artist in a vastly uncompetitive and weak position. What happens when an artist refuses to perform in a venue owned by the radio station or network? Will the artist records be played on the station or will the company reduce or eliminate radio airplay? Most artists cannot afford to find out.” The music industry and the radio industry must strive to create a healthier and more balanced relationship. Otherwise, the music industry, and particularly, the recording artists, will continue to suffer. I hope this Committee will help restore that balance. This can only be accomplished by stopping and perhaps even reversing the trend toward unchecked radio consolidation. I thank you again for this opportunity to discuss these important issues with the Committee. Thank you for your time. ATTACHMENT TO TESTIMONY OF SIMON RENSHAW JULY 8, 2003 FMC’s Comments on the Radio Market Definition As part of the changes to its media ownership rules announced on June 2, the FCC has altered its method for defining radio markets. According to a preliminary analysis being conducted by the Future of Music Coalition, the effect of the redefinition of radio markets is inconclusive. In some markets, the effective local ownership cap will be lower, but in other markets the effective local ownership cap will increase. The FCC claims that by moving from contour to Arbitron measurements it is closing a loophole that radio companies have used to sidestep market ownership caps. This is true but it is only half the story. Based on the FCC’s June 2 rulemaking, now commercial and non-commercial stations are counted to determine a market’s size, whereas before only commercial stations were counted. By including non-commercial stations in the market count the FCC is measuring the same markets in a way that, in many cases, now increases the number of stations in each market. Thus in most markets the ceiling for setting ownership caps will rise. This will very likely open the door to more “legal” purchases by those same large radio conglomerates that had previously employed the loophole that the FCC just eliminated. Another concern is the status of markets where owners have exceeded the legal cap according to Arbitron definitions. Unless radio owners are forced to divest the stations owned in excess of the current caps, the recent policy change will not redress any of the harms of radio consolidation in dozens of markets. The FCC eliminated the contour measurement to protect citizens from corporations that were using this loophole to get around the local market caps that were established with the 1996 Telecommunications Act. We applaud the FCC for protecting the public in this way and support this new standard. We do not, however, support the new market calculation that includes non-commercial stations. This second adjustment might eliminate the benefits the public would sustain from the institution of the first. It is clear that more research is required to understand exactly what the FCC’s policy change for radio will bring. It is the FCC’s responsibility to bring forth actual numbers to prove that these changes reduce media concentration, not increase it.