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Consolidation changes face of radioWASHINGTON - TV ratings and telephone services generated most of the heat when Congress passed the landmark Telecommunications Act of 1996. But in a surprise turn, the most dramatic changes have come to radio. A USA TODAY analysis of government and industry data on station ownership shows radio is undergoing an unprecedented wave of consolidation, taking it from a kitchen-table culture of mom-and-pop business to one at home in the boardrooms of the nation's largest companies. In fact, never before has radio, historically one of the USA's most regulated industries, seen so much change. The Telecom Act's radio provisions, which enlarged the number of stations a firm can own, were designed to breathe life into a struggling industry. They've done just that. Sales of 4,407 stations in 1996 and 1997, valued at $32.4 billion, have created corporate radio Goliaths. With their new size, owners such as Jacor Communications, which went from 50 stations in 1996 to 204 today, can combine operations, reach wider audiences and use technology to share content and cut costs. As a result, broadcasters are enjoying record advertising revenues. But the changes also have raised concerns that radio as big business is hurting diversity of content for listeners, as well as diversity of ownership in the front office. The consolidation has helped create the largest drop in minority station owners - 9% - since the federal government began tracking them in 1990. It's also turning a business with deep local roots into one that's more distant, where the evening weather broadcast in Fayetteville, Ark., may have been recorded hours before, 500 miles away in Austin, Texas. And more may be ahead. "I don't think anybody anticipated that the pace would be so fast and so dramatic," says William Kennard, chairman of the Federal Communications Commission. "The fundamental economic structure of the radio industry is changing from one of independently owned operators to something akin to a chain store." The FCC is examining telecom issues, including radio, in a biennial report that must be submitted to Congress by the end of the year. Kennard says it's too early to say if the FCC will recommend changes. A Senate subcommittee also may hold radio hearings, says Sen. Conrad Burns, R-Mont. But Burns, who agrees that barriers have grown for independent and minority owners, adds, "The industry itself . . . should solve those problems." Still, there is plenty to discuss. The pace of consolidation - highlighted by the loss of 700 individual owners since March 1996 - transformed radio practically overnight. "It's not too dissimilar from any industry that's found itself suddenly deregulated: airlines, trucking, banking," says Robert Unmacht, editor of M Street Journal, a weekly newsletter on radio. "We still have a lot of stations in this country . . . but in most of the markets, it's two or three people dominating the marketplace." The act allowed firms to own an unlimited number of stations nationwide, erasing the previous 40-station limit. It also broadened the four-station limit per market. Now, in the nation's largest markets, a company can own up to eight stations. Examples are not hard to find. At the end of 1997, CBS Radio owned eight of the 64 stations in Los Angeles; Chancellor Media had eight of 44 in Washington, D.C. The result: From March 1996 to February 1998, the number of owners dropped 14% even as the number of stations grew 3%, according to a USA TODAY analysis of ownership data from BIA Research, a Chantilly, Va., media research firm. "We're in the eye of the hurricane," says Peter Bowman, vice president at BIA. "The new players with their new size are taking a moment to survey how the playing field has shifted. But there's a lot more consolidation to occur." That concerns federal officials, who already worry that it's common for two or three companies to own 80% to 90% of the radio ad revenues in a market. In Rochester, N.Y., for example, 14 stations owned by CBS, Jacor and Entercom held 94% of the radio ad revenues in 1997, according to Duncan's American Radio, a research firm. "When you've got some players that are so dominant in a market . . . you can begin to starve off the other stations," says Susan Ness, an FCC commissioner. "It's like taking the oxygen out of the water. The fish start to die." Thinking regionally But others in the industry say consolidation has been good. Employees at newly corporate stations suddenly have big-league benefits and more career options. "Clear Channel picked us up off Gilligan's Island," says David Macejko, vice president and general manager of Dayton, Ohio, stations WING and WGTZ, which were bought in January. "For employees, the opportunities for their careers have expanded tremendously." Rather than limit diversity, these owners say, consolidation has spurred more formats. An owner with several stations in a market now targets each one at a specific audience to better serve advertisers. "What we have for the very first time is the opportunity to think about our business the way any other retailer would think about their business, and that's regionally," says Jacor CEO Randy Michaels. This shift comes while the industry and its 10,339 commercial stations is battling a slow decline in listenership. It's down to 22 hours per week per person in 1998 from 23 hours in 1994, according to Arbitron data from its top 94 markets. Even so, there's plenty of business. Ad revenues grew 10% to $13.6 billion in 1997, and stock prices of several publicly traded companies specializing in radio have climbed steadily. And, though radio has for years drawn about 7% of all advertising revenues, there is hope that its share could increase. "That number has a very good chance of going up to 7.5% to 8%, and then the industry . . . would be that much more successful," says Kevin McCabe, director of charts and formats for the industry magazine Radio & Records. Fewer minorities Still, listeners and media watchers have several concerns. Among them:
In FM radio, where stations have clearer, more desirable signals, the numbers are even more striking. Black-owned stations fell 26%, to 64, in 1997. Hispanic-owned stations dipped 9%, to 31. The Commerce Department listed just two Asian-owned FM stations and three owned by Native Americans. Only in AM stations did minorities show any gains from 1995 to 1997, and even then only Hispanic-owned stations rose, by 11%, to 80. "The numbers are pretty scary," says Larry Irving, assistant secretary of commerce. "As the prices of stations go up, small businesses - women and minorities - are finding it harder and harder to buy properties, especially in major media markets." The drop reverses gains made under a 17-year-old tax certificate program that encouraged sales to minority owners. In 1995, Congress cut the program, which allowed firms to defer taxes on capital gains from sales to minorities, amid concerns that it shortchanged taxpayers. Now, not only is it tougher to buy, it's more tempting to sell. Station prices have skyrocketed, and many independents are taking profits while they can. Others decide they can't compete. "In a country that receives such a benefit from having a melting pot . . . we lose that richness when the media are largely owned by one segment of the population," says Ness.
Capstar, for example, uses an Austin, Texas, studio to assemble customized programming for evening and overnight shows on 37 of its stations, primarily in Texas, Arkansas and Louisiana. Local affiliates write scripts for between-song breaks, weather and traffic reports and ship them to Austin over the company's computer network. A stable of 10 announcers records the dialog onto the computer network and ships it back to the local station. The process can take just a few minutes. So, when listeners in Lubbock, Texas, hear a disc jockey announce a song, at certain times of the day the voice really is coming from Austin. The advantage: big-city quality. "In smaller markets, you can have trouble attracting quality talent," says Capstar CEO Steve Hicks. "But we can have one quality person do eight or 10 stations from one location, and it's all customized." But a faux hometown sound that's brewed miles away raises the hackles of radio critics. "The local angle just gets lost completely," says Andrew Jay Schwartzman, president of the Washington, D.C., Media Access Project, a public interest law firm. Schwartzman worries that local newscasts are being replaced by regional news services, reducing editorial diversity.
Industry watchers and consultants say stations are tightening their formats to cover thin demographic slices. The strategy is called "flanking" - buying several stations in a market and positioning each to target a different age and gender. A typical adult contemporary station 15 years ago would have 18 to 24 current hits on its playlist in addition to a catalog of about 400 older songs, says Mike McVay, a Cleveland radio consultant. Today, it might play 9 to 12 current hits. Among the most repetitious: Top 40 stations, which play some hits eight times a day. Stations also use focus groups to test songs - a move derided by critics. "You go from town to town to town and you're hearing the same sound," says musician Ben Folds, whose band, Ben Folds Five, had a hit this year with Brick. "It's like going to Kentucky Fried Chicken." Younger listeners are irked the most. In a May USA TODAY/CNN/Gallup poll, 68% of people ages 18-29 said stations tend to repeat the same songs more often than they would like. Among those 30-49, the displeasure was less pronounced, with 51% citing too much repetition. "People send us e-mails saying, 'I hear the same song at the same time every day,' " says Jeremy Wilker, co-founder of Americans For Radio Diversity, a Minneapolis group. "The problem with programming is that it's done more and more by consultants and marketing gurus than people who are passionate about the music." But those who follow programming say listeners prefer familiarity. "Stations are constantly doing major research efforts," says James Duncan, president of Duncan's American Radio. "The core audience does not like strange songs." It's unlikely these issues will clear anytime soon. The fundamental changes that have transformed radio are likely to continue. "The mad rush is behind us," says Bowman of BIA. "But there is going to be another significant wave of consolidating activity. I think even more stations will end up in relatively few hands." -- By Anthony DeBarros, USA TODAY |