Section 202 - Broadcast Ownership: A Gift to Big Media

Successes and Failures of the 1996 Telecommunications Act

Part One

Part Two

Part Three

Afterword

Does the Digital Divide Still Exist?

Appendix

Section 202 - Broadcast Ownership: A Gift to Big Media

by Janine Jaquet

The Telecommunications Act of 1996 was heralded as a victo-ry for consumers, but was, in fact, a gift to Big Media. It came decorated with appealing sounding promises like lower phone and cable bills and protection for our children from Internet porn. Largely overlooked, though, was its deregulatory imperative, which unleashed a barrage of mergers and buyouts changing the landscape of local and long-distance telephone, cable, satellite, television, and radio industries. Perhaps the most dramatic change has happened in radio. Section 202( a) of the Act required the Federal Communications Commission to eliminate "any provisions limiting the number of AM or FM broadcast stations which may be owned or controlled by one entity nationally." In the six years since the Act was passed, radio transformed from a medium closely tied to its communities, to one now often controlled by absentee owners. Radio has become far more homogenized and less concerned with local issues.

Radio

In the mid-90s, the radio business was in a slump; advertising revenue was down and hundreds of stations had gone off the air. Broadcasters asked Washington to loosen ownership rules so they could buy more stations and thereby achieve efficiencies of scale. Public interest advocates warned there would be a stampede on stations; their concerns proved prescient although they were largely seen as alarmist at the time. Even former President Bill Clinton, who pushed hard for passage of the Act, conceded last year that there has been "more consolidation than we wanted."

Before and after snapshots of the radio industry, captured in statistics, reveal a startling transformation:

The largest chain in 1996 owned 39 stations and had annual revenues of $495 million.
Today's top group owns nearly 1,700 stations and has annual revenues of over $8 billion.

There are 30% fewer owners today than there were in 1996. By the end of 1996, radio mergers valued at $16 billion had been announced. In Boston, the number of radio station owners had gone from nine to just four. In Philadelphia, two companies now controlled 70 percent of advertising revenue. Across the country, ownership was consolidating at an unprecedented rate, and more mergers were yet to come. "The urge to merge," remarked The Wall Street Journal in a 1998 assessment of the Telecom Act, "has overwhelmed the compulsion to compete."

The industry is dominated today by two chains, Viacom-owned Infinity, and Clear Channel, which leapfrogged from 43 stations in 1995, to almost 1,700 today. The combined revenues of these two chains constitute one-third of all radio industry revenues; Clear Channel alone commands 20 percent.

The conglomeration the Act encouraged did allow for economies of scale, but many say the price has been too great, and listeners and advertisers are being unfairly saddled with the bill. Titus Levi, professor at the USC Annenberg School for Communications, says rising advertising rates, designed to promote competitiveness, show signs of being anti-competitive, although it's not clear consolidation is entirely to blame. For many critics, concerns about the market dominance of Clear Channel and Viacom have less to do with advertising costs, and more to do with diversity. A democracy requires providing equal access to a wide range of perspectives, the argument goes, and having many different owners helps ensure alternative voices will be heard.

"There is no doubt that a diversity of voices on the public's airwaves is vital to our democracy," wrote then Federal Communications Commissioner Gloria Tristani when Clear Channel came before the FCC in 2000 to seek approval to acquire AMFM, Inc. "Just as the strongest fabrics are woven of many tiny, interlocking threads, each of which alone is unable to sustain the strength of the whole, radio listeners must be able to weave their local fabric with many, diverse threads."

The FCC ended up approving the merger, but forced Clear Channel to sell 110 stations and minority buyers bought many of them. That one transaction gave a big boost to minority ownership which went from 3 percent of all stations in 1996 to 4 percent in 2001 according to government statistics, but that's not even close to being representative of the 29 percent overall minority population.

"Institutions seek to protect their monopoly power," University of Maryland journalism professor Douglas Gomery told the FCC, "We need to acknowledge that, and seek policies to encourage diversity and localism."

Consolidation has pushed up the value of radio stations, which makes it harder for those who don't have deep pockets -- a group that traditionally includes minorities -- to get into the business. Because most minority owners have just one station (and most of those, 248 of 426, are AM) they, like other small operators, don't have the economies of scale the large chains do, and that, too, makes it hard to compete.

The Commerce Department's National Telecommunications and Information Administration reported in 2000 that, "... government regulations have increased station prices, reduced ownership diversity, increased the challenges faced by minority commercial station owners in competing for advertising revenues, rescinded key incentive-based programs designed to encourage minority ownership in commercial broadcasting, and ultimately, increased concentration of media ownership."

The big owners, meantime, are raking in profits, in part because when they combine operations of multiple stations, they reduce payroll by laying off workers, but these efficiencies have come at a cost to listeners: with fewer resources, many stations have had to reduce or eliminate local news.

In 1982, almost every radio station in the country -- 98 percent -- had a local news staff, according to Vernon Stone, professor emeritus at the University of Missouri's School of Journalism. Today, that's down to 67 percent, a drop of almost one-third.

Susan Douglas, University of Michigan professor and author of Listening In: Radio and the American Imagination has predicted that if trends continue, "discussion of local schools and issues will be driven out completely."

Gone already are the days when local DJs picked the records they'd spin, giving a local band its shot at an audience bigger than the one at the local bar. Now, in all but a handful of stations, play lists are devised by consultants for an entire chain and sent to each station via satellite. Industry insiders say the move away from local tastemakers to con-glomerate consultants makes it harder for new acts to get airtime.

"When we first got signed [in the late Eighties]," Amy Ray of Indigo Girls recently told Rolling Stone, "we'd go to a station, and they would be self-owned and had a certain amount of freedom to play what they wanted. Their play list wasn't the same as twenty other stations owned by the same corporation. Now it's harder to break in."

More than 30,000 CDs are released every year, but on pop radio stations, no more than 20 songs are added to the play list each week and often times it's far fewer. Critics complain that by allowing so few to make decisions for so many about what gets played, commercial radio now sounds stupefyingly the same, no matter where you go.

"It obvious what these conglomerates are doing to radio," says Andy Davis, programming director for WWCD, a Columbus, Ohio alternative rock station that is locally owned and programmed. "You can blame the consultants with their short-sighted visions of how things have to be, 'You can't step outside this box' kind of thing, and that set the stage for the conglomerates to come in and program everything the same. What they're effectively doing is ruining the magic of radio, the ability to build a local connection." Levi concurs that, "wholesale syndication knocks out the rungs in the ladder necessary to help local talent develop."

"At some point," he says, "that will create problems for the big groups." WWCD regularly mixes local bands and independent label artists into their rotation and they feature four hours a week devoted just to that music.

"We do retain a little of the magic," says Davis, who's aware his freedom to give new bands a break is ultimately the station owner's call. "I consider myself to be very lucky, very fortunate, to work for a local guy who really loves the music."

Clear Channel Executives say programming choices are still made on the local level, but the blandness of commercial radio has even gotten Congress' attention. "Drive across the country," wrote Senators Ernest Hollings (D-SC) and Byron Dorgan (D-ND) in a Washington Post op-ed last year, "and in big cities and small towns, your car radio too often plays only a handful of homogenized voices beamed by a few media conglomerates."

Levi says that the proper balance between syndicated programming, which gives small communities access to talent they wouldn't otherwise get, and local programming, varies by format, but is especially vital in pop radio.

"You need more localism because there are more station breaks," he says. "Patter is more important, and keeping patter important and relevant often means that it needs a local or recognizable slant to it."

Industry leader Clear Channel has also alarmed some critics and competitors by becoming vertically integrated with the concerts industry. In addition to its stations, Clear Channel also now owns 135 concert venues and concert promoter SFX Entertainment, now renamed Clear Channel Entertainment, which produced 25,000 concerts in 2000. SFX itself is a fast-growing conglomerate: it underwent 18 mergers, trades and acquisitions in 4 years. Both concert promoters and smaller radio chains are alarmed by Clear Channel's power, and are raising serious anti-trust concerns in Washington and in the courts.

A Denver concert promoter, Nobody in Particular Presents, has filed suit against Clear Channel charging that the company pressures artists to use SFX to put on their concerts, and uses as leverage their considerable influence as the country's largest owner of radio stations. Clear Channel owns 8 stations in Denver, about half the city's stations and the maximum allowed in a market.

Clear Channel has denied the suit's claim. "None of our radio stations have conspired against [other promoters]," it responded in a motion filed in U. S. District Court to dismiss the suit.

The relationship between promoters and producers of local music shows is snug: the promoter buys ads and often gives the station concert tickets to give away on the air. The giveaways draw listeners to the station and, along with the ads and air time the station spends playing the act's songs, generate interest for the concert. Some station owners worry this gives Clear Channel incentive to favor their own stations over others, which means other stations will lose out on advertising revenue and giveaways to sought-after shows.

Clear Channel says such claims are made by jealous competitors who don't want to admit that Clear Channel is simply good at what it does, and says the company spends most of its $100 million annual advertising budget on non-Clear Channel stations. "I think that because we're big and because we're successful, we're going to be a target," Steve Smith, chief operating officer of Clear Channel Entertainment told the Los Angeles Times. "I don't want the marketplace to overlook the fact that we're good at what we do."

Big and small chains have one big problem in common: listenership is down, particularly among younger listeners, and that has a lot of people nervous. According to Arbitron, listening is down 13 percent in the last decade, and since just 1998, teen listening has dropped 10 percent, and 8 percent for those 18 to 24 in all formats including rock, alternative, pop, urban and country. Some attribute this -- at least in part -- to the dull predictability of the same songs in heavy rotation, but another factor is clearly the Internet and a new generation that knows how to find the music it wants, if it doesn't find it on the radio dial.

"Let's face it," says Levi, "If you have cheap CD players for cars, you have more of an incentive to listen to CDs and less to listen to the radio, which might or might not play music you like. At home, many persons simply don't use the radio, preferring to spend time with the Internet, TV, or print media. Davis is even more direct. "People are disappointed by what they hear," he says.

Television

Regulators, broadcasters and media watchdogs have had six years to watch the impact of the 1996 Telecommunications Act spread across the radio industry. It's an experience that has left some eagerly anxious for a comparable rollback of regulations for TV, and others just anxious.

Section 202( c) of the Act eliminated restrictions "on the number of television stations that a person or entity may directly or indirectly own, operate, or control, or have a cognizable interest in, nationwide; and [increased] the national audience reach limitation for television stations to 35 percent." In addition, the Act eliminated the "cross-ownership" restriction to "permit a person or entity to own or control a network of broadcast stations and a cable system." The Act also called for the FCC to "conduct a rulemaking proceeding to determine whether to retain, modify, or eliminate its limitations on the number of television stations that a person or entity may own, operate, or control, or have a cognizable interest in, within the same television market."

At present the FCC is also reviewing the ban on owning a newspaper and a TV station in the same market. The U. S. District Court of Appeal is considering cases that challenge two other FCC regulations: the 35 percent limit on the US audience that a single owner of TV stations can reach, and the ban on owning a cable company and a TV station in the same market. 1 Observers say comments by FCC Chairman Michael Powell and hostile questioning by the court justices suggest both are poised to loosen -- or lift altogether -- these longstanding safeguards.

Unlike in the '90s, when regulatory relief was widely seen as the cure for suffering radio ad revenues, observers now can see the effect deregulation has had on radio, and the TV industry is split on whether loosening ownership will help or hurt. Networks are against lifting the newspaper/ TV cross-ownership ban, while the TV affiliate station groups are against lifting the national audience cap. "If the ownership cap is released, consolidation would continue and reduce the amount of local weather, news and other programming. I can't image that would benefit viewers," Andy Fisher, president of Cox Television, told the Los Angeles Times. Cox's parent company is no small player in radio -- it has weathered radio consolidation as the third largest chain, but even so is still far behind Clear Channel and Infinity: it owns 55 radio stations and 15 TV stations.

Newspaper owners, such as Cox, the Washington Post/ Newsweek, and Gannett, dominate the industry trade group, the Newspaper Association of America, which argues that because there are so many "media voices," cross-ownership rules are antiquated. But public advocates say the plethora of choices does not mean there is true diversity. "I don't care how many weekly newspapers or radio stations there are, you decide who to vote for based on what you see on TV and read in the newspaper," Andrew Schwartzman, president of the Media Access Project, told Broadcasting and Cable.

The number of owners of TV stations is half what it was just six years ago, and the number of newspaper owners have also declined since 1975, according to the FCC. Whether those numbers for TV will continue to decline depends in part on what the FCC and the federal Appeals Court do next. And while many say free market forces will keep the media industry healthy, others say protecting the marketplace of ideas is more important. "The media is not just any ordinary industry, says Sen. Paul Wellstone (D-MN). "It is the life-blood of American democracy. We depend on the media for the free flow of information that enables citizens to participate in the democratic process."

Cable and Satellite

In March 2001, the federal appeals in the District of Columbia struck down rules designed to promote competition. One rule limited a cable company's national reach to 30 percent of the U. S. audience, the other bars a cable company from controlling more than 40 percent of the programming it transmits. The case was brought by AOL Time Warner Inc. and later joined by AT& T Corp., the two largest cable systems. This action increased doubts about how much the government can do to control the size and reach of media and telecommunications companies.

The U. S. Court of Appeals for the District of Columbia found that the Federal Communications Commission violated the free-speech rights of cable companies by limiting what they could own without proving that such restrictions were needed. The three-judge panel sent the rules back to the FCC for revisions or elimination.

The immediate beneficiary of the court decision was AT& T which was waiting to see whether it would be able to swallow its purchase of cable company MediaOne. But soon after the Court's decision, AT& T was faced with a hostile offer from Comcast. By year's end, AT& T and Comcast ironed out their differences and found good reasons to combine at least some of their properties.

Why are cable companies so anxious to consolidate? One reason is the increased size and vertical integration of the networks, such as Viacom and Disney and TimeWarner. In order to pay for their mergers they increase the cost of popular cable services such as Nickolodeon, ESPN and CNN. The more subscribers a cable company has, the more bargaining power it has to negotiate the price it pays for content. While cable penetration is near 70 percent, cable operators don't compete with other cable operators for customers. And the fastest way to acquire new customers is through mergers. "Right now, seven companies control 85 percent of the subscribers," says Tom Wolzien, a senior media analyst at Bernstein Investment Research and Management. "But as consolidation continues, we might end up in a situation where three or four companies will control 85 percent of the market."

Robert Sachs, President of the National Cable Television Association, notes that negotiating power is not the only reason for consolidation. The cable companies need to be able to compete with the merging telephone companies.

The 1996 merger between my alma mater Continental Cablevision, and US WEST marked the beginning of a wave of industry consolidation that included AT& T's acquisition of TCI and later MediaOne; Paul Allen's acquisition of a dozen companies under the Charter banner; and the recent AOL Time Warner merger. To their credit, other MSO's like Comcast, Cox, and Adelphia have remained independent. But to be competitive, these companies have also had to grow and diversify. And today each is at least twice the size it was when the '96 Act was signed into law. The consolidation in our industry reflects the fact that our companies needed to raise billions to upgrade their plant. They also needed to achieve scale and scope to compete with the regional Bells. In 1996, there were seven regional Bell companies, plus GTE. After five years, there are today only four: SBC, Verizon, BellSouth and Qwest. And despite the incentives provided by the '96 Act, these four huge companies have clung tenaciously to their local service monopolies. They still control nearly 97% of residential and small business phone service in the U. S. 2

Round and round it goes. Some speculate that the increasing mergers in the cable industry will provide support for the consolidation of the last two competitors in the direct broadcasting satellite industry (DBS). While there were four DBS operators in 1998 (USSB, PrimeStar, DirectTV and EchoStar) by 2001 there were only two, and the FCC may have to determine whether the proposed merger of DirectTV and EchoStar into one giant national DBS provider is in the public interest. DBS serves 15 percent of American homes today. DirecTV added over half a million new customers during the 4th quarter of 2000, bringing its total to 9.5 million. And Echostar's Dish Network, with some 5.3 million, now serves as many customers as the 5th largest cable operator. "Significant concentration doesn't mean it's something that can't happen," Republican FCC Commissioner Kathleen Abernathy told reporters in her office. "In this instance, you have both of the parties who are providing satellite- to-home TV merging. Now whether that is OK or not OK remains to be seen."

The Writers Guild of America recently entered the fray, asking the FCC to maintain the 30 percent cap on cable TV subscribers. "Fewer companies owning more stations, networks, cable outlets, satellites and product will not mean better television, it will only mean less diverse and less creative programming-- and ultimately it will mean a higher bill to watch television," said Herb Sargent, President of the Writers Guild of America, East. "The big loser here is the audience."

Writers oppose the consolidation because fewer owners means fewer potential buyers for scripts, and that can mean that off-beat ideas don't find an executive who's willing to take a chance.

"The FCC has given a tiny group of like-minded people who share similar financial goals absolute control over what Americans see on television," the WGA said in its filing.

Even Ted Turner, the man many credit with defining cable programming, expresses concerns about consolidation. Turner sold his company to TimeWarner in 1996 only to be tossed out a few years later. "I think it's sad we're losing so much diversity of thought and opinion," he said during the program titled A Video History of Ted Turner. "We're getting to the point where there's going to be two cable companies left. I doubt the government will let the last two merge, but you never know."

With each new technology, first radio, then television and later cable, pioneers in the field envisioned a diverse group of owners -- whose programming would reflect a broad spectrum of views and a commitment to local communities -- who would collectively serve as a powerful force for democracy. In each case, such programming has all but disappeared, succumbing to commercial pressures that prosper when ownership is concentrated, so now that programming is relegated either to obscure hours or the far corners of the dial or is gone completely.

It's little wonder then that with the marriage of the Internet and TV in the offing, once again advocates of the public interest are pinning their hopes on a technology that could bring diversity, if corporate interests are restrained from conglomerating cyberspace.

Yet to realize such a vision would require stringent ownership limitations for the new medium, which the major media companies already dominate, says Robert McChesney, research associate professor at the University of Illinois at Urbana-- Champaign. "The corporate media giants have failed miserably to provide a viable journalism," he writes in "Rich Media, Poor Democracy." "and as they dominate the journalism online, there is no reason to expect anything different."

The "enemy" in this battle to diversify ownership is not "wicked individuals who operate the dominant media," says Ben Bagdikian, former dean of the Graduate School of Journalism at the University of California, Berkeley and author of, "The Media Monopoly," which drew attention to media consolidation when originally published in 1983. "The enemy is avarice married to arrogance," he writes in the book's most recent edition. "The object of reform is not to silence voices but to multiply them, not to foreclose ideas but to awaken them. For it is in diversity and openness that the genius of the United States can flower."

Endnotes

1. Fox Television Stations, Inc. v. Federal Communications Commission, No. 00-1222, was decided February 19, 2002; see http://www.ll.georgetown.edu/Fed-Ct/Circuit/dc/opinions/00-1222a.html. The Court of Appeals vacated the rule prohibiting a cable operator from owning a broadcast station in the same market, and remanded for reconsideration by the Commission the rule which caps at 35 percent the national audience reach of a network.

2 http://www.ncta.com/press/press.cfm?prID=88&showArticles=ok

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