Tune In: Radio's Still a Big Player
And like television, the industry is rapidly consolidating.
Douglas Gomery is the author of nine books on the economics and history of the media
Radio used to be TV's down-home cousin. No more. Suddenly TV has a serious and powerful rival.
Although it's common to think that the average American spends all day in front of the TV set, according to polls they listen to more than three hours of radio a day.
The new Communications Act, signed into law last February, erased limits on radio ownership. Within a few months, the merger wave began. In the biggest deal so far, CBS took over Infinity Broadcasting. This new $5 billion colossus now operates more than 80 radio stations across the United States, dominating listening in two dozen cities.
ýn a telling metaphor, Infinity's founder, Mel Karmazin, noted: "It's like combining two oceanfront properties." He meant that the new empire would not be some "mom 'n' pop" collection of rural stations in small towns, but would own seven outlets in New York City, six in Los Angeles, 10 in Chicago, eight in San Francisco and four in Washington, D.C. In the top 10 markets, the new CBS radio combo would have commanded nearly a third of all U.S. radio advertising revenue, had it been in place
Consider its domination. In Boston in 1995 CBS plus Infinity would have had 44 percent of ad revenues; in Philadelphia fully half. Broadcasting & Cable magazine estimates that CBS now controls ad revenues amounting to a fifth of the total in Washington/Baltimore and San Francisco, a quarter in St. Louis and L.A., and a third in Dallas/Fort Worth and Detroit. Projected revenues for 1996 for CBS radio are estimated to total in excess of $1 billion.
CBS is leading the way to the most important change in the radio business since the arrival of FM a generation ago.
While most think of CBS as only a TV network, Westinghouse, CBS' owner for a year, has made expansion in radio a top priority. Michael Jordan, the CEO of Westinghouse, lauded his company's legacy, stretching back to its 1920 creation of the first commerc*al radio station, Pittsburgh's KDKA-AM. Jordan depends on radio to provide the profits while he and his underlings reconfigure the TV network.
And the CBS-Infinity merger, while garnering the headlines, represents only the beginning. Last August, when American Radio Systems, Inc. took over EZ Communications in a half-billion-dollar deal, it did not rate a major story in the Wall Street Journal, even though it tripled in size in a single deal. The new grouping will include 96 stations in 20 markets across the United States and will vault American Radio Systems into radio's Big Three, alongside CBS and Clear Channel Communications.
Deals are not confined to the Big Three. In 1996, Evergreen Media paid nearly a quarter of a billion dollars for two stations in Detroit and one in Philadelphia, and then anted up $218 million for three stations in San Francisco and two more in Philadelphia. Sinclair ponied up more than $1 billion for River City Broadcasting. And so on.
Prodded by advertisers who fear rate increases, the federal government has signaled it has begun to worry about this new accumulation of power. Expect the Federal Trade Commission and/or the Federal Communications Commission to closely examine future mergers. To win future approval of license transfers, companies might have to sell off stations or face extended government suits.
Already the Department of Justice has sent a clear message that a single broadcaster should not look to dominate a market. So far Justice's rule of thumb seems to be that no one owner can reap more than 50 percent of the radio ad revenue per market. Radio owners have protested this rule; the American Association of Advertising Agencies has said that Justice should be even more restrictive.
What do 1996's consolidations mean for radio's listeners? News will benefit, I think. Despite the coming of the Internet, MSNBC and Fox's 24-hour cable news channel, all-news radio remains the most efficient way to learn about breaking stories with a simple twist of the dial (see "The Business of Broadcasting," September). Look for more, and perhaps more effective, competition with TV.
We might even see the revival of radio networks. Long ago radio meant big signals from nationwide CBS and NBC; new owners are trying to make Don Imus and company nationally beamed products. Simply stated, if Howard Stern's and Don Imus' syndicated shows can pull in top ratings from L.A. to Boston, their costs of production can be spread across many markets and make CBS millions in higher profits.
In short, as we end 1996, the radio end of the broadcasting industry, long one of the most competitive and the cheapest to enter, has begun to consolidate into the hands of a few. Next year look for the struggle for radio's soul to continue, as more deals are announced, Wall Street reacts, television adapts and Washington figures out what to do. ###