Big Business Monopolizing AM & FM Radio?

[DavidEduardo]

> > >
> > > Undoubtedly what's happening in L.A. and Dallas is true
> of
> >
> > > all the major cities.  These conglomorates won't be
> > content
> > > until they own it all.  And the FCC seems equally
> content
> > to
> > > roll over, play dead and let it happen.
> >
> > How can you have a monopoly in LA if you have these
> > operators with competitive stations:
> >
> > EMMIS
> > Clear Channel
> > ABC (to be Citadel)
> > CBS
> > Infinity
> > Univision
> > Entravision
> > Liberman
> > SBS
> > Sol Levine
> >
> > That consists of 10 players on FM alone, and you can add
> > Salem and others to the AM roster. A monopoly is when one
> > company essentially controls an industry, like AT&T was
> > before the breakup into the Baby Bells.
> >
> No David, you're right.  It isn't a monopoly.  It's a
> cartel; a cartel of high-rolling players who, if the
> ownership caps are relaxed, will be about the only ones with
> the money to buy up the rest of the radio spectrum and
> effectively shut out any small, local companies from
> establishing a radio station, particularly in the metro
> areas.

Do you think that stations were less expensive pre-consolidation? Station prices are based on cash flow (if there is any) and the value of having a license in a city... which is a function of revenue per share point.

Were all the clusters broken up in LA today, you would find the prices no different than they are now. A high billing FM would be worth $400 to $500 million, no matter who buys it because that is what it is worth.

A cartel implies price fixing. Radio ad rates are pretty dictated by CPP in each market and that is determined by the ad agencies who establishy what each point is worth, market by market. Anyone who tires to raise rates excessively is bought around, and there are always bottom feeding stations that can offer lower CPPs.
>
> Stevie Wonder and KJLH is truly an island in L.A. and at
> least Sol Levine is local.

Stevie's station is good now. And it is a valuable part of the ocmmunity, but at times in its history it has been badly managed, programmed and positioned. Local, single station owners are zero-risk broadcasters, as all their investment depends on a single station.

When I owned a cluster of 9 stations in the 60's, I was able to take risks on one station at a time, try new formats, and occupy smaller niche positions. When I only had one station, I was scared of any risk at all and would try nothing new or unusual.

[dbdigital]

> Please remember that the FCC tried to cut ownership limits
> and got their hand spanked by the federal courts. It will
> require legislation in Congress that can withstand a court
> challenge to rein in the conglomerates. The FCC can't do it
> by themselves.
>

This is true.  The FCC is beholdened to Congress. But it is not a rubber stamp of Congress.

I was thinking about what was stated in the FCC's Office of the Inspecter General's report for Sept. 2005.

It said that the FCC performs four major functions:

1. Spectrum allocation
2. Creating rules to promote fair competition and protect consumers where required by market conditions
3. Authorization of service
4. Enforcement

It's the second point where I feel the FCC has fallen far short and could do more.

db

[DavidEduardo]

> > > Let's see, there are 13,000 local radio stations.  The
> > giant
> > > corporations own about 20% of them.  Nationallly, that
> is
> > > one helluva lot less concentration than the cable,
> > > telephone, television, and for that matter daily
> newspaper
> >
> > > business.
>
> Yeah, but many of those 13,000-plus radio stations you speak
> of are non-commercial stations.  Those places aren't owned
> by any of the big boys.

11,000 are commercial. A huge number of the non-coms are NPR controlled (talk about a de facto consolidation) or by religious organizations.
>

[Tom_Desmond]

> Do you think that stations were less expensive
> pre-consolidation? Station prices are based on cash flow (if
> there is any) and the value of having a license in a city...
> which is a function of revenue per share point.

I know that you know better than this...radio station prices went up substantially after the 1996 Telecomm Act allowed substantial regulation.  Part of this is a result of increased cash flow from increased spot loads combined with the "operating efficiencies" allowed by operating station clusters.  But part of this was also because the rapidly growing groups pushed up the cash flow multiples (at least in major markets) substantially.

As I recall, one FM station here in Dallas/Fort Worth sold for something like 22x cash flow...much higher than any cash flow multiples I ever heard about prior to 1996.  And, as an aside, "stick values" for unsuccessful FM stations with good signals also skyrocketed in the aftermath of the Telecomm Act.

While I suspect that those prices have come down somewhat from the turn-of-the-century peaks, I'd be willing to bet that they're still much higher than pre-1996 prices, even when adjusted for inflation and overall growth in the economy.

[Tom_Desmond]

> Half of all US radio stations were
> not profitable pre-consolidation, so there was obviously
> something wrong with the business model that needed fixing.

I've never bought into the idea that all those radio stations losing money was proof that the business model was wrong and needed fixing.  After all, consider the failure rates in almost any other type of business and ask yourself why radio should be immune from that.  

In addition, the country in general was pulling out of a recessionary period where advertising revenue had actually dropped in one or two years -- basically, a worst case scenario for the radio industry.  Finally, the industry was still absorbing a sizeable increase in the number of stations as a result of Docket 80-90 and its aftermath.  Between that and the recent recession, the operating conditions in the radio industry were hardly "normal" at that point in time.

If the FCC and congress had just left the ownership regulations alone (or limited themselves to minor tweaks), I suspect that the situation would have sorted itself out with time.  And, yeah, some of those stations would have gone off the air, others would have been sold in bankruptcy -- but those are the risks that any business owner launching a new venture faces.

[DavidEduardo]

> > Half of all US radio stations were
> > not profitable pre-consolidation, so there was obviously
> > something wrong with the business model that needed
> fixing.
>
> I've never bought into the idea that all those radio
> stations losing money was proof that the business model was
> wrong and needed fixing.  After all, consider the failure
> rates in almost any other type of business and ask yourself
> why radio should be immune from that.  

Because the complaints about programming invite this clarification. Broke stations do not do creative things.
 
> In addition, the country in general was pulling out of a
> recessionary period where advertising revenue had actually
> dropped in one or two years -- basically, a worst case
> scenario for the radio industry.

Approximately half of all stations have not made money since the FCC financial reports of the 60's... we are not talking about a few yars of economic reersal but, instead, nearly 4 decades.

The reason this is significant is that radio stations that make no money can not do anything adventurous and are ill-suited to do any form of community or public service.

>  Finally, the industry was
> still absorbing a sizeable increase in the number of
> stations as a result of Docket 80-90 and its aftermath.

That was in the early 90's. Half the stations have been unproftable since the late 50's.
 
> Between that and the recent recession, the operating
> conditions in the radio industry were hardly "normal" at
> that point in time.

They must have been normal on the average over the last 40-some years. In fact, the number of unprofitable stations did not change much in recession years or periods of high inflation, although the ability to pay for a financed staiton changed in these years.
>
> If the FCC and congress had just left the ownership
> regulations alone (or limited themselves to minor tweaks), I
> suspect that the situation would have sorted itself out with
> time.

The reregulation or deregulation happened because about 4 decades of data supported the contention that Americans were getting poorer radio service due to the inability of stations to make money, to get decent financing, and to attract investment capital. The change came far too late.

>  And, yeah, some of those stations would have gone off
> the air, others would have been sold in bankruptcy -- but
> those are the risks that any business owner launching a new
> venture faces.

Unfortunately, radio often attracts people with more money (or credit) than good sense. Nearly every unprofitable station has been sold, not closed down. There is always someoen who thinks they can fix the unfixable.
>

[DavidEduardo]

> > Do you think that stations were less expensive
> > pre-consolidation? Station prices are based on cash flow
> (if
> > there is any) and the value of having a license in a
> city...
> > which is a function of revenue per share point.
>
> I know that you know better than this...radio station prices
> went up substantially after the 1996 Telecomm Act allowed
> substantial regulation.

There was a tiny, by historical standards, bubble at the time as many companies vied for the same properties and all would pay at the highest end of historic price multiples.

However, the price of a station is based on a matrix of market revenue growth (leading cash flow indicator), market size and revenue and cash flow. when expressed in 2006 dollars, the prices are about the same today as ever.

> Part of this is a result of
> increased cash flow from increased spot loads combined with
> the "operating efficiencies" allowed by operating station
> clusters.

Consolidation did not create significant savings. And cash flow is determined mostly by the number of stations in a market and the total revenues, and that determines at the same time the market rate on talent, sellers, managers, etc.

>  But part of this was also because the rapidly
> growing groups pushed up the cash flow multiples (at least
> in major markets) substantially.

Again, the multiples were anywhere from 12 to 20 in the 80's. The spread had to do with future earning potential. a good signal in a good market has greater earnings potential than a marginal one in a slow growth market.  
>
> As I recall, one FM station here in Dallas/Fort Worth sold
> for something like 22x cash flow...much higher than any cash
> flow multiples I ever heard about prior to 1996.

Multiples over 18 often meant that the station had additioal assets, like buildings, tower sites, or some kind of bankable feature like a long term sports franchise.

>  And, as an
> aside, "stick values" for unsuccessful FM stations with good
> signals also skyrocketed in the aftermath of the Telecomm
> Act.

But not above the rate of indexed-for-inflatioon asset growth in the past coupled with market growth.
>
> While I suspect that those prices have come down somewhat
> from the turn-of-the-century peaks, I'd be willing to bet
> that they're still much higher than pre-1996 prices, even
> when adjusted for inflation and overall growth in the
> economy.

They are not any differen.

[TheX]

>
> There are many more reasons. Small poor markets. Bad
> signals. Over-radioed markets, powerful local TV or print,
> etc. The fact that historically half the stations have not
> been profitable is telling... and this goes back to the FCC
> financial reports from the 60's.

Yet still not proof (in my opinion) that the government needed to shakeup ownership limits to fix things.
> >

>
> When you have nearly 40 radio stations serving Albuquerque
> and less than $40 million in revenue, you know there is not
> limited spectrum. There is limited revenue to support
> everything the spectrum will accomodate. The average US
> radio station has lower gross sales than the average
> McDonald's store.

Albuquerque is likely the exception and not the rule.

______________
Let us live so that 100 years from now, someone may be proud of us.

[DavidEduardo]

> >
> > There are many more reasons. Small poor markets. Bad
> > signals. Over-radioed markets, powerful local TV or print,
>
> > etc. The fact that historically half the stations have not
>
> > been profitable is telling... and this goes back to the
> FCC
> > financial reports from the 60's.
>
> Yet still not proof (in my opinion) that the government
> needed to shakeup ownership limits to fix things.

The FCC has always been concerned that an unprofitable operator can not offer good service (howevery you define the term). The biggest reason for consolidation had to do with the increasing inabilty of radio to compete for investment capital and financing captital because the FCC had made radio companies "small business" that did not attract investment.
> > >
>
> >
> > When you have nearly 40 radio stations serving Albuquerque
>
> > and less than $40 million in revenue, you know there is
> not
> > limited spectrum. There is limited revenue to support
> > everything the spectrum will accomodate. The average US
> > radio station has lower gross sales than the average
> > McDonald's store.
>
> Albuquerque is likely the exception and not the rule.

Salt Lake City, Talahassee, Lubbock, Grand Junction, Boise, Bakersfield, Las Vegas, Reno, Traverse City, Key West, Colorado Springs, El Paso, Panama City, etc., etc are a few of the examples of rated markets with low billings and very high numbers of technically viable signals. If you go to unrated markets, explain how Lake city / Live Oak can support 10 radio stations?
>

[radionut987]

> 11,000 are commercial. A huge number of the non-coms are NPR
> controlled (talk about a de facto consolidation) or by
> religious organizations.
> >
>

Yeah, but NPR doesn't own them, do they?