U.K. RADIO INDUSTRY
CONSOLIDATION: HOW
RELEVANT IS THE U.S.
EXPERIENCE?
by
GRANT GODDARD

www.grantgoddard.co.uk
March 200...
DCMS: “Without any consolidation of ownership, the risk is that
a number of small companies will all tend to aim their con...
Recent debates concerning the effects of impending ownership consolidation
in the UK on listener choice have often referre...
In the UK the myth exists that, as a consequence of consolidation, there
remain only a handful of radio owners in the US. ...
The recent consolidation in the US is a reaction to more than fifty years of
continuous expansion, during which time the F...
of service”, the FCC would allow commonly owned “duplicate facilities” only
where a community need would otherwise remain ...
itself, but was only a means of “promoting diversity of program sources and
viewpoints.” Initially this appears to be a re...
result in a combined audience share exceeding 25% will be considered prima
facie inconsistent with the public interest.”22...



up to 6 radio stations in a market with between 15 and 29 commercial radio
stations;
up to 5 radio stations in a mark...
enforcement of the antitrust laws, the US Department of Justice determined
that the radio advertising market is a distinct...
These results are significant but unsurprising, given the relatively slow
development of commercial radio in the UK compar...
the good signals were taken many years ago, resulting in little
unused capacity that could support new station entry…..
Al...
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'UK Radio Industry Consolidation: How Relevant Is The US Experience?' by Grant Goddard

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A research paper that compares the consolidation that has taken place in the commercial radio industry in the US with the anticipated consolidation in the commercial radio industry in the UK that could follow the legislation of the Communications Act, written by Grant Goddard in March 2003.

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'UK Radio Industry Consolidation: How Relevant Is The US Experience?' by Grant Goddard

  1. 1. U.K. RADIO INDUSTRY CONSOLIDATION: HOW RELEVANT IS THE U.S. EXPERIENCE? by GRANT GODDARD www.grantgoddard.co.uk March 2003
  2. 2. DCMS: “Without any consolidation of ownership, the risk is that a number of small companies will all tend to aim their content at the same middle ground, all seeking the largest possible share of the mass audience……… Research suggests that the liberalisation of ownership rules in the US radio market has, to some extent, alleviated [this] effect.”1 Chris Smith MP (& Disney consultant): “A certain amount of consolidated ownership can help to create ‘localness’ by committing the necessary investment………..2 Grouping stations in a particular area under umbrella ownership – but not under a sole owner – can help to increase investment in genuinely local programme-making and news-gathering. The more stations a company has in one area, the more likely it is to invest in local output, events and support.”3 Unnamed analyst: “Why should you need three owners of commercial radio in London…..?”4 CRCA Chairman Lord Eatwell: “Small stations seek to maximise their audiences by going for the middle ground…. A larger company can offer services to different parts of the community.”5 GWR Chairman Ralph Bernard: “Listeners will be the real winners, with companies like GWR being able to build local centres of excellence offering local output of greater range and quality.”6 Clear Channel International President Bob Cohen: “We’ve got to immerse in the concept of multi-tasking – this business is all about multi-tasking……. One programming team can easily programme an additional station in or outside its own market.”7 1 DCMS, “Consultation On Media Ownership Rules,” DTI, November 2001, para 1.5 Chris Smith, “Debate – But Little Real Argument,” Financial Times, 19 November 2002 3 Chris Smith, “A Bill That’s Out Of Tune With Local Radio,” Financial Times, 23 October 2002 4 Damian Reece, “Government Signals Radio Revolution,” Sunday Telegraph, 10 November 2002 5 Saeed Shah, “Jowell Poised To Allow Major Radio Consolidation,” The Independent, 14 November 2002 6 BBC, “Radio Reform Unveiled,” BBC Online, 14 November 2003 7 Emmanuel Legrand & Jon Heasman, “NAB In Prague: Doing More With Less,” Music & Media, 9 November 2002 2 U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 2
  3. 3. Recent debates concerning the effects of impending ownership consolidation in the UK on listener choice have often referred to the experiences in the US market since greater consolidation was permitted in 1996. It is important to realise that the extent of consolidation being anticipated within the UK radio industry bears little or no comparison to the experience in the US of recent years. What has been conveniently forgotten or simply ignored in the recent debate is that:   the US radio industry is at a far more advanced stage of maturity than the UK industry; the recent consolidation in the US radio industry still leaves it with a more diverse range of owners, a greater number of stations, and a greater variety of formats in each market than has ever existed in the UK. TABLE 1: COMPARISON BETWEEN COMMERCIAL RADIO MARKETS IN US & UK U.S. U.K. Commercial radio in the US started in 1920 and is now 82 years old Commercial radio in the UK started in 1973 and is now 29 years old Diverse formats developed in the postwar period Diverse formats developed only since 1990 (incremental radio scheme) Formats determined by free market Formats mandated by licensing authority Intense competition within markets since 1930s Direct competition within markets only introduced in 1990. Until then, each ILR contractor had local monopoly in radio advertising (except London – duopoly) No national commercial radio National commercial radio since 1992 Metropolitan markets are generally discreet (except in NorthEast states) Many metropolitan markets overlap others, particularly in SouthEast and Midlands/NorthWest England 10,807 commercial local AM/FM stations 259 commercial local AM/FM stations 5% increase in stations over last 6 years 144% increase in stations over last decade 3,408 station owners 13 owners hold 177 stations, the remainder are stand-alone or in tiny local groups High penetration, low entry cost and low connection fees for additional radio delivery systems – internet and cable Low penetration, high entry cost and high connection fees for additional radio delivery systems – internet, cable & digital radio U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 3
  4. 4. In the UK the myth exists that, as a consequence of consolidation, there remain only a handful of radio owners in the US. Nothing could be further from the truth. Consolidation between March 1996 and March 2002 reduced the number of station owners by 34%, but there are still 3,408 owners of 10,807 radio stations. During that same period, the total number of radio outlets in the US increased by 5%.8 Each local radio market in the US is served by many more commercial radio stations than an equivalent size market in the UK. In May 2002, the average radio market in the US was served by 23 commercial stations. Of the 285 researched US radio markets, almost half were served by more than 20 radio stations, and 90% were served by more than 10 radio stations.9 Across all US radio markets in 2002, the average market had 22.3 stations owned by 9.9 owners operating 10.2 formats. In the top ten markets, an average of 55.9 stations were owned by 25.4 owners operating 16.2 formats.10 Additional delivery systems are comparatively well developed and well used in the US, and these offer the average US radio listener a much enhanced choice of radio stations at a significantly lower cost than in the UK. Almost 60% of the US population has internet access at home11, and 64% of households subscribe to cable television systems.12 TABLE 2: COMPARISON BETWEEN TOP 20 RADIO MARKETS IN UK & US (numbers refer to commercial stations only, local and national) UNITED KINGDOM UNITED STATES market TSA stations owners formats market TSA stations owners formats (000s) (000s) London 10,384 23 17 18 New York 15,098 42 22 16 Manchester 2,751 10 8 8 Los Angeles 10,407 74 28 Birmingham 2,057 11 7 9 Chicago 7,477 87 37 17 18 Glasgow 1,850 8 7 8 San Francisco 5,952 49 18 16 Liverpool 1,814 9 7 8 Dallas/Ft Worth 4,418 62 25 17 Newcastle 1,415 8 7 7 Philadelphia 4,221 42 23 15 Sheffield 1,317 8 7 7 Washington DC 3,929 47 21 15 Wolverhampton 1,317 11 7 8 Boston 3,839 62 36 18 N Ireland 1,317 10 6 6 Houston/Galveston 4,055 55 27 16 Bristol 1,300 9 6 9 Detroit 3,812 39 17 14 Southend/Chelmsford 1,165 17 10 14 Atlanta 3,617 69 34 16 Humberside 1,142 8 6 15 Maidstone/Medway 1,130 8 Edinburgh 1,109 7 Nottingham 3,377 46 23 5 7 Miami/Ft Lauderdale 6 Puerto Rico 3,263 93 53 4 6 7 Seattle/Tacoma 3,085 57 27 17 1,072 7 6 7 Phoenix 2,718 46 21 15 Southampton/Portsmouth 977 10 7 7 Minneapolis/St Paul 2,507 45 19 15 Dunstable/Luton 971 18 10 2,416 30 13 14 Brighton/Eastbourne 965 7 6 6 Nassau/Suffolk 2,304 26 14 11 Leeds 952 8 7 7 St Louis 2,170 51 29 15 Cardiff/Newport 901 8 7 8 Baltimore 2,185 31 17 12 8 14 San Diego Scott Roberts, Jane Frenette & Dione Stearns, “A Comparison Of Media Outlets And Owners For Ten Selected Markets,” FCC Media Bureau Staff Research Paper #2002-1, Appendix A 9 BIA Financial Network Inc, MEDIA Access Pro database (May 2002) 10 George Williams & Scott Roberts, “Radio Industry Review 2002: Trends In Ownership, Format & Finance,” FCC Media Bureau Staff Research Paper #2002-11, Appendix A 11 Newspaper Association Of America, “Facts About Newspapers 2002,” at 8 12 FCC, “Annual Assessment Of The Status Of Competition In The Market For The Delivery Of Video Programming,” 17 FCC Rcd 1244, 1254-1255 (2202)
  5. 5. The recent consolidation in the US is a reaction to more than fifty years of continuous expansion, during which time the FCC had implemented very interventionist policies to diversify the ownership structure of the industry. The FCC now recognises that the commercial radio industry has reached full maturity. In the largest radio markets, there is no FM/AM spectrum availability to license additional stations. The industry has reached supply saturation level and is about to face its biggest ever challenge from competing services supplied to households by internet and cable systems. The only way for traditional FM/AM radio to go now is down – the same inevitability that faced the US TV networks in the 1990s as cable/satellite take-up grew and whittled away their substantial audiences. Thus the consolidation in the US is a result of the radio industry having already achieved maximum levels of penetration, listening and revenue generation. The golden age of the radio industry in the US is well and truly over. “Convergence” may be a buzz-word in the UK, but in the US it is already a reality. The convergence wolves are already at the door of radio and the easiest course of action is for media owners to pursue both horizontal and vertical integration as quickly as possible.13 In the present UK debate over consolidation, rather than look at the US experience of the last few years, it might benefit the development of the UK commercial radio industry to examine the policy challenges and changes that the US experienced during its equivalent period of expansion and growth….. twenty to thirty years ago. Without wishing to re-construct here a history of US radio, it proves instructive to look at the issues of ownership and diversity that the FCC has faced in the past – several decades before those issues were even pertinent to the UK. Contrary to perceived opinion in the UK, the FCC has consistently taken an interventionist stance in the development of the US radio industry. Its policy objectives have remained virtually unchanged since the earliest days of commercial broadcasting, which is precisely why the recent wave of radio consolidations has created such shock waves throughout the US industry. FCC Experience The FCC first limited local radio ownership in 1938 when Genesee Radio Corporation applied for a second AM licence in a city where they already owned one station. The FCC refused the request on the grounds that “commonly owned, same service stations would not compete with each other and that granting the application would preclude a competitive station from entering the market.” This landmark decision comprised directives that would become the cornerstone of FCC policy for the next two decades. In order “to assure a substantial equality of service to all interests in a community” and “to assure diversification of service and advancements in quality and effectiveness 13 An aside. Living in Toronto, my fifteen-year old daughter listened to radio stations for free on her mobile phone (between calls) and dispensed altogether with her traditional AM/FM radio. At first she used the phone to listen to the same local stations with which she was already familiar, but soon she extended her menu to any radio from anywhere that took her fancy. As a consumer, her favoured station’s location and ownership was totally irrelevant to her. U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 5
  6. 6. of service”, the FCC would allow commonly owned “duplicate facilities” only where a community need would otherwise remain unfulfilled.14 Between 1940 and 1964, the FCC examined applications for ownership change on a case-by-case basis, rejecting those where an applicant already owned a station in “substantially the same service area.”15 In 1964, this caseby-case consideration was replaced by a rule which forbade common ownership where there was any overlap of two stations’ transmission areas. The FCC wanted to:  “promote maximum diversification of program and service viewpoints” and  “prevent undue concentration of economic power contrary to public interest.” FCC local ownership rules were based upon two principles:  “it is more reasonable to assume that stations owned by different people will compete with each other, for the same audience and advertisers, than stations under the control of a single person or group,” and  “the greater the diversity of ownership in a particular area, the less chance there is that a single person or group can have an inordinate effect, in a political, editorial, or similar programming sense, on public opinion at the regional level.”16 In 1970, the FCC further restricted local radio ownership by prohibiting common ownership of any different service broadcast stations in the same market, even if their signal areas did not overlap. These limits were specifically designed to maximise the number of independent owners of broadcast media in a market. The FCC categorically rejected arguments from radio groups that “common ownership of local broadcast stations would enhance the ability of station owners to provide better quality, more responsive programming.” [author’s note: this will sound familiar!] It believed that permitting common ownership could “lessen the degree of competition for advertising among the alternative media” and that common owners could “use practices [such as special discounts] which exploit [their] advantage over the single station owner.”17 In 1971, the FCC relaxed the rules for the first time to allow, in any circumstances, a single owner to hold one AM and one FM licence in the same market, a move aimed to encourage the development of commercial radio stations on the relatively new, unprofitable FM band.18 Greater relaxation of ownership rules only started in 1989 when the overlap between closely located stations’ transmission areas was redefined more loosely. The FCC noted that its policy of ownership diversity was not an end in 14 FCC, “Genesee Radio Corp.,” 5 FCC 183, 186, 187 FCC, “Amendment of Sections 3.35. 3.240 and 3.636 Of The Rules & Regulations Relating To Multiple Ownership of AM, FM & Television Broadcast Stations,” Report & Order, 18 FCC 2d at 295-296 (aka “1953 Decision”) 16 FCC, “Amendment of Sections 73.35, 73.240 and 73.636 of the Commission’s Rules Relating To Multiple Ownership Of Standard, FM & Television Broadcast Stations,” Report & Order, 45 FCC 1476-1477 (aka “1964 Decision”) 17 FCC, “Amendment of Sections 73.35, 73.240 and 73.636 Of The Commission Rules Relating To Multiple Ownership Of Standard, FM and Television Broadcast Stations,” Report & Order, 22 FCC 2d 306, 307, 309 (1970) 18 FCC, “Amendment of Sections 73.35, 73.240 and 73.636 Of The Commission Rules Relating To Multiple Ownership Of Standard, FM and Television Broadcast Stations,” Memorandum Opinion & Order, 28 FCC 2d 662, 671-672 (1971) 15 U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 6
  7. 7. itself, but was only a means of “promoting diversity of program sources and viewpoints.” Initially this appears to be a reversal of its earlier 1964 policy, but the FCC believed that the rule change would no longer adversely affect programming and viewpoint diversity because:  the number of media outlets in each market had increased dramatically since 1964;  efficiencies that common ownership would generate could lead to programming benefits;  radio stations faced increased competition for advertising from television, cable systems and newspapers.19 Then, in 1992, the FCC relaxed the ownership rules further, which it attributed to:  the increased number of media outlets;  the increased number of formats available;  the growth of cable, particularly cable radio networks;  the radio industry’s share of the local advertising market which had remained flat. These factors made the FCC believe that its objective of achieving diversity and competition within each market, which it had pursued for more than half a century, would no longer be harmed by allowing an element of common ownership.20 The FCC adopted a tiered approach, with different rules applied to markets of varying size:  in markets with fewer than 15 radio stations, one licensee was permitted to own up to three radio stations, provided that these three represented more than 50% of the total number of stations in the market;  in markets with 15 to 29 radio stations, a single licensee was permitted to own up to two AM and two FM stations, provided that their combined audience share did not exceed 25%;  in markets with 30 to 39 radio stations, a single licensee was permitted to own up to three AM and two FM stations, provided that their combined audience share did not exceed 25%;  in markets with 40 or more radio stations, a single licensee was permitted to own up to three AM and three FM stations, provided that their combined audience share did not exceed 25%.21 Both the market size and the audience share calculations were based upon the relevant Arbitron market data. If the market was too small for Arbitron to survey, applicants for ownership change were required to commission an audience survey in that market. The 25% limit on one owner’s audience share was underlined when the FCC subsequently declared that, in markets of 15 or more radio stations, “evidence that grant of any [consolidation] application will 19 FCC, “Amendment of Section 73.3555 of the Commission’s Rules, the Broadcast Multiple Ownership Rules,” First Report & Order, 4 FCC Rcd 1723 (aka “1989 Decision”) 20 FCC, “Revision Of Radio Rules & Policies,” Report & Order, 7FCC Rcd 2755, 2773-2774 (1992) 21 ibid. U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 7
  8. 8. result in a combined audience share exceeding 25% will be considered prima facie inconsistent with the public interest.”22 Since 1960, the FCC had “sought to promote program diversity through direct means” and introduced a Programming Policy Statement applicable to both television and radio, which has never been superseded: “the major elements usually necessary to meet the public interest, needs, and desires of the community in which the station is located,……..have included: (1) opportunity for local self-expression, (2) the development and use of local talent, (3) programs for children, (4) religious programs, (5) educational programs, (6) public affairs programs, (7) editorialization by licensees, (8) political broadcasts, (9) agricultural programs, (10) news programs, (11) weather and market reports, (12) sports programs, (13) service to minority groups, (14) entertainment programs.”23 It took more than twenty years of regulated development under this directive for the FCC to indicate for the first time that the markets themselves could serve Americans’ demand for diverse programming more effectively than government regulation.24 By 1980, the radio market had developed to the stage where the greater New York City market supported 128 radio stations, 94 of which were commercial, and 100 separate owners. Between 1960 and 1980 the number of stations in New York City alone had increased by 73% and the number of owners by 92%.25 The next substantial policy change occurred in 1996 once the internet and cable access had reached the majority of US homes. The 1996 Telecommunications Act required the FCC to modify its local radio ownership rule, but still required the Commission to “refuse to approve the transfer or issuance” of a radio licence if it found that an owner would “obtain an undue concentration of control or would thereby harm competition.”26 The FCC responded by issuing a new order in March 1996 that replaced a portion of its local radio ownership rule, including both the numerical station limits and the presumption that an audience share of greater than 25% was prima facie inconsistent with the public interest.27 From 1996 onwards, a single owner could hold:  up to 8 radio stations in a market with 45 or more commercial stations;  up to 7 radio stations in a market with between 30 and 44 commercial radio stations; 22 FCC, “Revision Of Radio Rules & Policies,” Memorandum Opinion & Order & Further Notice of Proposed Rulemaking, 7 FCC Rcd 6387 (aka “1992 Reconsideration Order”) 23 FCC, “1960 Programming Policy Statement,” 44 FCC at 2314 24 FCC v. WNCN Listeners Guild, 540 US 582 (1981) 25 Scott Roberts, Jane Frenette & Dione Stearns, “A Comparison Of Media Outlets And Owners For Ten Selected Markets,” FCC Media Bureau Staff Research Paper #2002-1, table 3 26 Telecommunications Act of 1996 27 FCC, “Implementation Of Sections 202(a) & 202(b)(1) of the Telecommunications Act of 1996 (Broadcast Radio Ownership),” Order, 11 FCC Rcd 12368 U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 8
  9. 9.   up to 6 radio stations in a market with between 15 and 29 commercial radio stations; up to 5 radio stations in a market with less than 15 commercial radio stations.28 Most of the thousands of applications for station assignment and transfer of control received by the FCC since 1996 have been granted summarily but the Commission has, in some cases, conducted public interest analyses to consider the potential competitive impact of the proposed transaction. The FCC has flagged those transactions that would result in:  one entity controlling 50% or more of the advertising revenues in the relevant local market;  two entities controlling 70% or more of the advertising revenues in that market.29 Starting in 1998, the FCC committed itself to a Biennial Regulatory Review, part of which examines the rules concerning multiple ownership of radio stations. The Commission’s current aim is to:  define more precisely its own policy goals;  determine how to best promote these goals in today’s media market consistent with its statutory mandate;  establish the best measure for diversity, competition and localism;  establish a balancing test to prioritise the goals if tension exists between them. Historically the FCC has looked at the number of independent station owners as a proxy for source diversity and viewpoint diversity within a particular local market.30 But, in searching for new criteria with which to evaluate the diversity within a market, the Commission’s current Biennial Review asks almost exactly the same questions that are busying regulatory minds here in the UK:  What measures of market diversity, qualitative or quantitative, should be considered and what tools do we have that enable us to measure diversity with a reasonable degree of accuracy?  Are audience demographics an appropriate measure of diversity?  Is competition an appropriate proxy for diversity, such that the presence of a competitive local market will assuage our concerns about diversity?31 Market concentration When examining a local market to assess the level of competition, the FCC calculates the concentration levels within the relevant geographic market using two yardsticks: audience share data and radio advertising share. In its 28 George Williams, Keith Brown & Peter Alexander, “Radio Market Structure & Diversity,” FCC Media Bureau Staff Research Paper #2002-9 29 FCC, AMFM Inc, 15 FCC Rcd at 160666 n.10 30 1989 Decision, 4 FCC Rcd at 1724 31 FCC, “Notice Of Proposed Rule Making & Further Notice Of Proposed Rule Making,” FCC 01-329, para 31 U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 9
  10. 10. enforcement of the antitrust laws, the US Department of Justice determined that the radio advertising market is a distinct and separate market from other forms of media advertising, because advertisers find value in certain of radio’s unique attributes.32 The Herfindahl-Hirschman Index [HHI] is used by the US Department of Justice to measure pre- and post-acquisition market concentration within a specific locality. It is calculated mathematically by summing the squares of the individual market shares of all firms participating in the market.33 A market with an index score between 1000 and 1800 is deemed moderately concentrated, and a market with an HHI above 1800 is deemed highly concentrated. If an acquisition would result in an increase of more than 100 points in the HHI, then that acquisition is presumed likely to create or enhance market power. When the HHI is applied to the commercial radio audience shares of the twenty largest metropolitan radio markets in the UK, the results obtained are:34 TABLE 3: HHI MEASUREMENT OF MARKET CONCENTRATION OF TOP 20 UK RADIO MARKETS (measured by commercial radio audience share) TSA (000) HHI index London 10384 1454 moderately concentrated Manchester 2751 1572 moderately concentrated Birmingham 2057 2461 highly concentrated Glasgow 1850 2957 highly concentrated Liverpool 1814 2027 highly concentrated Newcastle 1415 2565 highly concentrated Sheffield 1317 1730 moderately concentrated Wolverhampton 1317 1987 highly concentrated N Ireland 1317 3793 highly concentrated Bristol 1300 5045 highly concentrated Southend/Chelmsford 1165 2530 highly concentrated Humberside 1142 [insufficient data] Maidstone/Medway 1130 2453 highly concentrated Edinburgh 1109 1573 moderately concentrated Nottingham 1072 3162 highly concentrated Southampton/Portsmouth 977 3332 highly concentrated Dunstable/Luton 971 2828 highly concentrated Brighton/Eastbourne 965 3613 highly concentrated Leeds 952 1928 highly concentrated Cardiff/Newport 901 2700 highly concentrated 32 US Department of Justice & FTC, “1992 Horizontal Merger Guidelines,” 1.1, 1.2 The Herfindahl-Hirschman Index is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of thirty, thirty, twenty and twenty percent, the HHI is 2600 2 2 2 2 (30 + 30 + 20 + 20 = 2600). The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases. Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Transactions that increase the HHI by more than 100 points in concentrated markets presumptively raise antitrust concerns under the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission. See Merger Guidelines § 1.51. 34 RAJAR 2002Q3. Radio listening shares exclude all non-commercial radio listening but include national commercial radio listening shares in addition to local commercial radio listening shares. Ownership information as of November 2002 33 U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 10
  11. 11. These results are significant but unsurprising, given the relatively slow development of commercial radio in the UK compared to the US. Only the very largest UK markets, such as London, have become less concentrated in the last decade as the number of commercial radio licences issued there has steadily increased. Many UK radio markets are still highly concentrated because:  heritage ILR stations that previously enjoyed a monopoly position in their local market continue to enjoy substantial audience share;  national commercial radio stations have had relatively little impact on commercial radio audiences in most metropolitan markets;  recently licensed small-scale ILR stations and regional stations are still growing their audiences. The impending consolidation of the UK radio industry will serve only to increase further the high concentration levels already extant in these markets. If these markets were in the US, there is no doubt that the Department of Justice would intervene to prevent further consolidation of radio ownership amongst all but the smallest existing owners. Consolidation at this mid-stage in the UK radio industry’s development may simply turn the clock back to the situation of the 1980s/90s where each metropolitan market was dominated (in audience market share and revenue share terms) by one media owner. The only difference now would be that such market domination will be achieved through the ownership of several stations, rather than an AM/FM two-station combo. “[Chief Executive of Capital Radio, David Mansfield] said the changes would enable Capital to own nine stations in London, rather than the current three.”35 The mere existence of smaller stations within a market dominated by one or two major media groups does not reduce the level of concentration, either in terms of listening share or advertising share, if those small stations are restricted to minority-interest formats. Even if such format restrictions were to be lifted (as they are in the US), it still may prove impossible for one small station to compete effectively in programming, marketing or promotion terms with the economies of scale enjoyed by the larger group(s). The FCC is examining the whole issue of competition within local radio markets and seeks answers to these issues: "Although a large market share in itself does not demonstrate market power, market power may be inferred when a party’s market share is protected by high barriers to entry [viz. United States v. Microsoft Corp.]…. We tentatively believe that the possible entry of additional stations would seldom be sufficient to counteract the exercise of market power…. Because of the scarcity of spectrum, a particular geographic area can support only a certain number of radio broadcasting signals. Generally, 35 David Litterick, “Radio Cheers Softer Ownership Rule,” Daily Telegraph, 15 November 2002 U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 11
  12. 12. the good signals were taken many years ago, resulting in little unused capacity that could support new station entry….. Although we believe that entry by new stations is unlikely, we seek comment on whether the mere existence of other stations in the market negates market power, even where the current market shares of those stations are low. Should we consider the number of other stations in the market and their signal strength, either as an alternative to or in addition to market share?….. Further, does the amount of concentration in the market have an impact on the ability of stations to increase their market share? Is it easier for a station with a low audience share to increase its listenership in markets with low concentrations than it is in markets where one or two owners control a majority of the stations?"36 A recently published FCC research paper has examined the effects of consolidation within the US radio market. It found that in March 2002:  the largest radio owner in each market controlled, on average, 47% of the market’s total radio advertising revenue;  the largest two radio owners in each market controlled, on average, 74% of the market’s total radio advertising revenue;  the average number of formats available in large markets had declined slightly, but had increased slightly in smaller markets;  radio listening had decreased slightly since 1998;  local radio advertising prices increased by 90% between March 1996 and March 2002 (during the same period the consumer price index increased by 16%).37 Grant Goddard is a media analyst / radio specialist / radio consultant with thirty years of experience in the broadcasting industry, having held senior management and consultancy roles within the commercial media sector in the United Kingdom, Europe and Asia. Details at http://www.grantgoddard.co.uk 36 FCC, “Notice Of Proposed Rule Making & Further Notice Of Proposed Rule Making,” FCC 01-329, para 46-47 George Williams & Scott Roberts, “Radio Industry Review 2002: Trends In Ownership, Format & Finance,” FCC Media Bureau Staff Research Paper #2002-11 37 U.K. Radio Industry Consolidation: How Relevant is the U.S. Experience? ©2003 Grant Goddard page 12

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