Radio's titan hits the skids

After replacing a high-profile exec, Clear Channel, the 800-pound gorilla of the entertainment industry, suddenly faces a lot of banana peels.

Published August 7, 2002 7:00PM (EDT)

It's becoming harder and harder to stay the course at Clear Channel Communications. The multimedia and entertainment giant is the world's largest radio broadcaster, concert promoter and outdoor advertising firm, as well as a major player in the American television business. In the last year, however, Clear Channel -- well known for its hardball tactics -- has been hit with numerous antitrust lawsuits, petitions to the Federal Communications Commission and pending legislation on Capitol Hill.

The recent distractions have became so intense that Clear Channel executives have been trying to silence some of the static. Most recently, Clear Channel president Mark Mays sent out a companywide e-mail assuaging employees, urging them to "stay the course."

Yet two weeks ago Mays was the one who abruptly changed course when he announced that Randy Michaels, the powerful and controversial chief of Clear Channel's radio division, was stepping aside to take over Clear Channel's new technologies division.

Mays claimed the move had been planned for a while, but observers, noting that no replacement was lined up to run the revenue engine that drives the $8 billion company, concluded the move may have been an abrupt one. Investors quickly punished Clear Channel. During the two days after the Michaels announcement, Clear Channel's stock lost 25 percent of its value, before rebounding somewhat. These days the stock, battered by a radio advertising recession and a sinking concert business, trades at around $24. Two years ago it flirted with $100.

While the stock languishes, Clear Channel has always enjoyed the respect of Wall Street analysts, and for good reason. During the 1990s, Clear Channel "was the best performing stock on the New York Stock Exchange," according to Randall Mays, the company's chief financial officer. (He and Mark are both sons of Lowry Mays, Clear Channel's chairman and CEO.)

Its relationship with the Street may be sound, but it's going to take more than jettisoning Michaels to repair Clear Channel's relationship with the music industry, which insiders say has been poisoned for several years. That strain became impossible to ignore since Clear Channel, thanks to its iron grip on the radio and concert business, is "the most powerful force in the music industry today," says Mike Jacobs, who ran his own record label, Way Cool Music, and helped get Blink 182 signed to MCA Records. He's now retired from the music industry.

Today, thanks to a $30 billion buying spree triggered by the passage of the Telecommunications Act of 1996, which virtually eliminated the limits on how many stations any one broadcast group could own, Clear Channel and its $8 billion in annual revenue ranks alongside NBC and Gannett among America's largest media players.

Aside from its stable of approximately 1,225 radio stations operating in 300 markets ("It's mind-boggling when you think about it," notes Credit Suisse First Boston broadcast analyst Paul Sweeney), Clear Channel also dominates the live entertainment business in North America. It owns, operates or exclusively books 135 amphitheaters, arenas, theaters and clubs, as well as controls the most powerful promoters, and buys entire tours from superstar acts like Madonna, 'N Sync and U2. Last year Clear Channel's promoters sold 27 million concert tickets, according to the live entertainment trade magazine Pollstar. The second largest promoter, House of Blues, sold just 4 million tickets.

"They're the 800-pound gorilla," adds Doc McGhee, KISS's longtime manager. "The jury is still out whether they're good for the music business." Insiders grumble that since Clear Channel's rise, especially over the last two years, concert ticket sales are down by double-digit percentages, as are CD sales. Radio listenership, particularly among teens, is also down dramatically.

But it's more than a question of dollars and cents. Not shy about using its radio and concert leverage, Clear Channel has won a reputation for its at times graceless power grabs, with artists and record companies often caught in the middle.

"It's not just how big and powerful they are, but how they do business, the arm-twisting," says Jacobs. "I had more bare-knuckles experiences with Clear Channel than any of the others."

"I think they're bullies and they leverage to the extreme," adds Tony Dimitriades, Tom Petty's longtime manager. (Dimitriades is also a partner in JamSports, which is currently competing with Clear Channel Entertainment for the rights to promote the American Motorcyclist Association's Supercross Series in arenas across the country.)

Even some musicians, who depend on Clear Channel's radio airplay and concert bookings to sustain their careers, are speaking out. Just this month, classic rocker Steve Miller, a staple of the summer concert season for years, complained about Clear Channel in the pages of Billboard magazine: "As the 1990s went on, Clear Channel came in, and things started getting real crazy, real quickly. I looked up one day and said, 'Who are these guys doing 11 of my shows?' Then it was 19, then one year it was 38 of 42 gigs. But the money wasn't good. I'm not talking about profits; I'm talking about where it was coming from. I don't like the way they run their facilities, and I don't like the way they treated me as an artist. Their lack of a sense of humanity is shocking."

For now, several record executives are cheering Michaels' departure. "It's the best thing that could've happened to all of us," says one senior label player. "He had no compassion for trying-to-break artists. He was all about milking the record industry for more money."

"Randy Michaels screwed up through his relationship with record companies, that's why Randy's gone," says one independent record promoter, who requested anonymity. "The way they dealt with the record industry was shameful. And that noise became a political issue."

One label source reports that in recent weeks Michaels, accompanied by Mark Mays, made the rounds and met with record company presidents, where Mays witnessed firsthand the level of discontent. "He saw it and flushed Michaels out."

A Clear Channel spokesperson declined to comment for this story.

Michaels was clearly a popular target. He was the public face of an unmatched radio behemoth that at once cut jobs and promoted ever more raunchy radio stations -- Houston's KTBZ-FM Web site boasts topless "Babe of the Day" photos.

"Was it all Randy's fault? No. But he was a lightning rod for controversy," says Robert Unmacht who used to edit the radio trade publication M Street Journal. He says Michaels deserves more credit for keeping the quality of Clear Channel's radio product up while the company's corporate office continued to cut funding. (Inside the industry, Clear Channel's often referred to by its other name, Cheap Channel.)

Michaels was a shock jock with an assumed name before he became the most powerful person in radio. In an interview earlier this year, he was philosophical about his critics. "We've created an amazing amount of change in a very short period of time and change is hard for all of us. We've probably rattled more cages than anyone," he said. "Do I like that? No. Do I think our intentions are wonderful? Yes. Do I think I'm a nice person? I do. Do I wish everyone agreed with me? Yes. But I don't know if that's possible."

The bottom line, says one radio veteran who's known Michaels for years, is "he likes to fight with people." He got into a well-publicized pissing match with the publisher of an industry trade publication, Inside Radio, even setting up a mock Web Site, complete with a caricature of a man with his head up his ass. Dueling lawsuits were filed, and just days after Michaels' exit as Clear Channel's radio chief, the final suit was settled, with Clear Channel agreeing to purchase Inside Radio for an undisclosed sum.

The problem for Clear Channel is that others are also fighting back. While the company's outdoor and television operations quietly conduct their profitable businesses in relative obscurity, the music and concert side continue to create controversy. Most of the dust-ups surround allegations that Clear Channel has driven up the cost of independent record promotion by cutting exclusive deal with indies in order to pocket more money for itself, and that its radio stations reward acts who do business with Clear Channel concerts, as well as punish those who did not.

"They basically have a monopoly that controls access to artists," adds one of radio's most influential programmers. "That's a lot of juice and they're not afraid to use it. And that's their problem. If they were more conscious about it, things would be fine. But they're not. Sometimes unbridled success creates an attitude of hubris, of 'We can do anything we want to do.' But when you start telling performing artists, 'If you don't perform in our venues they won't get [radio] airplay they need,' that's crossing the line."

Answers Clear Channel's Brian Becker, CEO of its entertainment division, "Our policy is absolutely clear: We don't offer or take away airplay for concert properties. Period. It's illegal."

U2's longtime manger Paul McGuinness backs up that claim, dismissing the industry's chatter about Clear Channel being the "evil empire" as paranoia. "I don't think the radio business is coherent enough to operate in a vindictive way, or reward Clear Channel concert clients with radio airplay." He notes the band's wildly successful Elevation World Tour last year was promoted by Clear Channel, even though U2, "despite our considerable efforts," didn't have a Top 10 hit.

Yet the allegations, usually aired in private, keep coming. An industry source in Cincinnati reports that earlier this year the young rock band Alien Ant Farm was threatened with reduced Clear Channel airplay nationally if Clear Channel's rock station in that market, WEBN, did not officially present the band's concert in town. Michaels insists the story is untrue. The band's spokesperson declined to comment.

During the summer of 2000, the heavy-metal festival tour dubbed Tattoo the Earth, featuring Sevendust, Slipknot, Coal Chamber and Slayer played Denver. According to a close industry source, following a bitter battle, in which a competitor secured rights to promote the show locally, Clear Channel radio programmers in Denver retaliated by vowing to pull at least one Tattoo the Earth act off their stations in several markets.

"We're absolutely confident we've done everything appropriate and legal in that market," says Becker.

Last year, Clear Channel promoted 'N Sync's outdoor stadium tour, guaranteeing the act $1.4 million each performance. At one point Clear Channel approached the act's co-manager Johnny Wright and asked to renegotiate. He declined. Word spread throughout the touring business that Clear Channel threatened to withhold radio support from the act's upcoming single.

"That threat was never made," reports Wright. Instead, during some "heated debates" about whether the band would play an extra tour date and take no profits in order to help Clear Channel recover its losses, "they wanted us to understand, Clear Channel has always been there for the band and was asking us for a favor. I went back to the ['N Sync] guys to discuss why we should do it," he says. "And I said they have been loyal to us and we don't want anything to happen to our radio airplay. Are you willing to do the show for free? And they said yes."

The problem with Clear Channel, says one prominent artist manager, is "it's never, 'Let's do business.' Instead, they start with the understanding of their leverage and they hit you on the head with it. My bands wanted to go out [on tour] with $25 tickets and Clear Channel won't take the shows because they want more money coming in. Or they'll take the show and add on $12 service fees [to the ticket price]. And the problem is there's nowhere else to go. You just cannot get around these guys. This is not a free market."

Ticket prices are up dramatically since Clear Channel took control of the American concert business; ticket sales, though, continue to decline. In June, an Illinois consumer sued Clear Channel, charging the company's "monopolistic practices" have driven up "artificially high" concert ticket prices.

The court filing is proof that even with Michaels' departure, Clear Channel has not eliminated its radio-related headaches. Last month, Spanish Broadcasting System, the nation's largest Hispanic-owned radio operator, sued Clear Channel alleging antitrust violations. Specifically, SBS claims that in an attempt to eliminate SBS as a competitor, Clear Channel executives, including Mark Mays, contacted SBS's financial underwriters in an effort to get them to withdraw their support of SBS's 1999 public offering, tried to depress the company's stock price by limiting financial analysts' coverage, and "improperly induced significant institutional investors to divest their positions in SBS, depressing SBS's stock price." Clear Channel is a major investor in SBS's competitor, Hispanic Broadcasting Corporation, or HBC.

In his companywide "stay the course" e-mail, Mays insisted: "We will fight the lawsuit and we will WIN."

But the court proceeding has given a vocal critic additional ammunition in his fight against Clear Channel brewing at the FCC. Last fall, an advertiser in the small Ohio market of Chillicothe alleged that Clear Channel has been illegally operating stations through shell companies in order to circumvent existing ownership limits.

The practice is dubbed "parking" or "warehousing" stations. Competitors insist that Clear Channel has sold off stations to front companies that allow Clear Channel to continue operating the properties, while allowing Clear Channel an easy way to buy back the stations should the FCC loosen ownership limits.

Clear Channel answered with its own FCC filing, dismissing the "scattershot" and "inconsequential" charges. Company executives insist every station transaction they've made has been proper and legal. The FCC has yet to rule.

But using the SBS case, the same advertiser recently filed another FCC claim, alleging that Clear Channel, which owns a 26 percent nonvoting equity interest in SBS's competitor HBC, is supposed to be a passive participant and not manage HBC. Yet according to SBS's lawsuit, Clear Channel executives were constantly overseeing HBC deals, contacting investment bankers on the company's behalf, even meeting with SBS at one point to discuss an acquisition. (When a deal fell through, Mays allegedly told SBS's representative that Clear Channel "will ultimately buy SBS on the bankruptcy court steps.")

This new FCC claim argues that, as with the situation in Chillicothe, Clear Channel's dealing with SBS "demonstrates a pattern of conduct in which Clear Channel conceals, through numerous material misrepresentations to the FCC, the actual ownership and control of certain radio station groups." Clear Channel has not yet responded to the filing.

The complaint urges the FCC to hand out radio's version of the death penalty if Clear Channel has knowingly misled the FCC about the company's holdings: "It should revoke Clear Channel's licenses and ban Clear Channel and its officers and directors from ever again holding FCC broadcast licenses."

Even if the FCC rules against Clear Channel, almost nobody in the radio business thinks the commission would hand out that type of punishment. But the petition remains one more distraction around Clear Channel.

Like Sen. Russell Feingold's recently introduced Competition in Radio and Concert Industries Act, which takes direct aim at Clear Channel's consolidation, allegations of warehousing stations and its involvement in pay-for-play. Lowry Mays told reporters he welcomed the senator's efforts. But just weeks earlier Mays, a stalwart Republican and friend of former President George Bush, announced the formation of a new Clear Channel political action committee, to "effectively communicate our political positions with timely access to elected officials." Clear Channel employees were urged to donate a portion of their salaries to the lobbying effort.

Meanwhile, last summer, a small Denver concert promoter, Nobody in Particular Presents, sued Clear Channel for antitrust, claiming, among other things, that the company "has used its size and clout to coerce artists ... to use Clear Channel to promote their concerts or else risk losing airplay."

Just days before Michaels stepped down as head of Clear Channel radio, a judge in Denver refused to dismiss the NPP suit as Clear Channel had requested. He ruled NPP's allegations "are sufficient to make out a case of monopolization and attempted monopolization under Section 2 of the Sherman Act."

Depositions are now moving forward as agents, managers, promoters and programmers will be questioned under oath about their dealings with Clear Channel, and whether its radio stations rewarded or punished artists based on their business relationships with Clear Channel's concert division.

That could put some industry players in awkward positions, forced to publicly detail their experience with Clear Channel. Jesse Morreale, a principal partner with NPP, suggests the current conditions are just as uncomfortable. "It's not like people are happy getting pushed around by Clear Channel, told where their artists can play and how much they can make or else," he says. "That's not what people got in this business to do. They're excited to see somebody doing something and they're eager to see resolution. This is going to make or break it."

By Eric Boehlert

Eric Boehlert, a former senior writer for Salon, is the author of "Lapdogs: How the Press Rolled Over for Bush."

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