Clear Channel's big, stinking deregulation mess

The sorry state of the radio industry today is sabotaging FCC chairman Michael Powell's plans to let media conglomerates run wild.

Published February 19, 2003 8:30PM (EST)

Clear Channel Communications, the radio and concert conglomerate so many people love to hate, has a new batch of disgruntled critics to deal with. But this time it's not the musicians who claim that the entertainment giant plays hardball and locks acts off the airwaves, or the broadcast rivals who allege the company leverages its unmatched size to drive competitors out of business, or even the former employees who insist the company's rampant cost-cutting style has gutted American radio.

Nope -- now the heat is coming from other media company executives and Beltway lobbyists. They are dismayed that Clear Channel is doing what many might have thought impossible. In an era when Republicans control the government and big business generally gets what it wants, Clear Channel is making deregulation look bad.

Executives at television, cable and newspaper companies want the government to lift ownership caps that limit the number of properties their companies can own. They've been envious of radio ever since the 1996 Telecommunications Act singled out radio for sweeping ownership deregulation. Passage of the Telecom Act paved the way for Clear Channel to expand from 40 stations to 1,225, and in the process, exert unprecedented control over the industry.

Today, broadcast, cable and newspaper giants like Viacom, Comcast and Gannett want a chance to expand their empires and enjoy the same large-scale efficiencies that Clear Channel has profited from. But they're frustrated. After years of intensive lobbying and with a Federal Communications Commission chairman, Michael Powell, who is widely considered to be thoroughly pro-deregulation, the havoc wrought upon radio by Clear Channel is unexpectedly offering ample proof of what can go wrong with media deregulation. Radio's current mess is having a significant impact on the debate over media concentration, and may even force Powell to water down his long-awaited ownership recommendations.

This is not how it was supposed to work.

"Media deregulation would appear to be slam dunk," says Mark O'Brien, executive vice president of BIA Financial, an investment firm specializing in broadcasting and telecommunications. "You've got a Republican administration, Powell supports it, and radio's already done it. On the other hand, it's because radio has done it, and particularly what Clear Channel has done, that puts pressure on Powell. Opponents point to Clear Channel and say, 'Here's what we don't want to happen to the rest of the media.'"

As Sen. Ron Wyden, D-Ore., recently put it, "The country ought to be pretty reluctant to repeat the radio [deregulation] experiment."

Consumer discontent with broadcast radio appears to have finally gotten the attention of politicians. Appearing before the Commerce Committee in January, Powell received an earful from senators who for years were indifferent to radio. Suddenly, they were pressing him about the industry's runaway consolidation. In a rare move, Powell, an articulate free-market advocate who thinks today's ownership rules don't "reflect the realities of the modern media marketplace," conceded he was "concerned about the concentration, particularly in radio."

"The Commerce Committee," says BIA Financial's O'Brien, "was sending a message to the FCC about media consolidation: We don't want this to happen again."

That point was amplified again in late January when Commerce Committee chairman Sen. John McCain, R-Ariz., held another media consolidation hearing, this one focusing almost exclusively on Clear Channel. At the hearing, the company's billionaire founder and CEO Lowry Mays came face to face with critics from the radio and record world.

Classic rocker Don Henley testified that artists are "shackled by the anti-competitive practices of the conglomerates." Sen. Russ Feingold, D-Wis., took the opportunity to reintroduce his legislation, the Competition in Radio and Concert Industries Act, a bill that takes direct aim at Clear Channel and radio consolidation. Rep. Howard Berman, D-Calif., cataloged a laundry list of allegations his office had received after he wrote the Department of Justice and the FCC urging them to investigate complaints about Clear Channel and its role in the radio and concert business. Joining the pile-on was Sen. Ernest "Fritz" Hollings, D-S.C., the committee's ranking Democrat, who complained, "Radio consolidation has contributed to a 34 percent decline in the number of owners, a 90 percent rise in the cost of advertising rates, [and] a rise in indecent broadcasts. If ever there were a cautionary tale, this is it."

For his part, Clear Channels' Mays, who purchased his first AM radio station in 1972, insisted "the industry is healthier and more robust than ever before," and argued that Clear Channel has simply done what the Telecom Act was supposed to allow broadcasters to do: expand. (Clear Channel today owns approximately 970 more stations than its closest competitor.) As for the allegation that Clear Channel squeezes artists by threatening to curtail radio airplay if acts don't tour with Clear Channel's concert division, Mays insisted the company "does not use the threat of reduced airplay to force musicians to tour with us or retaliate." Clear Channel is currently being sued over that very allegation.

While Feingold's legislation is no closer to being passed this year than it was last, and nobody is suggesting that Congress or the FCC will go so far as to re-regulate radio, the hearing did get the attention of the Justice Department, which for months has been sitting on requests to look into anti-competitive allegations about Clear Channel. Just hours after the hearings concluded, the DOJ contacted, for the first time, radio industry players who had indicated they'd be willing to cooperate with a Clear Channel probe.

It's too soon to tell whether the DOJ will launch such an investigation, but the fact that the DOJ is even making inquiries is a sign of just how much Clear Channel's radio exploits have become a political issue. Clear Channel has been forced to devote an increasing amount of money and time in efforts to fix its battered image, particularly inside the Beltway.

Last year the company opened a Washington office and hired Andrew Levin as its top lobbyist. Levin formerly served as counsel to Rep. John D. Dingell, Democrat of Michigan, the ranking minority member of the House Commerce Committee. (Salon was unable to contact Levin by press time.) And in early February Clear Channel announced that former Oklahoma Rep. J.C. Watts was joining the company's board of directors.

All that Beltway firepower may come in handy; there is congressional speculation that the Senate Judiciary Committee may soon schedule a hearing to investigate the controversial issue of pay-for-play. That's where record companies pay middlemen, or "indies," millions of dollars in order to get songs on the radio. Major radio players such as Clear Channel profit handsomely from the system, but artists insist it is pure extortion.

None of those headlines are good news for media conglomerates busy pressing their case for deregulation. Indeed, News Corp. chairman Rupert Murdoch quietly made the rounds on the eighth floor of the FCC in early February pressing his case with commissioners. No doubt, Murdoch and all the other major players would have preferred to make their case without the topic of deregulation itself becoming a political hot button.

But Clear Channel, a proven magnet for criticism, has given foes of deregulation ample ammunition, to the dismay of those who want ownership caps in other industries lifted. "It doesn't help to have this brouhaha," says one senior executive with a major television company. "We like consolidation, but Clear Channel gives it a bad name."

Clear Channel itself stands to lose if the rush toward deregulation is slowed by the company's own actions. If Powell's FCC succeeds in dramatically relaxing ownership limits for media, there's a chance Clear Channel could, once again, be one of the major beneficiaries. The company already owns 36 television stations and might be a prime suspect for going on a TV buying spree in an attempt to further lock up media markets.

"Absolutely that's a possibility," says O'Brien. "If they have money to invest and the government lets them, they'll certainly look at that and do deals to advance their interests."

The results, says the owner of one Southeastern advertising agency, would, "be a disaster for small business, or anybody smaller than Clear Channel." The executive, who requested anonymity, says local Clear Channel radio-sales reps, wielding leverage drawn from an unprecedented stable of stations in his market, routinely bully agencies and clients.

"Clear Channel will do anything they can, threaten me, go to my clients directly, anything to get control of the markets. And once they've got that control they can do whatever they want, including raise the rates," he says. "They're a clear example of what can happen with deregulation. They've ruined radio, as far as I'm concerned. And now they're licking their chops to be able to control more of what the public sees and hears."

At stake in the media-ownership debate, depending on how far Powell's FCC goes, are revolutionary changes in the way Americans receive much of their news and entertainment.

Currently, a single media company is not allowed to own a newspaper and a TV station in the same market. Some do, but only through grandfather clauses and waivers. For instance, News Corp. owns both the New York Post and WNYW-TV in New York.

But if caps are lifted it would be possible for competing television networks to merge, and just one company could own newspaper, radio, television and cable TV properties in the same market. In this world, theoretically, Disney could buy the Gannett chain and become the nation's largest newspaper publisher.

"I hope commissioners understand the significance, for decades to come, of what they're talking about doing," says Reed Hundt, the former FCC chairman under President Clinton. "Once they open the Pandora's box will they be able to control it?"

With the White House taking a hands-off approach, Powell enjoys extraordinary latitude in crafting the ownership rules. The plan has been to issue the new rules this spring, as long as he can get two of the other four FCC commissioners to vote his way. Until recently this was considered to be something of a fait accompli: There are three Republicans and only two Democrats on the commission.

The surprising news in 2003, however, has been that one Republican commissioner, Kevin Martin, has been staking out a much more cautious approach to cross-ownership than Powell. His vote will be crucial since both Democratic commissioners are adamantly opposed to drastically relaxing the ownership rules. One in particular, Michael Copps, has been battling Powell every step of the way. According to Copps, Powell must choose "whether to visit upon the rest of the broadcast media that which has already been visited upon radio -- and perhaps much, much more."

Copps has taken his anti-deregulation show on the road, sponsoring public forums across the country to gin up support. Miffed that he wasn't consulted about the moves, and arguing that only the FCC chairman can officially schedule meetings to debate ownership limits, Powell forced the agency to put out a corrected press release noting Copps' hearings were merely "field" meetings.

The FCC will sponsor just a single night of public debate on the ownership caps issue, Feb. 27, in Richmond, Va. That's actually an improvement over what happened with the '96 Telecom Act, which was passed without any public debate, either by Congress or the FCC, on the question of how sweeping deregulation would affect America's radio industry. That's because, riding high on its Contract With America victory, Republicans, particularly in the House, were adamant about passing the Telecom Act.

Many of their truly radical proposals, such as allowing one company to own every radio station in a market, were eliminated from the Telecom Act by the White House. But in the end, all national caps were lifted and broadcasters were allowed to own as many as eight stations in the larger markets.

Today, the question is whether media players in other industries will get their turn in the deregulation sun.

"I think Powell sees the green light and is churning ahead towards deregulation," says Gene Kimmelman, senior director of public policy for the Consumers Union.

Powell is probably training most of his congressional attention on the Commerce Committee chairman, Sen. McCain, with whom he enjoys very close relations. Back in the '90s, McCain, an old family friend, recommended Powell to fill a Republican vacancy and become one of the FCC's five commissioners. There was no vacancy per se; McCain, in an unusual move, simply urged that a sitting Republican commissioner not be reappointed for another term in order to make room for Powell. In November 1997, Powell officially became a commissioner.

"McCain's the most important player in this [deregulation] story, he holds the linchpin, but his views are unknown," notes Hundt. Following the Democrats' midterm defeat last year, McCain took over the Commerce Committee chairmanship from Sen. Hollings. In real terms, Congress cannot tell Powell what to do at the FCC. But it can certainly make its views known, and any sitting FCC chairman would disregard those views at his own peril.

"I don't believe Michael Powell would ignore the combined weight of Hollings and McCain" on the question of media deregulation, says Hundt. "But if McCain is in favor of huge media conglomerates merging, Powell will happily get out the eraser and erase restrictions that stop it."

"It's difficult to read how McCain will finally act on this," adds one congressional aide involved in the media ownership debate. "Traditionally he takes the deregulation road, but for a Republican he has this weird populist, consumerism streak. Still, if I had to bet I'd say he'll be for loosening regulation."

McCain's trademark maverick style was on display during the recent Clear Channel hearings. CEO Mays came in for some tough questioning from the chairman, who at times badgered the billionaire ("Do you have any plans to obtain more radio stations? I'd like to ask the question for the third time.") The testy exchange surprised some D.C. observers, although some simply chalked it up to McCain's occasionally abrasive style. But perhaps the former presidential candidate was still smarting at the thrashing that Clear Channel's showcase syndicated talker, Rush Limbaugh, gave the senator during the 2000 presidential primaries. Following McCain's surprising 19-point victory in New Hampshire, Limbaugh rushed to candidate George Bush's aid, undressing McCain on the air for weeks on end, ridiculing the senator's integrity and credentials.

McCain might, then, have a personal beef with Clear Channel. But the larger problem signified by Clear Channel's deregulation adventures should be more worrisome to the senator. When one company dominates an industry, it can leverage its monopoly power in all kinds of unpleasant ways, both politically and economically. Does anyone really want what happened to radio to happen to TV, or newspapers, or cable television?

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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