The game of radiopoly: an antitrust perspective of consolidation in the radio industry.

• Author: Leeper, Sarah Elizabeth

1. INTRODUCTION

   The mass consolidation of the radio industry is a result of two recent developments: the enactment of the Telecommunications Act of 1996 (Telecom Act)(1) and the use of the 1992 Merger Guidelines(2) by federal antitrust enforcement agencies. This Comment explores current merger policy and its effect on the radio industry to determine whether consolidation continues to serve the public interest. The unique characteristics of radio as a scarce spectrum and forum of public expression raise concern as to whether a traditional antitrust analysis provides sufficient guidelines for regulation. Although there are numerous factors acting on the radio industry and it may be too early to determine the outcome of the current merger treatment, this Comment primarily examines the merger analysis employed by the federal antitrust enforcement agencies.

   First, this Comment addresses the various roles of federal agencies in reviewing radio mergers and policy considerations underlying agency decisions. Second, this Comment examines economic and noneconomic factors of the 1992 Merger Guidelines used by the antitrust enforcement agencies. Third, this Comment discusses implications of the consolidation for the radio industry, including economic benefits and effects on diversity. Finally, in light of the fact that consolidation adversely effects the radio industry, this Comment notes forthcoming deregulation in the radio industry.

   Amidst the record-breaking wave of mergers that has taken place during the Clinton administration, federal agencies have been faced with the task of reviewing a staggering number of proposed mergers.(3) The underlying movement pushing deregulation forward is well expressed by Vice President Gore's statement regarding mergers in the communication industry:

   "Competition is always better than monopoly. But monopoly power must never be confused with competition. Two enemies of competition are monopoly power and unwise government regulation. We must remember, after all, that the goal we seek is real competition. Not the illusion of competition; not the distant prospect of competition.(4) In this line of thinking, Congress made a major overhaul of the regulation of the telecommunications market and the Telecom Act became law on February 8, 1996.(5) The Telecom Act's most significant effects in mass media occurred in the radio industry with the elimination of nationwide ownership restrictions and the liberalization of local ownership caps under sections 202(a) and 202(b)(1).(6)

2. AGENCY REGULATION OF RADIO CONSOLIDATION

   1. Consolidation of the Radio Industry

      Beginning in 1985, the Federal Communications Commission (FCC) relaxed radio ownership limits to increase competition and diversity in the radio industry.(7) These effects have been even more dramatic with the Telecom Act,(8) where the radio industry has experienced tremendous consolidation and the number of radio station owners has dropped significantly. The number of radio station owners has declined 11.7%; whereas the number of radio outlets has dropped 2.5%.(9) The decline in radio station owners is the result of a vast amount of trading.(10) In 1996 alone, 2066 radio station transactions were made, comprising about 20% of the total number of stations.(11) In 1996, $2.84 billion were spent in radio transactions and in 1997 another $2.46 billion were spent.(12) Although 1998 radio transactions have decreased, they continue to represent a healthy revenue of roughly $1.6 billion, a slight decrease from dollars spent in 1996 and 1997.(13)

      Three years after the Telecom Act, industry participants expect that the radio consolidation boom will shortly come to an end.(14) Others project that if consolidation continues it will involve mostly smaller markets.(15) In 1998, the market experienced an overall decrease in FM station transaction revenues; although there was a sixty-five percent increase in the sale of AM stations. Despite the slow down in radio mega mergers, the recent merger of Jacor Communications and Clear Channel Communications, a $4.4 billion merger, was the biggest media deal of 1998.(16)

   2. Shared Responsibilities

      Since nearly its inception, the FCC has been charged with regulating radio in the "public convenience, interest, or necessity."(17) "Public interest" has been interpreted to mean promoting competition and diversity.(18) Further, the FCC has a special duty to protect localism and diversity against undue economic concentration in small communities.(19) Under the Clayton Act of the antitrust laws, the federal government has jurisdiction to challenge mergers that may substantially lessen competition.(20) Title II of the Hart-Scott-Rodino Act grants, federal antitrust enforcement agencies investigative authority.(21) The sale of a radio station often requires antitrust clearance from the FCC, the Department of Justice (DOJ), and the Federal Trade Commission (FTC).

      The FCC's approval is merely permissive and does not compel the parties to complete a merger.(22) The grant of a proposed merger application does not prejudice the approval necessary from any other agency. Section 601(b)(1) of the Telecom Act expressly indicates that it will in no way modify, impair, or supersede current antitrust laws.(23) As stated in the Joint Explanatory Statement of a Conference Committee:

      Mergers between these kinds companies [cable companies and Bell operating companies (BOC)] should not be allowed to go through without a thorough antitrust review.... By returning review of mergers in a competitive industry to the DOJ, this repeal would consistent with one of the underlying themes of the bill--to get both agencies back to their proper roles and to end government by consent decree.... The repeal would not effect the [FCC]'s ability to conduct any review of a merger for Communications Act purposes, e.g., transfer of licenses. Rather, it would simply end the [FCC]'s ability to confer antitrust immunity.(24) The FCC and federal antitrust enforcement agencies wear complementary hats. The DOJ and the FTC analyze media transactions under section 7 of the Clayton Act to ensure that a merger is procompetitive and challenges those which "may substantially lessen competition."(25) The FCC ensures that a transaction meets the public interest standard by promoting competition and diversity. Although antitrust enforcement agencies primarily address economic factors, these agencies also consider noneconomic factors.

      1. The Federal Communications Commission

         The FCC satisfies its charge of ensuring competition and promoting diversity by allowing the marketplace to be its guide, only intervening when there is a failure in the marketplace.(26) The FCC regulation of the marketplace consists of structural and behavioral regulation.(27) The FCC, in justifying its position that the market should dictate radio prices, provided three reasons for determining that the market is the best means of producing diversity in entertainment formats.(28) First, competition among broadcasters had produced a "bewildering array of diversity"(29) in entertainment formats. Second, the market will provide the most accurate indicator of listener's desires for diversity. Finally, the market responds more quickly to accommodate for changing public tastes.(30) Although the FCC takes a different approach than antitrust enforcement agencies, end results are remarkably similar.(31)

      2. The Antitrust Enforcement Agencies: The Department of Justice and the Federal Trade Commission

         1. The Dynamics of Antitrust Policy: The Warren Court to the Rehnquist Court

            The policy underlying antitrust law has historically been connected with social policy.(32) The enactment of the Clayton Act in 1949 was largely in response to the fear of antidemocratic political pressures during the postNazi period. The Warren Court sought to implement congressional intent to protect small businesses and preserve democratic institutions.(33) These decisions favored small entrepreneurs and protected their access to the market.(34)

            A marked shift occurred during the Burger Court when the Supreme Court adopted a purely economic analysis, originating from the Chicago school of thought.(35) This primarily economic approach was adopted by federal antitrust enforcement agencies during the Reagan administration to foster economic efficiency from the viewpoint of the consumer.(36) During this time period, both the DOJ and the FTC evidenced a remarkable unwillingness to challenge prospective mergers, especially compared to previous administrations.(37) The introduction of three sets of guidelines addressing horizontal mergers within a period of three years represents the dynamic nature of antitrust law during the Reagan administration.(38)

         2. The Role of Antitrust Laws in Merger Analysis

            Prior to the enactment of the Telecom Act, the FCC's restrictions were far more limiting than those imposed by the antitrust laws. As a result, the radio industry posed very few concerns to antitrust enforcement agencies. However, with the relaxation of radio ownership rules both the DOJ and the FTC play an increasingly active role in the outcome of media mergers. Using the 1992 Merger Guidelines(39) as a vehicle to prevent anticompetitive mergers, the DOJ and FTC consider primarily economic factors, although noneconomic factors sometimes impact the agencies' decision. The DOJ and FTC have authority to bring a civil action for preliminary or permanent injunctive relief and make a settlement or consent decree, including diverstiture.(40)

            Antitrust enforcement agencies premise their actions on the idea that "most mergers and other business alliances foster efficiency and thus bring increased benefits to consumers and businesses."(41) The sheer number of Hart-Scott-Rodino filings in 1996--a premerger notification requirement for transactions meeting a threshold amount--illustrates the increasing importance of antitrust enforcement agency...