Radio waves.

• Author: Walker, Jesse
• Position: US radio broadcasting industry

American radio is very capitalist, in the crude sense of the word: The industry is a busy bazaar, rife with deal making, speculation, and scrappy hustlers trying to get rich quick. It is also very socialist, in the crude sense of the word: It has long relied on the government to protect its biggest players, shore up their profits, and ensure that the competition doesn't get too unruly.

And so, when the National Association of Broadcasters (NAB) held its annual Radio Show in Seattle last October, the trading floor was abuzz with the sound of entrepreneurship. Salesfolk hawked prefabricated jingles, syndicated shows, new technologies, and more, creating a capitalistic din. Upstairs, experts lectured broadcasters on how best to get government off their backs, leading seminars with such titles as "Employment Law and Protected Groups" and "Running Successful Contests, Promotions and Casino Spots - Without Being Fined by the FCC."

Except once, on Thursday afternoon, when the talk turned to how best to get government onto certain broadcasters' backs, lest they hurt their competitors' bottom line. Up in Room 609, the conventioneers urged the Federal Communications Commission to crack down even harder on micro radio operators, those unruly, unprofessional populists who run their low-budget, low-power stations without permission from the government. And to please, please forget this notion that FCC Chairman William Kennard had been tossing around, this idea of actually creating a legal micro radio service.

Right now, you see, the FCC won't license new stations of less than 100 watts, a policy that reduces room for new broadcasters on the dial. What's more, to get a license, one must spend thousands of dollars maneuvering through the commission's bureaucracy. Over the last decade, a growing number of people have simply ignored these barriers and gone on the air anyway, to the displeasure of both the FCC and the NAB.

Meanwhile, mainstream American radio has operated on the assumption that bigger is better - that to survive, it must become a tight clan of consolidated chains offering formulaic formats. A series of buyouts has swept through the industry, with the number of station owners shrinking by more than 700 in less than three years, leaving four corporations in control of more than 1,000 stations nationwide. The trend is even more pronounced in the nation's largest markets, where it's not uncommon for a handful of companies to own almost all the commercial outlets in town. This being American radio, the wave of mergers reflects a combination of crude capitalism and crude socialism: People are making a lot of money, but in a way shaped by the state, which has eased restrictions on combinations while making it steadily harder for startup stations to challenge the chains.

This consolidation began as a desperate effort to stave off financial disaster. As the '90s began, more than half the radio stations in America were losing money. Many were going dark - the industry's poetic term for leaving the air. The conventional wisdom blamed this on Docket 80-90, a Reagan-era rule change that had loosened the restrictions on how many operations could co-exist in one market, opening the FM dial to 689 new outlets. With so many stations competing for advertisers, the price of airtime fell, and so did broadcasters' profits. Stations were dying, the argument went, because they couldn't handle all the competition; the solution was to license fewer stations and let existing owners consolidate their holdings.

So the FCC reversed itself: Rather than allow more stations to enter a market, it would allow existing station owners to own more stations within a market. (The notion of allowing both was never on the table: Few in the FCC are enamored with laissez faire.) In 1992, the commission legalized "duopolies" - that is, it allowed owners to control two stations in the same city. (This is an eccentric use of the word duopoly, but it is standard within the industry.) Further changes to the rules followed, culminating in the Telecommunications Act of 1996, which among other things allowed companies to own an unlimited number of stations nationwide and as many as eight in most markets.

The swelling chains began forcing advertisers into must-buy deals, whereby to get a plumb spot for a commercial on a popular station, an advertiser must also buy time on one of the chain's other outlets as well. Between that, increased automation, and the booming national economy, profits quickly rebounded, with revenues steadily increasing from 1992 on.

At the same time, paradoxically, listenership fell through the floor. According to the analysts at Duncan's American Radio, a leading industry newsletter, the percentage of people who actually listen to the radio has been steadily declining since 1989. There was a slight uptick in the early '90s, thanks largely, they suspect, to the boom in talk radio. But that soon reversed, and listenership has now hit a low unseen since 1981. The Duncan's analysts attribute the decline to the trend toward extreme format segmentation, the converse loss of several once-thriving niche formats, the decline in locally oriented programming, the increase in the number of commercials per hour, and the simple fact that, when two rival stations share an owner, they devote less effort to promoting themselves.

It can't be long before the admen start to figure out that they're paying more to reach fewer people, and start either demanding lower prices or taking their business elsewhere. Meanwhile, the radio mainstream will soon face competition from both the grassroots and the skies. On one side, the micro outlaws are offering everything that most radio no longer delivers: genuine localism, eclectic music, politically charged debates. On the other, a new satellite service is poised to take the standardized, placeless programming that dominates...