Thank you and good afternoon. It's a pleasure to be with you at this terrific convention. You actually were kind enough to invite me to your convention last year, even before my appointment was confirmed. But while I appreciated the vote of confidence, I really couldn't accept before the Senate made it official. Luckily, you invited me back and I'm delighted to be here.
I'd like to talk to you today about radio. Sometimes, with so much attention being paid to the telephone and video markets, radio gets lost in the shuffle.
Certainly when the 1996 Telecommunications Act was passed, most of the focus was on telephone and video. But while those markets haven't changed as much as people predicted, radio is another story. In radio, the '96 Act has had a clear and dramatic impact.
The '96 Act made two key changes: it eliminated the cap on the number of radio stations companies could own nationally, and it raised the limit on the number of stations that could be owned in local markets. Those two changes set off an unprecedented wave of consolidation that has dramatically reshaped the radio industry.
I'd like to take an informal poll. How many of you here today work in radio? Now, keep your hand up if your radio station has changed hands in the past two years. Nationally, over a third of all radio stations have changed hands since the Act was passed.
And it's not just that a lot of radio stations are changing hands. They're changing into fewer hands. It's almost certain that there are fewer station owners here today than there were a year or two ago. You may be a vanishing breed. Nationally, your numbers have dwindled by 12% over the past two years -- even though the number of stations has actually increased by 3%.
So there are more stations but fewer owners. Much of the consolidation has taken place among the largest group owners, whose holdings have gone through the roof. A couple of years ago, group owners were limited to a maximum of 40 stations. Today, many of them own a hundred or more stations. And one group owner, as I'm sure all of you know, may soon have over 450 stations.
Or look at it another way. When the Act passed in 1996, the top two group owners accounted for less than 13% of the industry's total revenues. By the end of 1997, that figure had more than doubled, to 27%.
And the consolidation bug hasn't hit only the big markets. Take a look at Abilene, the number 223 Arbitron market. In early 1996, there were 15 commercial stations and 10 owners in Abilene. By the end of 1997 -- a year and a half later -- there were still 15 stations in the market, but only 6 owners -- a drop of 40%. And two of those owners control 9 of the 15 stations in Abilene.
The first question someone might ask is: why should we care about all this consolidation? Does it matter who's cutting the paychecks as long as people can still hear their favorite songs and listen to the Cowboys on Sunday? Can't someone in New York figure out what you want to hear as easily as someone down the street? In fact, with modern marketing tools can't they figure it out better?
There's no doubt that some consolidation can be a good thing for listeners. Like any business, when more than one station can share staff and resources, the public can receive services that wouldn't otherwise be possible. A small stand-alone station may not be able to afford to produce any regular news programming. But combine it with a bigger station in town and news may become economically feasible. Consolidation also makes it easier for advertisers to buy radio time, which brings in more revenues. And consolidation may provide the flexibility to experiment with different formats and diverse programming that a single station wouldn't have.
Again, take a look at Abilene. Sure, there are fewer owners, but there were 9 different formats before the consolidation took place and there are 9 different formats now. It looks like big owners don't try to "corner the market" on particular formats, but tend to pursue a diversification strategy. An owner with several stations can now target each one at a different audience in order to better serve advertisers.
But consolidation also carries its share of risks. And it's those risks I want to focus on.
The first risk is important, but one I won't spend a lot of time on. It's the risk that consolidation could lead to lots of formats but only one voice. Let me give you an example that my colleague Susan Ness uses. CNN has lots of different services or formats -- CNN, CNN Headline News, CNN International, and so on. And that's great. But although there's different formats, there is only one voice -- CNN's. There's something different about that kind of format diversity and the kind of diversity you get with services like MSNBC or Fox News that are owned by different companies. Those services have a different editorial voice. And in a democracy, which depends on the clashing of different perspectives to reach the right decisions, that's the kind of diversity we need.
So while it's nice to have different formats, we should be looking for more from radio than a well-rounded jukebox. It's who decides what goes on the jukebox that's important.
The second risk of consolidation is the one I'd like to spend a bit more time on -- the loss of localism.
Localism is the bedrock of our broadcast system. We license stations to communities, not to states or regions. Each station is assigned a specific community that it must serve.
What do I mean by serving your local communities? To me, it means covering local issues, reporting local news, doing local programming, providing an outlet for local voices.
I don't even have to take a poll on this one. I know that all of you are committed to carrying out your industry's historic mission to serve your local communities. I am concerned, however, that consolidation may make your good intentions more difficult to carry out.
Consolidation is not necessarily the opposite of localism, but homogenization is. If I turn on the radio and can't tell if I'm in Corpus Christi, Texas or Walla Walla, Washington, we probably have gone too far.
There are some signs that we may be heading down that path. Consolidation encourages companies to centralize functions, like news, that used to be handled on a station-by-station basis. And when it's more efficient to let someone else do it, it's outsourced. In fact, Business Week listed a company that produces news and traffic reports for radio stations as one of the fastest growing companies in America.
Eventually, the danger is that with national play lists, nationally syndicated programming and outsourced news, everything ends up sounding the same. Indeed, according to the New York Times, many stations have already been turned into "virtual stations" that have no announcers of their own but just run pre-recorded feeds from distant announcers.
Sure, costs are down and earnings are up. That makes Wall Street happy. But at what price on Main Street? What is happening to the sources of local news? Are local issues still being covered?
It's sort of like what happens when Wal-Mart or Home Depot comes to town. The size of these chains means they can stock more products at lower prices than the old five-and-dime or local hardware store. In many ways consumers are better off. But it would be hard to argue that something isn't lost when the small mom-and-pop stores are put out of business.
Of course, the public's interest in localism is much higher in broadcasting than in hardware. Nails are nails wherever you go. But the local issues that people need to hear about are always different. And most people still rely on broadcasters for that education. If the number of different voices speaking on local issues dwindles, we'll be depriving our system of the oxygen it needs to survive and grow.
It's not that big chains, whether in hardware or radio, can't or won't serve the local communities in which they operate. They can and they do. But I still think it can be more difficult for them to reflect the particular needs of their local communities when more and more decisions are made on a regional or national basis.
Almost by definition, truly local programming is different from community to community. And I am concerned that such individuality may be at odds with the standardization that provides such big savings for multiple station owners.
So, how do we keep localism alive in the new world we're facing? I don't have any easy answers. The pace of consolidation has driven up the price of stations so high that it's very tough to get into the business and incredibly tempting to get out. But here are a few thoughts.
First, the FCC has to get its own house in order. Although I think the FCC has been trying to implement Congress' intent, the rules we have on the books may be permitting consolidation to occur at a faster pace than Congress wanted. Let me give you an example. In the 1996 Act, Congress clearly intended to relax the limit on the number of stations any one person could own in a particular community. But Congress also set clear limits on how much consolidation could occur. In the smallest markets, Congress said that no one entity should be able to own more than 50% of the stations. And in larger markets, the percentage of stations that any one person could own was even lower.
But under the FCC's obscure rules for counting how many stations someone owns in a particular radio market -- which I won't bore you with here -- it is entirely possible that one person could own all of the stations in a market and still look like they own under 50%. Let me repeat that, because I think it's critical. Even though Congress clearly said no one should be able to control more than 50% of the stations in a community, under our rules it is possible that one person could own all of the radio stations in a community.
Needless to say, I think we need to fix our rules. We have a proceeding going at the FCC asking whether and how our rules should be changed, so stay tuned.
Second, we need to try to find ways for new people to get into the radio business. I would guess there aren't many independent radio owners here today. In Washington, D.C., where I'm living now, the last small operator was recently swallowed up by one of the big multiple owners. And I wonder, as maybe you do, whether there's going to be a place for independents in the radio business in 5 or 10 years.
It's just very difficult for new people to break into the business. And I'm particularly concerned that minority broadcasters are having an especially difficult time. Less than 3% of radio stations are minority-owned, and that number is dropping. On the more desirable FM band, black-owned stations dropped 26% and Hispanic-owned stations dropped 9% between
1995 and 1997. Those numbers mean that existing minority broadcasters are selling out and they're not being replaced.
We must find ways of continuing to provide opportunities for new entrants, including minorities. It seems to me that much of the pressure to license "micro" radio stations is coming from people who want to become legitimate broadcasters but can't find a way in. If broadcasting becomes the exclusive province of millionares and major corporations, that pressure will only increase.
I want to be clear here to separate microradio from pirate radio. Microradio operators would be licensed; pirate operators are not. Pirate radio operators are acting outside the law. We have been shutting down pirates as quickly as we can and will continue to do so. In the past 10 months, we've shut down over 250 pirate stations. Just a couple of weeks ago, we worked with U.S. Marshals and shut down another 15 pirate operators in the Miami area and seized their equipment.
Third, I hope that every licensee reminds themselves that while broadcasting is a business, that's not all it is. It's the way most citizens educate, inform and entertain themselves. It is central to our social fabric in a way that other businesses aren't. When people proudly call themselves a "real broadcaster" they don't just mean that they know how to make money. There is an obligation to the community and a notion of service that goes beyond devotion to the bottom line. We need to make the world safe for "real broadcasters" to flourish.
But even with the best intentions, it will take a more conscious effort for bigger companies to accommodate local differences. For instance, we've recently issued an order giving licensees with several stations in a region more flexibility to consolidate their main studio at one location. Under our old rules, a station's main studio had to be located within its principal community contour. But under the new rules, a small station in Galveston can now locate its main studio in Houston even if its signal doesn't reach that far. Again, I'm not saying that having a main studio in Houston means that the needs of Galveston residents won't be served, but it may require a more conscious committment than if the main studio were actually in Galveston.
In the end, we are engaged in an experiment. It used to be assumed that local owners -- those who know the area and have a vested interest in it -- are more likely to serve the local community. Now we are testing that assumption to see if it's true.
Maybe large group owners can serve local communities as well as, if not better than, local owners.
Maybe radio can be run just like any other big business and still pay attention to specific local needs.
Maybe national play lists are better than relying on a local program director's gut instincts.
Maybe virtual stations are just as good as the real thing.
As you probably can tell, I'm not convinced that radio is headed in the right direction. I see a real tension between becoming bigger and more efficient and serving individual communities. What's good for national advertisers may not necessarily be good for local listeners.
In the end, my thoughts boil down to this: the public interest will not be served if "local radio" becomes a contradiction in terms. I hope we can work together to ensure that doesn't happen.
Thank you again for inviting me and thank you for your attention.