CHAIRMAN REED E. HUNDT FEDERAL COMMUNICATIONS COMMISSION NAB RADIO SHOW New Orleans, Louisiana September 8, 1995 (As Prepared for Delivery) RADIO MERGERMANIA AND THE PRICE OF OVERCONCENTRATION I am pleased and honored to be with you on this 75th anniversary of radio broadcasting. I love radio. I grew up on AM, listening to the Washington Senators losing to everybody, the Washington Redskins losing to everybody, the Baltimore Bullets losing to everybody. So with all this experience in losing, I was well prepared to be a life-long Democrat. But I'm delighted to be at a convention where everyone seems to be a winner. Revenues are up. Sale prices are soaring. Formats are getting more varied and successful every year. Advertisers like the new ways stations are finding to attract desirable audiences. And mergermania is sweeping the industry. Many acquisitions reflect the necessities of the marketplace. But some, the way I hear it, reflect not market necessities but the opportunities presented by the possibility that Congress will lift all ownership limits as part of the telecommunications reform legislation. I am far from sure that the President will sign such a bill. But if the Communications Act is rewritten to eliminate all radio ownership limits, I don't believe that's good for this industry or for this country. Let me explain. Under the Communications Act, radio licensees must serve the public interest, convenience and necessity. The FCC can't grant licenses without making that determination. It must deny the renewal applications of licensees who fail to serve the public interest. And it must deny license transfers if they are not in the public interest. For 61 years the FCC has struggled with the statutory public interest standard. But there have always been just three basic ways to implement it: Do nothing -- on the theory that it doesn't really matter how broadcasters use the spectrum. Do nothing -- on the theory that competition will generate public interest deliverables like educational television for children or educational PSAs on radio. Or impose specific, concrete and meaningful duties on users of the public property of the airwaves. Too often the FCC has elected the first option, by adopting vague requirements that have no real-world effect on the programming of broadcasters. That is essentially the explanation for the fact that in the last 15 years the Commission has not pulled a single TV license for failure to serve the public interest. For the FCC, this has been sort of a reverse Cal Ripken record: we've showed up every day and not done our job. With respect to radio, until 1981 the Commission tried, at least to a degree, option three. It imposed a number of duties on radio licensees. These were frustratingly inexact and, in the view of many, did not generate positive results for listeners. These Commission rules were in great need of rewriting. Instead, in 1981 the FCC abandoned option three with respect to radio. It launched a large scale experiment in option number two. The Commission removed virtually all substantive public-interest requirements for radio licensees while implementing a policy of very vigorous competition in an extremely deconcentrated industry. As many of you know from painful personal experience, this led directly to the era of hundreds of new FM licenses granted in Docket 80-90. The idea of this experiment was that competition among many independent voices would inevitably produce diverse programming that would satisfy the information, education and entertainment needs of everyone in the audience. This experiment in interpreting the public interest standard has certainly produced vigorous competition for radio listeners and advertising dollars, both locally and nationally. It has generated many new programming formats. It has encouraged many radio licensees to strengthen their community activities, in part because they are good corporate citizens, and in part because it's important to have community visibility when you are selling an invisible product. On the other hand, it is far from clear that vigorous competition has led to a better performance by radio in terms of informing adults, increasing participation in the political process, or educating children. The market failure seems particularly acute with kids. More than 98% of children ages 2-11 listen to the radio each week; yet there is virtually nothing appropriate for kids that age. And teenagers listen to music as often as they always have; yet how many of those stations make serious efforts to educate and inform teens in the crucial years before they begin exercising their right to vote? In any event, the premise of the FCC's ongoing experiment in applying the public interest standard in radio has been vigorous deconcentration and competition. The congressional reform threatens the premise of the experiment, and the experiment itself I am sure that the House and Senate bills propose to lift radio ownership because of the view that radio competes with other media for advertising dollars and, therefore, that the current national radio ownership limits are too strict to permit radio groups to compete effectively for those dollars. I agree with that. Even if no reform emerges from the legislative process, I would raise the current national cap of 20 AM and 20 FM stations. I also think there is room to raise the local cap of 2 AM and 2 FM stations, certainly in medium and large markets. But the House and Senate would allow a few companies to buy all the radio licenses in the country. And if you think that's far-fetched in practice, it is just as disturbing -- and more at odds with the theory underlying the FCC's 1981 programming deregulation -- to see that in a local market Congress may allow a single company to buy all the radio licenses. No doubt most of you think that can't happen. But I'm reminded of what the Harvard Law School dean used to tell first-year students at orientation: Look to your left, and look to your right; in two years only one of you will still be here. I see some of you looking around. The fact is that the incredible upsurge in duopolies and LMAs in the last few years demonstrates how rapidly the radio industry can be restructured. And consider cable. That industry started with 16,000 separate franchisees -- half again the number of radio licensees in the country -- and today just two companies serve more than 50% of the nation's cable subscribers. But don't rely on my crystal ball. I'm just echoing the experts. One investment banker was recently quoted as saying that independent ratio stations will become "road kill" if ownership restrictions are completely eliminated. Now, it may be an exaggeration to say that if the Senate bill or, especially, the House bill becomes law this year you could soon hold this convention in a phone booth. But it is no exaggeration to say that the enactment of such a law would strip away the premise of the FCC 1981 programming deregulation order. Without vigorous competition among many independent voices throughout the country, how could the FCC honestly justify its current rules -- or lack of rules -- as a legitimate application of the public interest standard to radio? Certainly, in the event of major consolidation in the radio industry, there would be calls to reinstate the fairness doctrine as a way to offset media concentration. Certainly we would be asked to return to specific programming requirements, to provide for citizen access, and to adopt other concrete measures to ensure diversity of viewpoints over the air. And what would be our justification for saying no? Some people think that a counterbalance to overconcentration in local radio will be new competition from digital audio radio service -- DARS. This satellite technology was long delayed by the FCC primarily in order to let in-band digital radio develop in a similar time frame. But now its time has come. As you know, we are in the middle of a rulemaking on DARS, and I haven't prejudged the matter. But I tentatively think that DARS spectrum should be auctioned. The spectrum should be used for whatever purposes the auction winners want. Anyone who wants to participate in the auctions should be allowed in. No one should be able to monopolize the spectrum. And DARS licensees should have meaningful public interest obligations. On the subject of digital radio, I should let you know that I am as excited as anyone about the prospect of terrestrial broadcasters taking advantage of digital technology. I understand that recent tests have been successful, and I look forward to working with you to ensure that our rules allow existing radio operators to pursue the revenue generating possibilities digital technology offers. But I don't think that the introduction of national radio from the sky in any way justifies allowing a handful of firms to buy all or even almost all of the radio licenses on the ground. We should let DARS compete with terrestrial. Every instinct tells me that the results of that competition will be better radio service for the American public. And there is no reason to assume that terrestrial will do poorly in this competition. I don't think there was ever a chairman of the FCC who was more committed to vigorous competition in communications markets than I am. I'm proud to have presided over the funerals of fin/syn and PTAR, two rules that mindlessly meddled in the strictly commercial aspects of the TV business. When the issue is competition in delivering entertainment over the mass media of TV and radio, I say let the market not the government pick the winners. And no one feels more strongly than I do that the rules we retain should be clear and speedily enforced. As many of you know, over the past few months we have reduced to zero the unconscionable backlog of radio and TV license transfer applications that we inherited, and we have taken steps to maintain speedy service and to prevent a new backlog from developing. Roy Stewart and the Mass Media Bureau should be congratulated for these achievements, and I am happy to thank the NAB for adopting a resolution earlier this year praising them. Another set of rules that I know are of importance to you are our EEO rules. I am firmly committed to our EEO program, which is about providing equal opportunity, not imposing quotas or set asides. Many of you have told me that you fully support the goals of our EEO program but believe that our rules can be modified to ease their paperwork burden on small broadcasters without reducing their effectiveness. I agree. And I hope that the Commission will take steps in that direction in the near future. Incidentally, you should know that our backlog reduction accomplishments were the result of the extra resources that the last Congress gave us. But yesterday the Senate Appropriations Subcommittee voted to cut our budget 1/3 below what I requested. This would require hundreds and hundreds of layoffs. Yet at the same time Congress has not eliminated any of our tasks or functions and indeed the telecommunications reform bills would give us much more to do. If we have continued legal duties and inadequate resources, the result will be delay and frustration for all of you and all of the other industries subject to the laws that Congress has passed and that implement. In any event, I also want to raise with you this question: Will the coming concentration in radio do anything to address the occasional failings of radio? For example, we know that radio occasionally but seriously fails to inform accurately our citizens. I am talking, of course, about talk radio. Millions of people rely on talk show hosts for entertainment and information. The name Rush comes to mind. I am sure many listeners think Rush Limbaugh is entertaining. But I am also sure that many trust him to provide accurate information about history, current events, and political issues. I think it is a disservice to our democracy for a talk show host to misinform an audience that relies on him for information and trusts him to tell the truth. And from time to time that's what Rush Limbaugh does. As Ring Lardner wrote, you can look it up. Two entire books already have been written compiling various bizarrely wrong, flatly false assertions of Mr. Limbaugh. But as long as I am the chairman of the Federal Communications Commission I will defend to the death Rush Limbaugh's right to say just what he wants. And I think radio broadcasters have a First Amendment right to allow him to attract an audience. I don't believe that the FCC should in any respect whatsoever punish a radio station for broadcasting Rush's inaccuracies, even though as a citizen I believe this sort of disinformation damages our democracy, dumbs down our civic discourse, and destroys confidence in our institutions of public trust. So when I talk about the public interest that radio must serve I do not mean that the FCC should monitor or punish untruths or inaccuracies that radio licensees may broadcast. In asserting this view I am confident that the American experiment in democracy will survive even the widespread dissemination of untruth and distortion by popular figures like Rush Limbaugh and his imitators, whether of the right or the left. But the premise of my confidence is that there are many other ways for the public to learn the truth about history, to hear different opinions about important public issues. And the danger of the telecommunications reform legislation working its way through Congress is that it undermines the basis of that confidence. This, I think, is why the issue of media concentration, ignored during the early public discussions about telecommunications reform, is now seen by many to be the principal flaw in the House and Senate bills. In a real sense, Rush Limbaugh's freedom to inform -- and to misinform -- the public depends on our government's commitment to ensuring a diversity of voices over the public airwaves in both local and national markets. I believe strongly that Rush Limbaugh should have that freedom, and that's why I hope it's not too late for Congress to take another look at the concentration issues the legislation raises.