Good morning. On behalf of the Future of Music Coalition,
I want to thank you for the honor of testifying today. This hearing
is much needed, and we applaud you for holding it.
Good morning. On behalf of the Future of Music Coalition,
it is my honor to testify this morning on the critical issue of how
radio consolidation is affecting musicians and citizens. This
is a timely hearing, and we applaud you for holding it. We also
applaud the participation of the other witnesses, as we firmly believe
that the public deserves an open, honest discussion about these issues,
especially in an environment where further deregulation is under consideration
at the FCC.
First, I will provide a quick background about myself
and the Future of Music Coalition. Second, I will outline some of the
conclusions of our recently released study on the impact of radio consolidation
on musicians and citizens. Finally, I will talk about the importance
of radio as a medium, and what we can do to make it better.
About Jenny Toomey and the Future of Music Coalition
My name is Jenny Toomey. I am a musician, entrepreneur and activist.
I have released seven albums and toured extensively across the United
States and Europe. For eight years, I co-ran an independent record label
called Simple Machines. I know first hand both the difficulties that
independent artists face in getting their music played on commercial
radio and the opportunities that are presented by non-commercial radio
stations that -- thankfully -- have been very supportive over the years.
I speak to you today both as a working artist and as
Executive Director of the Future of Music Coalition, a not-for-profit
think tank I co-founded three years ago with Michael Bracy, Walter McDonough
and Brian Zisk. The Future of Music Coalition examines issues at the
intersection of music, technology, law, economics and policy, in search
of policies, technologies and business models that can benefit musicians
and music fans. The FMC is built on the idea that the music industry
is broken at a very basic level, as the very artists who create the
works that are the hallmark of our culture struggle against structural
impediments that make it difficult to achieve economic survival. It
is our hope that increased awareness and engagement among artists, combined
with thoughtful implementation of new technologies, will lead to new
structures in a digital future that won’t replicate the failures
of our terrestrial present.
The Importance of Understanding the Effects of Radio
Deregulation
As our organization began working on a wide range of issues – major
label contract reform, healthcare for artists, webcasting royalties,
peer-to-peer file trading – one issue continued to rise to the
top: commercial radio. Everywhere we turned, there seemed to be another
article, another letter to the editor, another emerging artist complaining
about what was happening with radio in his or her specific community.
Radio is, of course, a critical hub of communications,
entertainment and information in our society. The technology is ubiquitous
– nearly all Americans own a radio. Historically, radio has been
the most effective means of making new music available to local audiences,
as program directors and disc jockeys kept the pulse of the industry
in search of the next new act or the next new sound. When you read interviews
with great musicians, they often reflect on the inspiration they found
in their youth as radio connected them with sounds and words from across
the world.
For many others, radio is primarily a business, where corporations seek
to maximize profits by offering targeted programming intended to reach
specific audience demographics preferred by advertisers. In this model,
the argument goes, the public is served because broadcasters research
what their targeted audience wants to hear, then deliver programming
designed to maximize listener share.
We argue, however, that this is not the reason that
radio has become such an important part of American culture. Rather,
radio has worked over time because of the fundamental regulatory priorities
of localism, diversity and competition. Certainly, we believe the strongest
demonstrations of localism and diversity are found in non-commercial
radio, where a wide range of musical genres and public affairs programs
flourish. We encourage the Congress to pursue strategies that maximize
the potential of non-commercial radio regardless of this discussion
of consolidation of ownership.
In November 2002, the Future of Music Coalition released
a study entitled “Radio Deregulation:
Has it Served Citizens and Musicians?” The lead authors of
the study, FMC board members Kristin Thomson and Peter DiCola, are both
here today. We would like to enter the study into the record along with
our testimony. The study is also available on our website at http://www.futureofmusic.org,
and was entered as a public comment in the FCC’s media ownership
proceeding.
Background: The Goals of Deregulation
Radio is a public resource managed on citizens’ behalf by the federal
government. This was established back in 1934 when Congress passed the
Communications Act. This Act both created the Federal Communications
Commission (FCC) and laid the ground rules for the regulation of radio.
The Act also determined that the spectrum would be managed according
to a “trusteeship” model. Broadcasters received fixed-term,
renewable licenses that gave them exclusive use of a slice of the spectrum
for free. In exchange, broadcasters were required to serve the “public
interest, convenience and necessity.” Though they laid their trust
in the mechanics of the marketplace, legislators did not turn the entire
spectrum over to commercial broadcasters. The 1934 Act included some
key provisions that were designed to foster localism and encourage diversity
in programming.
Although changes were made to limits on ownership and
FCC regulatory control in years hence, the Communications Act of 1934
remained essentially intact until it was thoroughly overhauled in1996
with the signing of the Telecommunications Act. But even before President
Clinton signed the Telecommunications Act into law in February 1996,
numerous predictions were made regarding its effect on the radio industry:
Fewer Owners
First, industry analysts predicted that the number of individual radio
station owners would decrease. Those in the industry with enough capital
would begin to snatch up valuable but under-performing stations in many
markets – big and small.
Greater Financial Benefits for Radio
Second, station owners – given the ability to purchase more stations
both locally and nationally – would benefit from economies of scale.
Radio runs on many fixed costs; equipment, operations and staffing costs
are the same whether broadcasting to one person or 1 million. Owners
knew that if they could control more than one station in a market, they
could consolidate operations and reduce fixed expenses. Lower costs
would mean increased profit potential. This would, in turn, make for
more financially sound radio stations which would be able to compete
more effectively against new media competitors: cable TV and the Internet.
More Diversity
Third, there was a prediction based on a theory posited by a 1950s economist
named Peter Steiner that increased ownership consolidation on the local
level would lead to a subsequent increase in the number of radio format
choices available to the listening public. According to Steiner’s
theory, a single owner with multiple stations in a local market wouldn’t
want to compete against himself. Instead, he would program each station
differently to meet the tastes of a variety of listeners.
The Results of the Telecommunications Act
These were the predictions made prior to the passage of the Telecommunications
Act, and clearly part of the argument made by broadcasters and their
representatives on the importance of deregulation to the health of their
industry. But what really happened? Enough time has lapsed to evaluate
early predictions and note actual outcomes for the radio industry, musicians
and citizens. Let’s revisit these assumptions:
More Stations, Fewer Owners
Well, one prediction certainly came true: the 1996 Act opened the floodgates
for ownership consolidation to occur. Deregulation has allowed a few
large radio companies to swallow many of the small ones. Ten parent
companies now dominate the radio spectrum, radio listenership and radio
revenues, controlling two-thirds of both listeners and revenue nationwide.
You can see from the revenue pie chart that ten firms control 67 percent
of industry revenue. The rest of the industry – a total of 4,600
owners – controls just 33 percent.
An industry is an oligopoly in our terminology if the
four largest companies control more than 50 percent market share. As
you can see from the charts, the top four companies in radio control
52 percent of the revenue, making the radio industry an oligopoly. This
means that we have less competition than before deregulation, not more.
Oligopolistic control and socially beneficial competition are opposites.
In general oligopolies can raise prices above competitive levels, restrict
quantities of goods offered to the public, and – as we’ll
see in the radio industry – reduce the quality of what’s offered
to the public.
Two parent companies in particular – Clear Channel
and Viacom – together control 42 percent of listeners and 45 percent
of industry revenues. Clear Channel has grown from 40 stations to 1,240
stations -- 30 times more than congressional regulation previously allowed.
No potential competitor owns even one-quarter the number of Clear Channel
stations. With over 100 million listeners, Clear Channel reaches over
one-third of the U.S. population.
These two firms tower over the radio industry, and even
over the other consolidators. Both own businesses in other media and
advertising-based industries, such as network television, cable television,
concert venues, and billboards.
Radio at the Local Level
Even bleaker is the picture at the local level, where oligopolies control
almost every geographic market. In smaller markets, consolidation is
more extreme where the largest four firms in most small markets control
90 percent of market share or more. These companies are sometimes regional
or national station groups and not locally owned.
This next chart shows the extent of consolidation in these market size
categories. Each market size category is broken down by the extent of
consolidation in its markets. Let’s take an example. Among the
markets ranked 101-289, 40 percent of the markets have four companies
controlling 100 percent of the market share. 24 percent of the markets
have four companies controlling 95 to 100 percent. 18 percent of the
markets have four companies controlling 90 to 95 percent, and so on.
Clearly consolidation is most extensive in the smallest markets.
But the larger point is that consolidation is extensive in all sizes
of local markets. In 98 percent of all local markets, the top four companies
control a 70 percent market share or greater. Such large shares for
the biggest companies indicate that very strong oligopolies exist locally.
Benefits From Economies of Scale Aren’t for
Everyone
What about those benefits of economies of scale? They’ve certainly
borne out for some, but not for everyone. Only the few radio station
owners with enough capital to buy additional stations have benefited
from deregulation. Station owners have consolidated their operations
on a local level, frequently running a number of stations out of a single
building, sharing a single advertising staff, technicians and on-air
talent. In some cases, radio station groups have further reduced costs
by eliminating the local component almost entirely. These group owners
are benefiting from economies of scale, but what are the drawbacks?
Local DJs and program directors are being replaced by regional directors
or even by voice-tracked or syndicated programming, explaining a marked
decrease in the number of people employed in the radio industry. Listeners
are losing as well. With an emphasis on cost cutting and an effort to
move decision-making out of the hands of local station staff, much of
radio has become bland and formulaic.
Less Regulation Has Not Led to Greater Market Competition
The economic argument for the need for increased competition in the
radio industry is specious. Prior to 1996, radio was among the least
concentrated and most economically competitive of the media industries.
In 1990, no company owned more than 14 of the 10,000 stations nationwide,
with no more than two in a single local market. But we found that local
markets have consolidated to the point now that just four major radio
groups control about 50 percent of the total listener audience and revenue.
Clearly, deregulation has reduced competition within the radio industry.
More Diversity?
Finally, we raise questions about Steiner’s theory that an owner
would not want to compete against himself and would, therefore, operate
stations with different programming. Our analysis of the data finds
otherwise. Radio companies regularly operate two or more stations with
the same format in the same geographic market. Using stations’
self-reported formats, we found 561 instances of format redundancy nationwide
– a parent company operating two or more stations in the same market,
with the same format – involving 1,190 stations in Arbitron-rated
markets, as of May 2002. This amounts to massive missed opportunities
for format variety, which might in turn enhance programming diversity.
Format Variety versus Format Diversity
In addition, we need to be clear about the difference between format
variety and format diversity. Often, the radio industry measures diversity
in programming by counting the number of formats available in each local
market. In our report we show, in accordance with other studies, that
format variety counted this way increased for a while after deregulation.
But we also find that format variety has become stagnant over the last
two years.
Regardless, format variety is a flawed measure that
doesn’t capture the more relevant concept of programming diversity.
A format is just a label – it doesn’t necessarily describe
the contents or imply that the contents are different than anything
else. Increased format variety does not ensure increased programming
diversity.
We tested this theory by analyzing data from charts
in Radio and Records and Billboard’s Airplay Monitor. Using radio
playlist data, Radio and Records magazine computes weekly charts for
13 categories of music formats. We took these charts from one week in
August 2002 – which show the top 30, 40, or 50 songs played on
a given format – and calculated the number of overlapping songs
between formats.
The charts revealed considerable format homogeneity – playlist
overlap between supposedly distinct formats. Note that the formats are
grouped in clusters. First, there’s the pop cluster. It features
seven overlapping formats. For example, Urban and CHR/Rhythmic overlap
at a 76 percent level. 38 of their top 50 songs are the same. Then,
there’s the rock cluster. Rock, Alternative, and Album-Oriented
Rock overlap considerably, between 36 percent and 58 percent depending
on which pair among those three you consider. Only Country, Christian,
and Smooth Jazz stand alone.
This high level of homogeneity shows that simply counting
format names will overstate programming diversity. Adding a CHR/Rhythmic
station to a market that already has an Urban station adds format variety.
But it doesn’t add any programming diversity. Thus, the radio industry
has measured itself – and encouraged policy makers to measure it
– with an inadequate statistic. If the FCC or the NAB are sincerely
trying to measure “diversity” the quantity of formats is a
flawed measure. That's like counting the number of jars on a shelf without
taking the time to look inside.
Format Oligopolies
In addition, viewing each format as its own product market, every format
category charted by Radio and Records is controlled by an oligopoly.
We studied format oligopolies by considering the radio
stations nationwide within each format as a separate market. We simply
tallied the listener share and revenue share within each format nationwide.
As you can see from this chart, every format is controlled by four companies
with a 50 percent market share or greater.
The format oligopolies reinforce the homogeneity of
the product offered to listeners. They also result in a small number
of gatekeepers deciding which musicians have their music played on the
air. Importantly, these format oligopolies include many of the same
companies. For instance, Clear Channel is one of the top four firms
in each of these 13 formats. Viacom is one of the top four firms in
11 of these formats.
In fact, only 15 companies populate this chart of format
oligopolies. These 15 gatekeepers determine to a very large extent what
programming will reach the airwaves. And this just looks at music. Four
companies own a 67 percent share of News format listeners nationwide.
Consolidation has not resulted in a greater number of viewpoints represented
on the air; instead, it has reduced the diversity of viewpoints considerably.
This final point may be the most critical one as we
face an FCC that is poised to deregulate media even further in the next
few months. It is time to put to bed the commonly held yet fundamentally
flawed notion that consolidation promotes diversity as that radio station
owners who own two stations within a marketplace will not be tempted
to program both stations with similar formats.
In sum, consolidation has resulted in a small number of dominant companies,
not competition; it has resulted in extensive local oligopolies, not
localism; it has resulted in format homogeneity, not diversity in programming;
and it has resulted in small number of gatekeepers for music and news,
not a diversity of viewpoints. Clearly something has gone wrong. From
the perspective of citizens and musicians, deregulation has failed to
achieve its goals. Radio needs a new direction to restore its status
as a live, local, diversely owned and diversely programmed medium.
Where Do We Go From Here?
Over the past year, we have heard concern about radio consolidation
expressed by musicians, unions, record labels, consumer groups, religious
groups, small broadcasters, current and former industry employees and
elected officials. Concern about the loss of local voices. Concern about
business practices like “pay for play” that appear to make
eligibility for radio play contingent on an artist or label coming forward
with huge “promotional” fees. Concern that the local stations
that used to provide a platform for public service announcements now
turn them away. Concern about the seemingly incessant advertising. Concern
that small stations that have programmed an eclectic mix are changing
formats or selling out because they can’t compete. Concern that
elected officials have fewer outlets available to communicate directly
with voters. Concern that talk radio stations won’t allow questions
from callers who “sound old” because it will send the signal
that their station is targeted for older consumers. Concern that parents
can’t listen to the radio with their kids in the car because the
content has become so overtly sexual. Concern that alternate models
to commercial radio, like community-based Low Power FM, are scaled back
because of the power of the broadcast lobby. And concern that musicians
who speak publicly about troubling business practices will be in essence
signing the death warrant for their careers.
In the end, we come back to this point: radio is a public
resource. It belongs to the citizens of the United States. It is not
simply a tool for corporations who are interested in maximizing profits.
We do not question that broadcast conglomerates spend
enormous resources in attempts to draw the largest possible audience
in the specific demographics that their stations are targeting. But
is that really how we define serving the public interest? Huge ratings?
We need to return to the traditional priorities of localism,
diversity and competition. Can local artists have a legitimate chance
to get on commercial radio in their hometown? Is there not only diversity
of format, but also diversity of ownership and, dare we say, diversity
of programming targeting populations who may not fall into the most
attractive marketing demographics? And is there a competitive environment
that allows for the kinds of small, independent stations that tend to
focus on local content and genres of music that are rarely seen from
the conglomerates?
We have been joined by our colleagues in the music community
to raise these questions. In particular, we are greatly appreciative
of the support and cooperation of AFTRA – the union that represents
on-air talent – the AFM, the Recording Academy, Just Plain Folks,
the Artists Empowerment Coalition and the Recording Artists Coalition.
On many of these issues, we even agree with the RIAA. But the onus of
proof should not fall simply on the complainers. The broadcast industry
pushed for these changes, and now they should be able to step forward
to fully explain their impact on localism, competition and diversity.
To this date, their participation in public discourse regarding the
present and future of the radio industry has been sadly lacking.
In the end, it is clear that the broadcast conglomerates
have one primary mission - maximizing shareholder value. They maximize
value by utilizing the latest research techniques in an effort to build
the largest possible audiences in their targeted demographics. Their
mantra is that they give the people what they want. They play the hits.
But do they give the people what they want? According
to Duncan’s Radio Report, radio listenership is at a 27 year low.
And not one but two companies are now selling a satellite radio service
based on the notion that consumers are so disenfranchised with radio
today that they would pay $10 a month to subscribe to their service.
And what if you don’t fit into the demographics they pursue –
what if you are old, or poor?
Has the restructuring of the radio industry been a success?
This is the crux of the great disconnect. On one side, artists, record
labels, consumer groups, religious organizations, community groups,
unions, elected officials and music fans say “no”. On the
other, broadcasters say “yes.” But you can’t even say
all broadcasters, since it seems that an increasing number of those
left are expressing concern about their ability to compete in this consolidated
marketplace.
Radio is too precious to let this happen. It is universal,
and it is cheap. It is part of our culture. And communities are begging
for the opportunity to better utilize it for non-commercial means. Thanks
in great deal to the efforts of Chairman McCain, roughly 1000 rural
community groups, schools and churches are launching Low Power Radio
Stations in their neighborhoods or towns. The FCC was stripped of its
ability to place these stations in urban areas pending further signal
tests, and hundreds of urban groups are eagerly awaiting their shot.
Mr. Chairman, the problem is not radio, it’s what
has happened to radio. We can – we must – do better. I hope
that today’s hearing serves as an inspiration for citizens around
the country to contact you, members of this committee and other members
of Congress to inform them of how they would like to see radio better
utilized in their community.
Thank you again for inviting me to testify today.
download as a PDF
read Jenny Toomey's delivered
statement
read Radio Study or supporting
documents
