President’s Report

‘Vertical Integration’ in Music Business Requires Government Action

Volume CII, No. 7/8July, 2002

Bill Moriarity

The rapid concentration that has been taking place in radio station ownership over the past several years has profound implications for listeners, record companies, and recording and concertizing musicians.

A fair amount of media attention has been given to this subject recently, especially regarding the immense power wielded by the conglomerate Clear Channel, in its dual roles as radio station owner and as concert promoter and theatrical presenter.

I’ve done some research into this question since I was asked to take part in a June 14 panel discussion on the subject, organized by National Public Radio for its program To The Point. My fellow panelists were a financial advisor to media companies, a record company executive, an independent promoter working to place recordings on the air, and a media critic. The program was heard live here in New York City over WNYC-FM.

To give a brief historical perspective on this situation, prior to 1984 no company could own more than seven AM stations, seven FM stations and seven television stations nationally. In that year the number of outlets that could be owned in each category was increased to twelve.

In 1992 the FCC, the government’s oversight agency for the public airwaves, further loosened the restrictions. The new rules allowed a single company to own up to two AM and two FM stations in a specific market, provided that the company did not account for more than 25 percent of the total local listening audience. National radio station ownership limits were also increased – from the previous twelve to 18 AM and 18 FM stations.

Then, with the passage of the 1996 Telecommunications Act, national limits on radio station ownership were eliminated and a tiered system of local ownership was put in place that allowed one company to own multiple stations in larger markets.

Today just four companies – Clear Channel, Infinity, Chancellor and Capstar – control access to 63 percent of contemporary Hit Radio/Top 40 formats nationwide, and 56 percent of country music’s audience. These companies control access to 80 percent of the market in New York City and three of them own almost 60 percent of Chicago’s market share. Clear Channel owns 1,200 radio companies nationally, including five large stations in the New York metropolitan area.

What does this mean for young recording groups trying to become established in any medium-sized or large music market? Well, first of all, “local” radio is a somewhat misleading term in many cases. Programming decisions are made not at the local level, but by centralized programming directors, who make choices for multiple markets.

How is airtime ultimately determined? By means of a system that includes the payment of rather large amounts of money through the intermediary of an “independent promoter” paying fees on behalf of record companies to radio stations. It sounds like payola, but it isn’t – quite. Payola is the direct payment of money for the airplay of a specific product without informing the audience that any such sponsorship arrangement has taken place. In political terms, that’s a “hard” money payment. The situation we’re talking about here involves “soft” money – for promotions or advance information regarding play lists. Unfortunately, it’s legal.

(The question of who ultimately pays the fees is an interesting one. When promising new groups record, they are often advanced a lump sum intended to pay for musician and production costs. These monies, along with certain promotion costs, are recoupable against future royalty payments. If “independent promoter fees” are counted as part of the recoupable recording company expenditures, then the musicians themselves, in the final analysis, are paying these fees.)

So a newly-formed group, attempting to be heard, is not only up against the major record companies with their lock on the CD distribution networks (see President’s Report and the Aronowitz/Roberts report in last October’s Allegro) but the stranglehold that media conglomerates have on the airwaves. Big companies are talking to big companies about market share, not about accessible, open and diverse public airwaves. When you add in Clear Channel’s extensive control of live performance venues (last year alone it produced 26,000 events, making up about 70 percent of the market) it becomes evident that musicians wishing to enter the field will, in all likelihood, enter it on these companies’ terms.

The obvious reach of Clear Channel and the amount of control of the industry it can exercise are especially troubling. In addition to radio and “live” performance activity, this company also controls some 700,000 billboards and is reportedly in negotiations with the largest of the “independent” promotion firms, Tri-State Promotions and Marketings.

From the listener’s point of view, anything you hear on pop radio has probably been processed, programmed and packaged to such a degree that any “independent” element or original initiative has disappeared.

There is, I’m pleased to say, an attempt being made to address this problem. On May 24 ten music industry groups, including the AFM, issued a press release describing the situation fully and asking for government action. AFM President Tom Lee was quoted as saying: “The art of music and the business of music both suffer when a de facto payola system means that recording artists must pay small fortunes in so-called independent promotion fees for the chance to be heard on the radio. When you add to that the potential for a handful of radio station groups to lock up huge portions of the live music business by owning concert promoters and live performance venues – and then to pressure artists to perform only in their venues and only for their promoters – the effect is ruinous for artists, consumers and the growth of American music and culture.”

The group – which also included, among others, AFTRA and the RIAA – specifically asked:

  1. That independent promotion fees, unless disclosed over the air, be prohibited.
  2. That there be an investigation of the effects of the consolidation of radio station ownership.
  3. That there be an examination of the “vertical integration of ownership in broadcasting, concert promotion and concert venues.”
  4. That non-commercial air space be protected.

Then, on June 13, Sen. Russ Feingold (D-Wisc.) made a lengthy statement on the Senate floor referring to the May 24 press release, outlining the problems in some detail, and promising to introduce legislation “to address the concerns about concentration and anti-competitive practices that have resulted from the [1996] Telecommunications Act.”

We should all look forward to this legislation and encourage Senator Feingold in his efforts. The public airwaves belong to all of us. Government oversight is appropriate. And no single company should be treating radio as if it was their own corner candy store – and maybe the only store in town.

(Much of the information contained in this report was obtained from Senator Feingold’s statement on the floor and from several lengthy conversations with AFM Legal Counsel Patricia Polach of the firm Bredhoff & Kaiser.)