The Radio “Monopoly” Myth

by on March 18, 2005 · 10 comments

The radio industry is commonly cited by many media critics as a poster child for the supposed evils of media consolidation. While it is true that a large number of acquisitions took place in the radio market following relaxation of the radio ownership rules back in 1996, the reality is that the radio marketplace–properly defined–is very competitive and nowhere near being the “monopoly” that some critics claim.

Take, for example, all the hand-wringing over every media critic’s favorite villain: Clear Channel Communications. If you believed the rhetoric spouted by the critics, you’d guess that Clear Channel, which now owns over 1,200 stations nationwide, has a stranglehold on this marketplace. OK, now here’s a quick reality check: Clear Channel’s 1,200 stations represent less than 10 percent of all radio stations in the America. That’s right, less than 10 percent. Does that sound like a monopoly to you?


OK, let’s get a little more sophisticated with our analysis here and pull out the old Herfindahl-Hirschman Index (HHI). For those of you who wisely avoided those dreadfully boring Econ 101 classes in college, the HHI is the sum of the squared market shares of every firm in a certain market. A perfectly concentrated marketplace, therefore, would consist of a single firm with 100 percent market share, or a 10,000 HHI (100 squared). If a given market had five perfectly equal competitors with 20 percent market share, the HHI would be 2000. Antitrust officials at the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have adopted the HHI as tool to help them determine when an antirust case should be brought or a proposed merger denied. As a general rule of thumb, a market exhibiting an HHI below 1,000 is viewed as unconcentrated, a market with an HHI between 1,000 and 1,800 is considered moderately concentrated, and a market with an HHI over 1,800 is viewed as highly concentrated under current DOJ and FTC guidelines.

So, would you care to guess what the HHI for the radio sector is? According to a Goldman Sachs survey conducted two years ago, it’s a whopping 469, and that’s if you compute it using industry revenues. If you use the raw number of firms in the sector to make the computation, the HHI for radio is 92. That’s right: 92! Of all the HHI surveys I’ve reviewed in my life, I don’t think I’ve ever seen a result lower than 100. Most mature industries are well over 1,000, usually much higher.

Now here’s the real kicker: These HHI surveys of the radio industry don’t even include competition from new sources, like satellite radio, Internet radio, or iPods!!! Of course, it would be hard to throw those sectors or technologies into the mix and make a sensible computation, but we all know that those services have quickly become substitutes for traditional radio programming. Think I’m wrong about that? Then pick up today’s Wall Street Journal and look at the Page 1 article entitled by Sarah McBride entitled, “Hit by iPod and Satellite, Radio Tries New Tune: Play More Songs.” McBride points out that traditional radio operators, who have seen their revenues level off or even drop significantly in recent years, are scrambling to adopt new formats and cut advertising time in an effort to win back the customers they have lost to the competition.

Since it’s inception in 2001, satellite radio (XM & Sirius) has already nabbed over 4 million subscribers and they just keep growing and stealing talent (like Howard Stern & NPR’s Bob Edwards) away from traditional radio. And iPods foreshadow a day when consumers will be able to carry their entire music collection with them, potentially even on their cell phones. And then there’s the whole file sharing craze.

In sum, the traditional radio industry will need to continue to reinvent itself to remain relevant. “Radio hasn’t lost its primacy, but it has lost its critical mass,” argues Sean Ross, a radio consultant for Edison Media Research. “It doesn’t mean it won’t have a share of the audience. It just means that the share it gets will be smaller and smaller.”

That’s exactly right. So next time you hear someone from the Chicken Little media critic crowd ranting about how radio is a “monopoly,” ask them (1) how a “monopoly” business could be hemorrhaging so much money and listeners; and (2) if they’ve ever heard of satellite radio and iPods. Don’t be surprised if they try to change the subject.

  • http://scalefree.net Tim Keller

    Nobody (nobody I know anyway) is saying Clear Channel has a nationwide monopoly, so let’s drop that strawman. FYI, if you measure market share instead of number of stations, Clear Channel jumps to 25% nationwide. In some markets (Minneapolis for instance) it’s past the 70% needed for a true monopoly. The real issue is its anticompetetive behavior, which is well documented. Don’t play with numbers, address Clear Channel’s proven & excessive abuse of position & synergy between divisions, markets & sectors.

    Tim

  • http://scalefree.net Tim Keller

    Nobody (nobody I know anyway) is saying Clear Channel has a nationwide monopoly, so let’s drop that strawman. FYI, if you measure market share instead of number of stations, Clear Channel jumps to 25% nationwide. In some markets (Minneapolis for instance) it’s past the 70% needed for a true monopoly. The real issue is its anticompetetive behavior, which is well documented. Don’t play with numbers, address Clear Channel’s proven & excessive abuse of position & synergy between divisions, markets & sectors.

    Tim

  • Neil

    Looking at the number of stations as a nationwide total misses the point entirely. If I am a listener in a market served only by CC stations, I have no choice in radio. In my market, CC owns eight stations. They include the most pouplar rock station, two of the most popular alternative stations, and two of the most popular country stations. That is not popularity based on years of building audience loyalty through excellence in CC programming. It is popularity that they bought in this market and are in the process of killing off. I know this is also the case in other markets I travel to. I would argue that radio has lost two or three generations of listeners since 1996 – the current generation and those of us older (former) listeners who have abandoned radio altogether. With the other alternatives out there today, I, personally, will never go back to radio. I suspect that radio was doomed anyway. Technology was going to overtake it no matter what. But the Buggles had it wrong – CC killed the radio star.

  • Neil

    Looking at the number of stations as a nationwide total misses the point entirely. If I am a listener in a market served only by CC stations, I have no choice in radio. In my market, CC owns eight stations. They include the most pouplar rock station, two of the most popular alternative stations, and two of the most popular country stations. That is not popularity based on years of building audience loyalty through excellence in CC programming. It is popularity that they bought in this market and are in the process of killing off. I know this is also the case in other markets I travel to. I would argue that radio has lost two or three generations of listeners since 1996 – the current generation and those of us older (former) listeners who have abandoned radio altogether. With the other alternatives out there today, I, personally, will never go back to radio. I suspect that radio was doomed anyway. Technology was going to overtake it no matter what. But the Buggles had it wrong – CC killed the radio star.

  • http://www.ideasfordozens.com Greg

    What happens when you limit the pool to large urban markets? I bet these market percentages go way up and even push the numbers necessary for monopoly status. For example, according to Journalism.org, Clear Channel’s 1194 stations (which is more than the next seven competitors combined, by the way, including both Viacom subsidiaries, Infinity and Citadel) are spread throughout abou 180 markets making for more than six stations in each market. What do you want to bet that these 180 markets include at least the 100 largest media markets in America? Can you even name six radio stations in your market? What about if you don’t include public radio? When you look at it this way, even though Clear Channel doesn’t literally own a monopoly share of all radio stations, it starts to look very much like they have a monopoly share of the actual market, of ears if not frequencies. But isn’t that the metric that really matters?

  • http://www.ideasfordozens.com Greg

    What happens when you limit the pool to large urban markets? I bet these market percentages go way up and even push the numbers necessary for monopoly status. For example, according to Journalism.org, Clear Channel’s 1194 stations (which is more than the next seven competitors combined, by the way, including both Viacom subsidiaries, Infinity and Citadel) are spread throughout abou 180 markets making for more than six stations in each market. What do you want to bet that these 180 markets include at least the 100 largest media markets in America? Can you even name six radio stations in your market? What about if you don’t include public radio? When you look at it this way, even though Clear Channel doesn’t literally own a monopoly share of all radio stations, it starts to look very much like they have a monopoly share of the actual market, of ears if not frequencies. But isn’t that the metric that really matters?

  • Jordan

    You are just a partisan hack shilling for the Republican Party, which wants to give big media companies everything they want so they will support Republicans politically. Think I’m kidding? Look at the political donations of Clear Channel execs. Look at how Republican-controlled Sinclair Broadcasting decided to preempt prime-time programming and air a blatantly anti-Kerry documentary days before the election. Look at how Pappas TV Group gave away free airtime to Republican candidates but not Democrats. Why did George Bush want to let newspapers own TV stations in the same town? So newspapers will slant their coverage in favor of Bush and his policies. Your snarky attitude can’t disguise the media-Republican mutual backscratching going on here, nor does it hide your complete misunderstanding of HHI. Who argues that CC has a national monopoly? Only you, so you can proceed to “disprove” that theory. Radio is local you loon, or perhaps you didn’t notice. And locally, CC dominates by market share many markets it is in. The silver lining here is that it turns out Bigger Is Actually Worse. The bigger CC gets, the more they look at radio as if they are manufacturing paper clips or bread — it’s all about efficiency. After they got big (thanks, Republican Congress), they must hired a bunch of MBAs who brilliantly figured out that machines are better at figuring out what people want to hear more than people are. Well look where they are now. The value of their radio stations is going into the toilet. So I say let them get bigger. By 2008, they’ll be gone from the face of the earth, and their lackeys like you can find some more strawmen to push around.

  • Jordan

    You are just a partisan hack shilling for the Republican Party, which wants to give big media companies everything they want so they will support Republicans politically. Think I’m kidding? Look at the political donations of Clear Channel execs. Look at how Republican-controlled Sinclair Broadcasting decided to preempt prime-time programming and air a blatantly anti-Kerry documentary days before the election. Look at how Pappas TV Group gave away free airtime to Republican candidates but not Democrats. Why did George Bush want to let newspapers own TV stations in the same town? So newspapers will slant their coverage in favor of Bush and his policies. Your snarky attitude can’t disguise the media-Republican mutual backscratching going on here, nor does it hide your complete misunderstanding of HHI. Who argues that CC has a national monopoly? Only you, so you can proceed to “disprove” that theory. Radio is local you loon, or perhaps you didn’t notice. And locally, CC dominates by market share many markets it is in. The silver lining here is that it turns out Bigger Is Actually Worse. The bigger CC gets, the more they look at radio as if they are manufacturing paper clips or bread — it’s all about efficiency. After they got big (thanks, Republican Congress), they must hired a bunch of MBAs who brilliantly figured out that machines are better at figuring out what people want to hear more than people are. Well look where they are now. The value of their radio stations is going into the toilet. So I say let them get bigger. By 2008, they’ll be gone from the face of the earth, and their lackeys like you can find some more strawmen to push around.

  • Erik

    “Clear Channel owns all six of the commercial radio stations in the Minot, North Dakota market…In early 2002, a hazardous chemical spill occurred in North Dakota. Attempts by emergency response personnel to engage the local radio stations in broadcast warnings to local residents were futile. All six of the stations were operated by remote control, and were airing prerecorded satellite feeds from Clear Channel HQ in San Antonio, Texas.” -Anthony Varona, Minn. Journal of Law, Dec. 2004
    -Chicken Little, you say?

  • Erik

    “Clear Channel owns all six of the commercial radio stations in the Minot, North Dakota market…In early 2002, a hazardous chemical spill occurred in North Dakota. Attempts by emergency response personnel to engage the local radio stations in broadcast warnings to local residents were futile. All six of the stations were operated by remote control, and were airing prerecorded satellite feeds from Clear Channel HQ in San Antonio, Texas.” -Anthony Varona, Minn. Journal of Law, Dec. 2004
    -Chicken Little, you say?

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