Big Media Big Targets
Deregulation-bred behemoths draw increasing flak from inside Beltway and out
By Bill McConnell -- Broadcasting & Cable, 6/2/2002 8:00:00 PM
Ann Chaitovitz and other union negotiators for TV and radio artists sat across from executives of the five largest record labels May 23 for the latest round of contract negotiations covering 15,000 singers, music groups, narrators and actors.
Before they launched into the typically contentious issues of royalties, insurance and pensions, Chaitovitz briefed the executives on a separate matter that would put the two sides on solidly common ground. The next morning, the American Federation of Television and Radio Artists (AFTRA) and the record labels issued a joint condemnation of the media giants "ruining" the American music industry. Big radio-station groups are pushing a de facto payola system, they said, that forces artists to pay a handful of promoters to secure programming time.
The recording industry isn't the only sector pumping up the volume against the country's giant broadcast station groups, cable operators and programming networks.
Advertisers, small broadcasters and Congress are speaking out against what they consider an increasingly monopolized media industry that makes it nearly impossible for new and independent artists to get airplay or pitch shows or for small advertisers to buy time.
"For some time, our interests have been aligning with the record labels when it comes to consolidation," says Chaitovitz, AFTRA's national director of sound recording. "We hope the FCC, Congress and the Justice Department will look at the impact vertical consolidation of the industry is having on musicians and actors."
Although there is no formal coalition to fight media concentration, opposition to the consolidation wave is starting to gel. For the first time since the FCC's 1993 repeal of the financial-interest and syndication rules (fin-syn), which prevented broadcast networks from owning a financial stake in the domestic syndication of network programming, the pieces of a broad-based opposition to media consolidation appear to be falling into place.
"There is growing recognition that consolidation has been harmful," says Andrew Schwartzman, of Media Access Project, a public-advocacy group that has fought a largely futile battle against deregulation.
The same week that AFTRA, the Recording Industry Association of American and other consumer and independent media advocates were urging Washington to eliminate the bottleneck created by promoters, a team of powerful lawmakers fired their own warning shot across the bow of big media groups.
Led by South Carolina Democrat Fritz Hollings, three senators called on the FCC to investigate the effect that consolidation is having on programming and demanded that the FCC back off on any ownership deregulation until the review is complete. "The effort to promote diverse voices has been undermined over the last decade by extensive media concentration and changes to FCC rules," the senators said.
Network officials, who wouldn't speak on the record, say they believe that Hollings doesn't have the power to roll back the past decade's deregulation but is trying to stem future relaxation by making clear that there will be an expensive battle to overcome his legislative roadblocks. Hollings can also threaten to cut the FCC's budget as punishment for moving too far.
"He's telling the FCC, 'We're watching you,'" says one network executive.
Adds Scott Cleland, analyst for the Washington-based Precursor Group, "Capitol Hill wants to keep the FCC on a leash, and, every now and then, they yank the leash."
The senators' stand comes as the FCC is undertaking a sweeping review of media-ownership limits and is examining whether it should preserve program-access rules requiring cable operators that own programming networks to sell their shows to satellite-TV competitors and independent cable operators. The program-access rules expire in October, and the FCC is expected to propose revisions to national and local media-ownership limits next year. The FCC also is reconsidering cable channel-occupancy limits that bar operators from devoting more than 40% of their capacity to affiliated programmers.
On top of that, two major merger reviews are under way: Comcast is vying to more than triple its size by buying the country's largest MSO, AT&T Broadband, while EchoStar hopes to become the sole direct-broadcast-satellite provider by acquiring rival DirecTV.
Few mergers have been blocked since the deregulatory Telecommunications Act was passed in 1996. Last week, the FCC continued its favorable treatment of industry deals by approving Clear Channel's purchase of the Ackerley Group's 16 TV stations and four radio outlets. The radio and outdoor-ad giant is now the 17th-largest TV group. Also, Clear Channel was given 12 months, rather than the standard six, to sell stations in five markets where its holdings violate local crossownership limits.
The Comcast-AT&T deal is expected to be approved because the cable ownership limits have been vacated, but the Justice Department is expected to take a harder line on the EchoStar-DirecTV deal.
Since 1994, when cable operators held a stake in 53% of national cable networks, the percentage has dropped to 35% of 285 national programming networks. Those figures prove that the program-access rules should go away, the cable industry argues.
But supporters of the rules say cable operators still retain control over some of the most widely viewed cable networks and wield sufficient power to dictate prices and muscle their affiliated networks' rivals out of channel space.
The massive wave of consolidation was launched by the '96 Telecommunications Act, which eliminated the national cap on radio-station ownership reach, lifted the cap to 35% on TV-household reach and greatly relaxed local ownership limits.
In radio, the average number of station owners in each market has dropped from 13.5 to 10.3 since 1996. The number nationally has dropped 25%, from 5,100 to 3,800, even as the total number of stations increased.
The biggest broadcast networks are now clamoring for the FCC to let them buy more stations, and conglomerates such as AOL Time Warner, Disney and Viacom have become dominant players in nearly every facet of the entertainment business.
Federal judges set the stage for further deregulation in February 2001 by ordering the FCC to redo the 30% cap on a cable company's share of pay-TV audience. Since then, additional court rulings have greatly increased chances that the FCC will relax limits on national TV reach, on operation of two TV stations in a market, and on crossownership in local markets. Additionally, the D.C. Circuit Court, interpreting the congressionally mandated biennial regulatory review, said the FCC must either justify keeping ownership rules on the books or throw them out.
Unprecedented market power has emboldened the giant companies to abuse their positions, their critics say. The worries prompted the so-far unsuccessful battle for industry-wide open-access rules requiring cable companies to carry competing Internet providers on their broadband platforms. Time Warner systems, however, are obligated to carry unaffiliated ISPs as a condition of the MSO's merger with America Online.
Although the battle for open-access rules is being waged to prevent cable from discriminating against rivals in the future, the forces pushing for tighter radio regulation say that industry is being damaged today.
AFTRA charges that Clear Channel and other dominant radio groups have found a way to get around the ban on paying stations to play specific songs, a blatantly illegal practice banned in the 1960s. In today's "de facto payola," stations tend to build their playlists from songs suggested by promoters in exchange for a fee, union officials say. Sometimes, the funds originate from the record labels themselves.
"This is a loophole in the rule," Chaitovitz says. "We hope the FCC and Congress will revise the rules."
AFTRA also has charged that, in markets where Clear Channel often owns six to eight stations, it is all but impossible for local and independent artists to get play because the company relies on national playlists that dictate songs each station airs.
Clear Channel officials declined to comment for this story.
But it's not just artists, media watchdogs and a few lawmakers who are questioning the scope of media consolidation. Some industry players are beginning to complain, too. Clear Channel's competitors in several markets have lined up to block acquisitions of their local competitors by the radio giant.
"We've gone from one voice to a multitude of voices questioning the wisdom of massive consolidation and domination of a local market by a company," said Howard Topel, a Washington attorney helping Davis Broadcasting's fight at the FCC against Clear Channel's purchase of a competing outlet in Columbus, Ga. "The momentum could reach the point where the commission has to respond."
Those opposed to relaxation of the TV ownership limit have a surprising ally: the National Association of Broadcasters. Worried about the power of the broadcast networks, the smaller station groups that now control the NAB have put the powerful lobby to work on the side of keeping the limit in place. With no apology for inconsistency, the NAB still supports relaxing other TV and radio ownership rules.
The advertising industry doesn't have a unified stance on deregulation either, so trade groups such as the American Association of Advertising Agencies have stayed out of the fight. "Some people don't see the problems I see," says Allen Banks, national media director at Saatchi & Saatchi. "The FCC and the Justice Department rationalize deregulation on the argument that you can move to another platform if one company dominates one platform in a market. But you can't avoid the guy who's screwing you in TV by going to radio because he's likely to screw you there, too."
But Saatchi & Saatchi Director of Local Investment Kevin Gallagher says consolidation created unprecedented ability to drive down audience-reach costs by striking package deals with large local groups. "This has opened opportunities for advertisers to negotiate packages that are advantageous to clients."
How far the FCC will go to assuage critics of Clear Channel and opponents of media concentration in general remains an open question. Chairman Powell is taking an analytical approach (see box, page 20) and warning that there's no sure vote for deregulation: "I'm one of those moderate moderate Republicans who bristle at the suggestion that all we do is get up in the morning and decide to do away with the next 50 regulations."
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