Radio: Consolidation puts a mega-hurt on indies

Behold Chris Brennan, a rare species. At the end of August, the president of One-on-One Sports Inc., based in suburban Northbrook, Ill., completed his $18 million purchase of New York’s WXLX-AM. He plans to replace its Spanish-language music format with jock talk in early September. This will pit the new kid Brennan against the mighty WFAN-AM, whose $42.3 million in commercial revenue last year was tops in the entire country. In other words, Brennan’s arrival in the Big Apple casts him as a vanishing breed, the independent operator in an industry of ever larger and more powerful groups of stations amid consolidation mania. “Yeah, I guess it’s like a David and Goliath situation,” he says.
In New York, 13 owners, controlling 27 of the 50 or so stations, dominated the listening habits of the local audience in 1996 and collected 96 percent of the $501 million spent on radio advertising in the market, according to BIA Research Inc.’s State of the Industry ’97. Less than half the number of owners have cornered more than 90 percent of radio revenue in Philadelphia, Detroit and Boston. Indeed, the bigger players have so expanded their holdings, reducing the number of owners last year by 357 (or 6.8 percent), that BIA’s analysis of the country’s top 100 markets shows that an average of 5.1 entities per city accounted for 92.1 percent of market revenue.
These were the startling numbers at the end of last year, only 10 months after President Bill Clinton raised the limits on how many stations a company could own by signing the landmark Telecommunications Act of 1996.
This year, of course, the game of can-you-top-this has intensified. Chancellor Media Corp. is about to become one of the nation’s top three radio groups, following the approval-pending merger of Chancellor Communications Corp. and Evergreen Media Corp., and the new entity’s $1-billion purchase of 10 Viacom stations from Sumner Redstone. In addition, Clear Channel Communications, which already owns 123 stations, recently announced it is acquiring the 46 outlets of Paxson Communications as part of a $693-million package that will swell the buyer’s business to 53 stations in Florida alone. And as summer faded into the Labor Day weekend, two other megadeals were coming into view. SFX Broadcasting Inc., the eighth-largest group, was being picked up by Hicks, Muse, Tate & Furst for $2.1 billion and assumed debt, thereby expanding the Dallas buyout firm’s Capstar Broadcasting Corp. to a total of 314 stations in Dallas, Pittsburgh and 77 other markets. And American Radio Systems Corp., the fourth-largest, was being shopped by Credit Suisse First Boston for billions more.
“Arithmetically, the consolidation has to end sometime, and my best guess would be two or three years on the outside,” says Peter Bowman, vice president of BIA Consulting Inc., a strategic and financial adviser to broadcast companies. “I think it’s conceivable that we’ll have groups consisting of as many as 500 radio stations.”
Although media buyers have expressed fears that consolidation will drive up ad rates, putting them in a take-it-or-leave-it bind, Radio Advertising Bureau president Gary Fries says that impressive demand (national ad revenue is up 16 percent in the first six months of 1997) already has driven up rates. Stations, he says, will also benefit from better management. “Consolidation is going to bring more solid radio avails and more-focused inventory to advertisers,” says Fries.
Another development to watch is consolidation’s effect on programming. A common view is that it may result in more homogenization of formats on the dial. However, Veronis, Suhler & Associates’ latest Communications Industry Forecast sees the need for diversity in programming. Defining consolidation in terms more familiar to makers of laundry detergent and breakfast cereal, the investment bank foresees “a battle for shelf space,” as debt-loaded operators seek to reach larger segments of the listening audience and exercise greater clout with advertisers and vendors.
“People who were once broadcasters have become nothing more than real-estate speculators,” says Robert Feder, radio columnist for the Chicago Sun-Times. “From the consumer’s point of view, I’ve seen no good that’s come of consolidation.”

ZENITH +4.9%
’97 SPENDING: $11.2 bil*
’96 SPENDING: $10.9 bil*
Source: Zenith Media