Report: Consolidation Pressures Ad Rates
The battle between seller and buyer is nothing new, but the 1996 Telecom Act shook up the radio industry and gave unprecedented power to the companies that have grown to control the largest shares of listeners, according to a new report.
“Consolidation could be a huge danger,” Future of Music Coalition director of economic analysis Peter DiCola tells MediaPost, adding that he believes the hardest hit are the small, local advertisers that are competing with large agencies that often ink cross-market deals with the large radio groups at sharply reduced cost per point. “That’s good news for people buying national advertising in bulk in the national marketplace, but not for local advertisers who just care about one market,” he says.
DiCola says the radio industry is quickly becoming an oligopoly, or to put it in non-economists speak: a few companies control the industry. “With respect to listenership, the radio industry is now very close to becoming an oligopoly. With respect to revenue, it already is one,” he writes in the Coalition’s report: “Radio Deregulation: Has It Served Citizens and Musicians,” released Monday in Washington, DC. What worries economists and ad buyers alike, says DiCola, is when too few companies control the advertising inventory, is the threat rates could be raised with little whim to what the marketplace supports. “In a competitive market, companies can charge only what the market will bear, where supply meets demand. In an oligopolistic market, companies have more freedom to make their pricing decisions,” he writes in the FMC report.
A separate report done by economists working for the Federal Communications Commission found that between the passage of the 1996 Telecom Act and 2001, radio advertising rates increased 68%. While it cites consolidation for a small amount of the increase, it found the overall increase in the health of the advertising medium and of radio pushed prices higher.
“This report has as much credibility as Miss Cleo,” responds National Association of Broadcasters (NAB) spokesman Dennis Wharton. The broadcasters’ lobby group says the FMC study contains “inaccurate conclusions” about the radio industry. The NAB is not only shooting down its conclusions but the methodology. “It’s clear that the questions in the FMC survey were framed in a biased manner. Therefore, this survey has little credibility,” says NAB in a point-by-point rebuttal. It also notes several other studies that found consolidation has actually led to a greater number of varying formats. One study, by Bear Stearns, directly links the 1996 Telecom Act to a 7% increase in format diversity.
Radio groups concede their aim is to raise rates, not unlike all other ad sellers. But broadcasters insist their ability to increase CPMs is limited by what ad buyers will go for. Their fear is that if rates get too high, radio’s pricing advantage over television will disappear, and so too will the dollars.
Beyond advertising, FMC says statistical evidence shows that although consolidation has increased the number of music formats it has also led to music playlists that are remarkably similar across formats. The report says 76% of the 50 most-played songs on stations labeling themselves as “top 40” also are among the 50 most-played songs on “urban” stations. While acknowledging there has always been a certain amount of crossover, FMC argues the overlap has increased 18% over the past four years. It also charges that the biggest radio groups are limiting choice by airing similarly formatted stations in the same market. For instance, FMC says Clear Channel has 143 stations with similar formats.
Using statistics that show the top four radio groups control 52% of listening, the Coalition is hoping its research will help sway the FCC away from further deregulation in its current review of media ownership rules. When that process is completed next spring, the government may allow radio groups to control a larger portion of the market.