**FEDERAL COMMUNICATIONS COMMISSION**

**MASS MEDIA BUREAU**

**POLICY AND RULES DIVISION**

**WASHINGTON, D.C. 20554**

**REVIEW OF THE RADIO INDUSTRY, 2000**

**January 2001**

**EXECUTIVE SUMMARY**

On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996. Section 202 of the 1996 Act eliminated
limits the FCC had previously placed on the number of radio stations a
single entity could own nationally. It also significantly relaxed limits
the FCC had placed on ownership of radio stations in a local market. On
March 7, 1996, the FCC implemented these provisions of the 1996 Telecom
Act by revising Section 73.3555 of our Rules (47 C.F.R. §73.3555) to
eliminate the national multiple radio ownership rule and relax the local
ownership rule.

On March 13, 1998, the Mass Media Bureau Policy and Rules Division
released the \"Review of the Radio Industry, 1997\" (\"1997 Radio
Review\") examining changes in various aspects of the commercial
broadcast radio industry as a result of the implementation of these
provisions of the Telecom Act. That report covered a period of 20 months
from March 1996 through November 1997. It indicated a trend toward
consolidation of radio station ownership resulting in fewer owners at
both the national and local levels. This report provides an update of
the impact of the Telecom Act through March 2000.

Overall, there has been an increase in the number of commercial radio
stations of 5.1 percent between March 1996 and March 2000. The number of
radio owners declined by 22 percent during the same period. This decline
is primarily due to mergers between existing owners. As explained in the
body of the report, the decline in the number of radio owners nationally
and locally reflected in the report may be understated due to
limitations in the data used to compile the report. Over the same
period, there has also been an increase in the size of the largest radio
group owners. In 1996, the two largest radio group owners consisted of
less than 65 radio stations each. As of March 2000, the two largest
radio group owners consisted of more than 440 radio stations each. By
the end of 2000, the two largest radio groups merged, so that now Clear
Channel Communications owns over 1,000 radio stations, and the second
largest group owner has approximately 200 stations.

At the local level, there continues to be a downward trend in the number
of radio station owners in Arbitron Metro markets. Further, the top
owners in each Metro market generally account for an increasing share of
the total radio advertising revenues in these markets. The largest firm
in each radio Metro market has, on average, 45 percent of the market's
total radio advertising revenue. The largest two firms in each radio
market have, on average, 70 percent of the market's radio advertising
revenue. However, there does not appear to be any downward trend in the
variety of radio formats available to consumers in these markets.
Acquiring radio companies appear to have pursued format diversification,
rather than format concentration strategies.

The financial-market trends reported in the \"1997 Radio Review\"
continue to hold through 1999. An analysis of publicly-traded companies
whose primary business is radio broadcasting continues to reflect strong
financial performance. However, publicly-traded radio companies still
carry heavy debt loads, which contributes to the high volatility
observed in their earnings. Finally, the high debt loads of these
publicly-traded radio companies also contribute to the volatility of
their stock market valuations. Having said that, their overall company
valuations have outperformed the broad market of publicly-traded
companies, as reflected in Standard and Poor\'s 500 (S&P 500) index
returns.

This report also examines the performance of small radio station-groups.
Radio stations in small station-groups do not perform as well as
stations in large station-groups.

**1. Overview**

In an *Order* adopted March 7, 1996, the Commission implemented the
provisions of the Telecom Act of 1996 directing it to revise its rules
concerning national multiple as well as local radio ownership. These
provisions first required that the Commission eliminate its national
ownership rule that limited the number of AM and FM stations one entity
could own or control on a nationwide basis to no more than 20 AM or 20
FM stations. The provision that permitted an entity to own an additional
3 AM and 3 FM stations if they were small business-controlled or
minority-controlled was also eliminated. Next, these provisions required
that the Commission relax its local ownership rules such that:

a\. In a radio market with 45 or more commercial radio stations, an
entity would be allowed to own, operate, or control up to 8 with not
more than 5 in the same service;

b\. In a radio market with between 30 and 44 commercial radio stations,
an entity would be allowed to own, operate, or control up to 7 with not
more than 4 in the same service;

c\. In a radio market with between 15 and 29 commercial radio stations,
an entity would be allowed to own, operate, or control up to 6 with not
more than 4 in the same service;

d\. In a radio market with 14 or fewer commercial radio stations, an
entity would be allowed to own, operate, or control up to 5 with not
more than 3 in the same service, subject to the limitation that no
entity be allowed to own, operate, or control more than 50% of the
stations in these markets.

On March 13, 1998, the Mass Media Bureau Policy and Rules Division
released the \"1997 Radio Review\" examining changes in various aspects
of the commercial broadcast radio industry as a result of implementing
these provisions of the Telecom Act. The report covered the period of 20
months from March 1996 through November 1997, and indicated a trend in
the consolidation of radio station ownership resulting in fewer owners
at both the national and local levels.

This report is an update of the impact of the Telecom Act on the
commercial broadcast radio industry through March 2000. It is organized
into four parts. The first part, reported in Section 2, examines changes
in the radio industry from a national viewpoint, *i.e.*, broad changes
to the radio industry focusing on the number of owners and the number of
stations held by the largest group owners. Next, Section 3 examines
changes in the radio industry at the local level, specifically examining
various indicia of diversity and concentration in each of the areas that
Arbitron identifies as a local radio market. Section 4 compares the
financial performance of several publicly-traded radio companies to
firms in the S&P 500. Finally Section 5 analyzes the performance of
small radio group-owners and small radio Metro markets.

**2. Changes in the Radio Industry - A National View**

The trends in the radio industry that were evident from March 1996 to
November 1997 continued through March 2000. Before discussing the
specific changes, however, it is necessary to spell out certain
assumptions used in the analysis. This report uses the BIA MasterAccess
Database of radio stations. BIA regularly updates its database and
continues to improve the data it reports. To improve comparability
amongst the various time periods, certain changes were made in the March
1996, November 1997 and November 1998 databases. In order to make the
March 2000 data comparable with the previous years' data, the following
changes were made.

First, BIA presents the ownership data to reflect \"pending\" or
\"proposed\" transactions. This means that when company \"A\" announces
that it will purchase company \"B\", the owner of company B\'s radio
stations are identified as \"A.\" If the proposed transaction does not
eventually occur, either in whole or in part, BIA then readjusts the
ownership data. In describing the radio mergers, it makes more sense to
document the effect of only those mergers that have been completed.
Therefore, we have corrected ownership data from BIA so that it reflects
only mergers that have been completed.[^1] Second, BIA identifies the
owners of stations subject to a local marketing agreement (LMA)
separately. Since the Commission\'s rules generally attribute an
ownership interest to the brokering station, the BIA data were adjusted
so that the ownership of stations subject to an LMA are attributed to
the owner with the larger national revenues.

Third, in previous databases there had been a format category
"News/Sports" which,

in the March 2000 database, was split into two separate categories:
"News" and

"Sports". To maintain compatibility, for the March 2000 database each
"News" or "Sports" entry was replaced by "News/Sports". Fourth, we note
that the number of markets has increased again, from 268 in November
1998 to 276 in March 2000, and the percentage of stations assigned to
markets has increased from 56 to 57 percent.[^2]

Finally, BIA estimates revenue data annually for approximately 45
percent of the radio stations. Most of the radio stations with missing
revenue estimates are not assigned to Metro markets and are, therefore,
not included in the analysis. The radio stations with missing revenue
estimates that are assigned to Metro markets are usually the low-rated
stations in the market, and they earn a small share of the market\'s
advertising revenues. In order to include these stations in the
analysis, zero values were assigned to the missing data.

With the above caveats in mind, the analysis of the radio industry
follows. The number of commercial radio stations has increased about 5.1
percent since March 1996. As of March 2000, there were 10,779 commercial
radio stations in the United States.[^3] Of these, about 56 percent
(5,992) are FM stations and 44 percent (4,787) are AM stations. While
the number of radio stations has grown, the number of radio owners has
declined by 6.7 percent from March 1996 to November 1997 (from 5,133 to
4,788 owners), by an additional 5.8 percent from November 1997 to
November 1998 (from 4,788 to 4,512), and by another 11.2 percent from
November 1998 to March 2000 (from 4,512 to 4,006). As of March 2000,
there were 4,006 owners of commercial radio stations across the nation,
for a cumulative decline in the number of owners of 22 percent since
March 1996.

The decline in the number of owners reflects a general continuation of
the consolidation of the commercial radio industry that has occurred
since the passage of the Telecom Act in 1996. In each of the last four
years (1996-1999), about 20 percent of radio stations have changed
hands. As a result of this trading activity, there are now 39 radio
station owners with 20 or more stations, compared to 25 in March
1996.[^4] Further, there continue to be changes in the composition of
the top 50 radio group owners, generally reflecting mergers between
companies that were previously among the top 50 radio owners.[^5] Also,
the two largest radio group owners in 1996 consisted of fewer than 65
radio stations each. As of March 2000, the two largest radio group
owners consisted of more than 440 radio stations each, while the third,
fourth and fifth largest held 240, 162, and 120, respectively.[^6] Thus,
the decline in the number of owners of radio stations nationally
reflects mergers or acquisitions between existing owners that has
resulted in larger radio group owners and more group-owned stations.

**3. Changes in the Radio Industry - A Local View**

This report now focuses on changes in the radio industry reflected in
data at the Arbitron Metro level. Arbitron, a nationally recognized
radio audience research firm, has delineated 276 different local
geographic areas, or Metros, to reflect the audiences reached by local
radio stations.[^7] Arbitron Metros generally correspond to Metropolitan
Statistical Areas as defined by the U.S. Government.[^8] About 57
percent of all commercial radio stations are licensed to communities in
the 276 markets. The 276 radio markets consist of nearly 850 counties
and represent more than one-fourth of all counties in the U.S.[^9] More
than three-fourths of the U.S. population of at least 12 years of age
resides in the 276 radio markets.[^10] This delineation of a local radio
market, as defined by Arbitron, is widely used by buyers and sellers of
radio advertising and generally reflects market data as determined by
surveys of listeners.

All figures displayed in the associated charts represent "smooth" lines
rather than the actual data. Smoothing is a statistical technique used
to illustrate or reveal trends in the data. A line representing the
actual data would be filled with jagged ups and downs, much like the
representation of an earthquake on a seismograph. Such a representation
would make it extremely difficult to discern a trend in the data. On the
other hand, a smooth line uses averaging to blunt the jagged ups and
downs of the actual data and to reveal any underlying trends. A point on
a smooth line represents a weighted average of the actual data in an
interval around that point.[^11] The difference in the lines represents
general changes in the radio industry. Because the points on the lines
are averages, the reader should not attempt to use these figures to make
specific market to market comparisons.

**3.1** **Changes in the Revenue Share Earned by the Metro's Top
Owners**

Chart I depicts the current state of concentration in the industry,
showing the one-firm (CR1), two-firm (CR2) and four-firm (CR4)
concentration ratios.[^12] The concentration ratios used in this report
are the percentage of market revenue held by the firm(s) in the market
(one, two, or four) with the largest revenue. This measure of market
concentration is frequently used because of its ease of calculation and
interpretation.[^13] The original data points (denoted by "1", "2" and
"4" for CR1, CR2 and CR4, respectively) as well as the smoothed lines
reveal the extent of concentration in the markets.[^14] There is a clear
tendency for the smaller markets to be more concentrated, which is not
surprising since the smaller markets have fewer stations. Nonetheless,
even the larger markets appear to be somewhat concentrated. In the 50
largest markets, on average the top firm holds 35 percent of market
revenue, the second firm holds 24 percent, and firms three and four
split the next 27 percent. For the 100 smallest markets, on average the
first firm holds 50 percent, the second firm holds 27 percent, and the
next two firms split 19 percent. Overall, in 162 of the 276 Arbitron
radio markets (almost 60 percent of the markets), one entity controls
more than 40 percent of the market's total radio advertising revenue,
and in 79 of these markets (29 percent) the top two entities control
more than 80 percent of market revenue.
![](media/image1.wmf){width="6.489583333333333in"
height="5.013888888888889in"}

Historical perspective is provided in Chart II. This trend of fewer
owners generally earning a larger percentage of market revenue is
further emphasized by looking at the revenue share of the top four
owners in the Metro market. The data suggest that this trend has
substantially tapered off over time. The large increase in concentration
that occurred from March 1996 to November 1997 can be largely attributed
to the relaxation of the local radio ownership rules required by the
1996 Telecom Act, as can the smaller, but still obvious increase that
occurred from November 1997 to November 1998. The subsequent change from
November 1998 to March 2000 is less noticeable.

^3^ Due to the use of "Metro market revenue" to compute shares (see
footnote 12), it is possible for some concentration ratios to slightly
exceed 100%. In such a case, for purposes of graphing, any concentration
ratio that exceeds 100% is changed to 100%.

![](media/image2.wmf){width="5.9944444444444445in" height="4.63125in"}

**3.2 Changes in Ownership Diversity**

Traditionally, the Commission has been concerned with encouraging
diversity in the ownership of broadcast stations so as to foster a
diversity of viewpoints in the programming presented over the airwaves.
One measure of diversity that is of interest to the Commission is the
number of independent owners of radio stations in a local Metro market.
Chart III depicts changes in the number of owners by Metro market area.
This chart reveals that the decline in the number of radio owners
nationally reflects a general trend across Metro markets, and not simply
consolidations in a few large or small Metro markets. In March 2000, the
average number of owners across all Metro markets was 10.7, with a range
of 7.5 in the smallest Metro markets (ranks 101-276) to a high of 26.3
in the \"top 10\" Metro markets In March 1996, the average number of
owners in a Metro market was about 13.5. Thus, from March 1996 to March
2000, there was a cumulative decline of about 3 in the average number of
owners per market. This chart also illustrates that the number of owners
declines as the market gets smaller.

![](media/image3.wmf){width="5.9944444444444445in" height="4.63125in"}

**3.3 Changes in Format Diversity**

Another dimension of diversity of concern to the Commission is program
diversity. Program diversity is reflected, at least in part, by the
number of distinct radio formats available in each Metro market. Chart
IV shows the number of distinct radio formats for each Metro market and
suggests that there continues to be no trend toward change in the
diversity of radio programming available to consumers.[^15] The average
number of radio formats available in a Metro market has been about 10
since March 1996, with a range of about nine formats in the smallest
Metro markets to 16 different formats in the \"top 10" Metro markets.
This chart illustrates that the number of formats declines as the market
gets smaller.

![](media/image4.wmf){width="5.9944444444444445in" height="4.63125in"}

**4. Radio Industry Financial Performance**

This section presents an analysis of the financial performance of the
radio industry, with a particular focus on the radio industry's ongoing
performance since the passage of the Telecommunications Act of 1996. The
financial performance of the radio industry is examined in two ways.
First, a comparison over different time periods of the financial
performance of the radio industry reveals any changes that might have
occurred in the structure of the industry and the conduct of its
participants. Second, the financial performance of the radio industry is
evaluated to assess its ability to attract new funding to finance its
future operations and growth. The following analysis incorporates
several financial performance measures that shed light on these two
considerations.

Several important assumptions underlie the financial analyses of the
radio industry presented in this section. First, the report uses
Standard & Poor's Compustat database to obtain data on publicly-traded
companies whose primary SIC code, or industry classification, was radio
broadcasting (SIC 4832).[^16] In this way, publicly-traded companies
whose revenues are generally derived from their non-radio holdings are
excluded from the analysis. Using this criterion, quarterly data are
used to calculate financial ratios for 18 large, publicly-traded radio
companies, which in total own some 1,937 radio stations and generate
more than 63 percent of total reported radio industry revenues.[^17]
Thus, most of the companies included in the analysis are larger
station-group owners, and therefore may not reflect the performance of
smaller owners (*e.g.*, owners of two or fewer stations). Comparable
data for companies, which are not publicly traded and which would
include many of the smaller radio companies, are not available through
public data sources. Section 5 of this report focuses on an analysis of
small station groups and on radio stations located in small radio
markets.

To give perspective to the calculated financial ratios, this report also
calculates similar ratios for the S&P 500 companies.[^18] The median
value of the calculated financial ratios for the publicly-traded radio
companies are then compared to the median value of the same ratios for
the S&P 500 companies. The median is used, rather than the average, as a
summary statistic, since financial ratios are rarely normally
distributed and outliers (*i.e.*, unusually high or low values) could
distort the analysis. The S&P 500 companies are used to create the
benchmark financial ratios, since the S&P 500 is typically thought of as
representing the broad "market" of U.S. companies.[^19] Thus, the use of
the S&P 500 companies to create benchmark ratios reflects an effort to
create benchmarks based upon a broad swath of public companies.[^20]

Given these caveats, the analysis of the financial performance of the
radio industry follows. This analysis is conducted ratio by ratio, with
attention first given to ratios that focus on the operating performance
of radio companies (*i.e.,* EBIT margins and net profit margins). Ratios
that shed light on the financing of radio companies are then explored
(*i.e.,* total debt as a percentage of total capital, fixed charge
coverage after taxes, market to book ratio, and stock market returns).
All charts appear at the end of this section.

**4.1 EBIT Margins**

The *earnings before interest and taxes margin* (EBIT Margin) is defined
as the ratio of a firm's earnings (before subtracting out interest and
taxes) to the firm's total sales.[^21] As such, this ratio reflects how
efficiently the firm generates profits from its sales, or alternatively
stated, how well the firm minimizes the operating, personnel and
administrative costs of its operations, for a given level of sales. The
ratio represents the \"gross profit margin\" of a company, that is,
before netting interest expenses and taxes. Chart V shows median EBIT
margins for the publicly-traded radio companies (black bars) and for the
S&P 500 companies (grey bars).

Chart V indicates that the quarterly gross profit margins of the
publicly-traded radio broadcast companies have been greater than the
gross profit margins of the S&P 500 companies in 13 out of the last 17
quarters. As well, the gross margins of the radio companies appear to
show a strong seasonality, with gross margins generally highest during
the second and third quarters of the year. Overall, the gross profit
margins of the radio companies have shown very strong performance, in
comparison with the S&P 500 companies, both since the passage of the
Telecom Act at the end of the first quarter of 1996, and when the
comparison is made with the data available prior to passage of the 1996
Act.

**4.2 Net Profit Margins**

The *net profit margin* is defined as the ratio of a firm's net income
to its sales. Thus, the Net Profit Margin reflects the operating
performance of the firm after netting out interest and taxes from the
EBIT Margin, as discussed in the previous section. A comparison of Chart
V that displays EBIT margins with Chart VI that shows Net Profit Margins
suggests that while radio companies are realizing greater gross profits
than the typical S&P 500 company, they are netting less than the
benchmark S&P 500. This relationship could occur because radio companies
are either paying more in taxes than other firms are, or they are paying
more in interest than other firms (*e.g*., use more debt to finance
operations). To address this question, it is necessary to examine the
debt loads of radio companies.

**4.3 Total Debt as a Percentage of Total Capital**

*Total debt as a percentage of total capital* represents a measure of a
firm's debt load. Quarterly data on total debt as a percentage of total
capital are presented in Chart VII. The results in Chart VII suggest
that the publicly-traded radio companies have generally used more debt
than the typical S&P 500 company to finance its operations and growth.
Therefore, the radio companies' lower net profit margins result, at
least in part, from the greater interest expense of these companies,
which is then related to the higher debt loads of the radio companies,
compared to the debt loads of the S&P 500 firms. Another effect of the
greater debt loads (leverage) is the increase in the volatility of
radio-sector earnings compared to the less-leveraged S&P 500 companies.
This increase in volatility can be seen by comparing the variability of
the radio-sector median EBIT margin and net profit margin values with
those of the S&P 500 firms in Charts V and VI, respectively.[^22]

**4.4 Fixed Charge Coverage After Taxes**

*Fixed charge coverage after taxes* is a measure of a firm's ability to
pay its interest expense (to bondholders and other creditors) out of its
net income. This is measured as the ratio of quarterly net income
(before extraordinary items) divided by interest expense, from which
unity is subtracted. Therefore, the ratio measures how many times the
interest expense is \"covered\" by the radio company\'s net income,
which provides a sense of the radio company\'s ability to manage its
debt load. As Chart VIII shows, while not generating the same level of
net income to interest expense as other companies, the publicly-traded
radio companies appear to be generating enough cash flow to meet their
interest obligations.

**4.5 Market to Book Ratio**

Other aspects of a company's ability to finance its operations are its
prospects for future growth and profitability. The *market to book
ratio* is defined as the ratio of a firm's market value of equity to its
book value of equity, which is the accounting value that remains out of
a firm\'s assets after paying off all of the firm\'s creditors. The
market to book ratio is a useful measure of the market's assessment of
that firm's future prospects. The greater a firm's market to book ratio,
the higher the market is assessing that firm's future prospects.

Further, the market to book ratio is a good proxy for a firm's \"q\"
ratio.[^23] The q ratio is defined as the ratio of the market value of
the firm\'s assets to the replacement cost of these assets. Such a ratio
has several interpretations. First, high q values signal that such firms
are earning economic rents. Thus, it signals profitable investment
opportunities within a firm or industry. From this perspective, Chart IX
indicates that the market places higher valuations on radio properties
and operations than those of other companies, such as those reflected in
the S&P 500 median market-to-book values. Indeed, the market-to-book
ratios of the radio companies exceeded those of the S&P 500 companies in
all of the last 17 quarters, as shown in Chart IX. Second, for values of
the ratio greater than unity, it may indicate that the relevant market
is not perfectly competitive.[^24] For example, a high q ratio value may
reflect the ability of a radio station owner to create a format market
for itself, which may lessen competitive pressures, at least until
future competition catches up.

**4.6 Stock Market Returns**

Quarterly stock returns of the publicly-traded radio and S&P 500
companies are calculated by including their cash dividends in the return
calculation.[^25] Therefore, the return measure reflects both stock
price appreciation and the return of cash in the form of dividends to
shareholders. Chart X reports the median quarterly stock returns of the
two groups of companies. The chart suggests that, while the typical
radio company's returns have varied more than that of the typical S&P
500 company, radio company stocks have overall outperformed the broader
market, as reflected in the S&P 500 median stock returns. The greater
volatility of the radio companies' stock market returns is related to
the greater leverage of (greater use of debt by) these companies, as
discussed above.

**5. Performance of Small Radio Station Groups and Small Radio Markets**

This section of the radio report focuses on performance measures for
radio stations located in small radio Metro markets and for radio
stations that are singly-owned or owned as part of a small station group
of commonly-owned stations. Therefore, this section focuses on radio
stations that were not covered in the previous section, which focused on
publicly-traded station group owners. The performance of small-market
stations and stations that are part of small station-groups is compared
in this section with the performance of other radio industry segments.

The analysis in this section is limited to those radio stations that are
located in Arbitron radio metro markets. Data on radio ownership,
Arbitron radio audience share, and estimated gross radio station
revenues are obtained from the BIA database. The analysis is necessarily
limited to Arbitron metro markets, since BIA does not in general provide
the share and revenue estimates for out-of-market radio stations. Note
that in comparison to the financial analysis of the previous section,
the analysis of this section is limited to audience share and revenue
comparisons, since more detailed financial information is available only
for publicly-held companies.

Finally, it is noted that the Commission has a longstanding commitment
toward expanding opportunities and eliminating market entry barriers for
small businesses in the mass media industry.[^26] This commitment
derives in part from Section 309(j) of the Communications Act of 1934,
as amended, which directs the Commission to disseminate licenses for
auctionable spectrum-based services to small businesses, rural telephone
companies, and businesses owned by women and minorities.[^27] In
addition, Section 101 of the Telecom Act of 1996 requires the Commission
to identify and eliminate \"market entry barriers for entrepreneurs and
other small businesses in the provision and ownership of
telecommunications services and information services, or in the
provision of parts or services to providers of telecommunications
services and information services.\"[^28] In carrying out this mandate,
the Commission must \"promote the policies and purposes of this Act
favoring diversity of media voices, vigorous economic competition,
technological advancement, and promotion of the public interest,
convenience and necessity.\"[^29]

The Small Business Administration (SBA) provides a definition of small
businesses for the industry categories identified in the Standard
Industrial Classification code (SIC). For radio broadcasting, SBA
defines a small business as an entity with less than \$5 million in
annual revenues. Using this definition, 95 percent of all radio stations
have annual revenues less than \$5 million, and would therefore be
considered small. Many radio stations, however, are owned as part of a
larger radio station group of commonly owned stations. Therefore, the
present analysis adopts a group owner definition of radio station size,
specifically the number of radio stations under common ownership. Given
this definition, the analysis then examines how audience shares and
station revenues vary by the number of stations in a group of
commonly-owned stations. Finally, since the size of the market may also
influence the rate of entry of new radio stations, the analysis also
examines how station audience shares and revenues vary with the rank of
the radio Metro market.

The results of the analyses are presented in the charts at the end of
this section. First, Chart XI displays the distribution of group sizes
of metro-market radio stations that are under common ownership. As the
chart shows, approximately 17 percent of these radio stations are
\"singletons\" (*i.e.*, owned by a company that owns no other radio
stations); 12 percent of radio stations are held within a group of two
commonly-owned stations; 25 percent of radio stations are held in a
group of size three to ten commonly-owned radio stations; 21 percent of
radio stations are held in a group of size eleven to fifty
commonly-owned radio stations; and 4 percent of radio stations are held
in a group of size fifty one to one hundred commonly-owned radio
stations. Finally, 22 percent of radio stations are held in a group of
over one hundred commonly-owned stations. This last (right-most)
category includes the group owners: Clear Channel Communications, AMFM
Inc., Cumulus Broadcasting Inc., Infinity Broadcasting, and Citadel
Communications Corp.[^30] Group owners of twenty or more stations, along
with the number of their commonly owned stations, are listed in Appendix
B.

Charts XII and XIII analyze performance by radio station group size.
Chart XII indicates that small station groups have the highest
percentage of low audience share stations, and the lowest percentage of
high audience share stations. Similarly, Chart XIII indicates that the
small station-groups have the highest percentage of low-revenue
stations, and the lowest percentage of high revenue stations. In both
charts, the largest station-groups appear to hold the most desirable
stations, *i.e.,* those radio stations with high audience shares and
high revenues. The results presented in these two charts suggest that
group ownership of radio stations is correlated with station
performance.

Charts XIV and XV analyze performance by radio Metro market, which are
ranked from 1 to 276 by declining Metro market population size. Chart
XIV indicates that the smallest Metro markets (those ranked above 200)
have the largest percentage of high-share stations and the smallest
percentage of low-share stations, while the large Metro markets (those
ranked 1- 50) show fewer high-share stations and more low-share
stations. These results are consistent with the observation that large
markets are more competitive. Chart XV shows that while the highest
revenue stations are located in the largest markets, a large percentage
of medium revenue stations (in the range up to \$1 million in annual
revenues) are located in small radio Metro markets.

[^1]: In the 1997, 1998, and 2000 data, BIA identifies which
    transactions are pending, thus making it possible to reassign the
    stations to the \"previous\" owner. However, BIA did not do this in
    the 1996 data.

[^2]: To ensure compatibility amongst different BIA databases, similar
    changes in previous years have required that the previously
    "out-of-market" stations be reassigned to markets for preceding
    years. However, a detailed examination of the current database
    indicated that such reassignment was not necessary for the present
    database, though it may be necessary for future databases.

[^3]: ^?^ The number of noncommercial FM stations increased from 1,828
    in March 1996 to 2,066. More detailed information on stations and
    owners is contained in the appendices. In particular, Appendix A
    summarizes the changes in actual numbers of stations and owners.

[^4]: ^?^ See Appendix B.

[^5]: See Appendix C.

[^6]: By the end of 2000, the two largest radio group owners merged, so
    that now Clear Channel Communications owns over 1,000 radio
    stations, and the second largest radio group owner has approximately
    200 stations.

[^7]: Arbitron Metro markets do not correspond to the Commission's
    definition of a radio station's market for the purposes of applying
    the Commission's radio ownership rules. See 47 CFR § 73.3555(a).

[^8]: ^?^ The Office of Management and Budget designates and defines
    MSAs in 55 Fed. Reg., 12154-12160 (1990). Generally, a Metropolitan
    Statistical Area consists of one or more counties that contain a
    city of 50,000 or more inhabitants, or contain a Census
    Bureau-defined urbanized area with a total population of at least
    100,000.

[^9]: ^?^ There are 3,127 counties and independent cities in the U.S.
    The 847 counties (including portions of counties) and independent
    cities in the Arbitron Metros make up 27 percent of all counties and
    independent cities.

[^10]: ^?^ Arbitron\'s 276 markets represent about 78 percent of the
    U.S. population for those at least 12 years of age. Arbitron does
    not measure radio listening statistics for those under age 12.

[^11]: ^?^ For market 100, for example, the smoothed line will show a
    weighted average of the actual data in markets 90 to 110. The data
    from market 100 gets the most weight, data from markets 99 and 101
    get the next most weight, and so forth. The particular smoothing
    method employed is called "loess" and is described in [The Elements
    of Graphing Data]{.underline} by William S. Cleveland, Hobart Press,
    1994. The specific implementation is from the "lowess" command in
    the statistical package "S-PLUS 2000", with the smoothing parameter
    set to 0.5.

[^12]: BIA estimates both station and market revenues. Due to the
    difficulty of defining a Metro market and then assigning stations to
    a unique Metro market, there are some discrepancies between the
    Metro market revenue and the sum of the station revenues for
    stations in the Metro market. In some cases, there are out-of-Metro
    market stations that nevertheless earn a share of the Metro market
    revenue. In addition, in some cases there are in-Metro market
    stations that earn a share of their revenue outside of their Metro
    market. In either case, the Metro market revenue will be different
    than the sum of the station revenue for stations home to the Metro
    market. Because in the majority of cases the difference is small or
    zero, the station's Metro market share has been defined as its
    revenue divided by the Metro market revenue.

[^13]: Market concentration is a function of the number of firms in a
    market and their respective market shares. Concentration ratios are
    one of the various measures economists use to estimate market
    concentration. Market shares may be calculated as the firm(s)'s
    percent share of revenue, as is done here, or may be calculated as
    the firm(s)'s percent share of audience or capacity. These measures
    are also used by the Department of Justice and the Federal Trade
    Commission as an aid to the interpretation of market data and as an
    indicator of the likely potential competitive effect of a merger.
    See, *e.g.*, [U.S. Department of Justice and the Federal Trade
    Commission, Horizontal Merger Guidelines]{.underline}, Revised,
    April 8, 1997; [Modern Industrial Organization]{.underline}, Carlton
    and Perloff, 2^nd^ edition, pp. 344-349; and [The Economics of
    Regulation and Antitrust]{.underline}, Giles Burgess, pp. 310-312.

[^14]:

[^15]: ^14^ The data on the number of different types of formats per
    market are based on information in the BIA Radio Database. BIA
    obtains specific format information from the radio stations it
    surveys, sorting their responses into broad format categories. The
    categories are Adult Contemporary, Album Oriented Rock/Classic Rock,
    Classical, Contemporary Hit Radio/Top 40, Country, Easy
    Listening/Beautiful Music, Ethnic, Jazz/New Age, Middle of the Road,
    Miscellaneous, News/Sports, Nostalgia/Big Band, Oldies, Religion,
    Rock, Spanish, Talk, Urban, Dark (not on air), No Reported Format.

[^16]: Standard & Poor's produces an electronic database of financial
    information on over 20,000 public companies over more than 20 years.
    SIC denotes Standard Industrial Classification. This is a coding
    scheme for classifying firms according to industry as developed and
    maintained by the U.S. Department of Commerce. Note that the data
    items obtained from the Compustat database are subject to revision,
    as Compustat updates its data.

[^17]: The 18 companies are identified in Appendix E. The number of
    owned stations and the percentage of radio industry revenues were
    calculated based on data in the BIA database, March 2000.

[^18]: ^?^ S&P chooses 500 of the largest publicly-traded companies
    which are intended to represent a broad index of common stocks
    covering most sectors of the U.S. economy. The performance of the
    S&P 500 companies is a good measure of overall stock market
    performance. It is similar to, but has a broader selection of
    companies than, the Dow Jones Industrial Average.

[^19]: Because financial ratios are typically ratios of dollars, they
    are unitless and are difficult to interpret except in comparison to
    some benchmark ratio. Consequently the choice of a benchmark is an
    important choice in financial analysis.

[^20]: Typically when analysts refer to movements in the stock market,
    they use information on movement in the stock prices of the S&P 500
    companies. Thus, the S&P 500 represent firms doing business in just
    about every segment of private enterprise.

[^21]: Compustat calculates the EBIT margin as (((sales + other income)
    -- (cost of goods sold + selling, general, and administrative
    expense + depreciation and amortization))/(sales + other
    income))\*100.

[^22]: Recent research suggests that firms with a higher percentage of
    debt tend to charge higher prices and compete less vigorously than
    firms with a lower percentage of debt. See Judith A. Chevalier,
    "Capital Structure and Product-Market Competition: Empirical
    Evidence from the Supermarket Industry," *American Economic Review*
    85: 415-435; Judith A. Chevalier, "Do LBO Supermarkets Charge More?
    An Empirical Analysis of the Effects of LBOs on Supermarket
    Pricing," *Journal of Finance* 50: 1095-1110. Further, research also
    suggests that an industry's general level of leverage is an
    indicator of its greater concentration and potentially less vigorous
    competition. See, for example, Gordon M. Phillips, "Increased Debt
    and Industry Product Markets: An Empirical Analysis," *Journal of
    Financial Economics* 37: 189-238. See also the "q-ratio" analysis of
    assessing competition in video programming distribution markets in
    *Implementation of Section 19 of the 1992 Cable Act (Annual
    Assessment of the Status of Competition in the Market for the
    Delivery of Video Programming)*, CS Docket No. 94-48, First Report,
    Appendix H, 9 FCC Rcd 7442 (1994).

[^23]: N. Varaiya, R. Kerin, and D. Weeks, "The Relationship Between
    Growth, Profitability, and Firm Value," *Strategic Management
    Journal* 8: 487-497.

[^24]: ^?^ E. Lindenberg and S. Ross, "Tobin's q Ratio and Industrial
    Organization," *Journal of Business* 54: 1-32. W. Marshall, "Tobin's
    q and the Structure-Performance Relationship," *American Economic
    Review* 74: 1051-1060. Additionally, the difficulty of new entry and
    the weakness of substitutes for radio advertising further indicate a
    lack of perfect competition.

[^25]: ^?^ Specifically, this ratio is computed as follows: (\[{ending
    share price + dividends per share}/ {beginning share price}\]-1) x
    100, which is equal to price appreciation plus dividend yield.

[^26]: For a discussion of the Commission\'s initiatives and progress in
    identifying and eliminating market entry barriers for small
    businesses, see *Market Entry Barriers Report,* 12 FCC Rcd 16802
    (1996).

[^27]: 47 U.S.C. § 309(j).

[^28]: ^?^ Section 101 of the Telecommunications Act of 1996, Pub. L.
    No. 104-104, 110 Stat. 56 (1996), codified at 47 U.S.C. § 257(a).

[^29]: ^?^ *Id., codified at* 47 U.S.C. § 257(b).

[^30]: The data used in the preparation of this report predates the
    Commission's approval of the merger of Clear Channel and AMFM.