**FEDERAL COMMUNICATIONS COMMISSION**

**MASS MEDIA BUREAU**

**POLICY AND RULES DIVISION**

**WASHINGTON, D.C. 20554**

**REVIEW OF THE RADIO INDUSTRY, 2001**

**September 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.

In March 1998 and January 2001, the Mass Media Bureau Policy and Rules
Division released the previous Reviews of the Radio Industry examining
changes in various aspects of the commercial broadcast radio industry as
a result of the implementation of these provisions of the Telecom Act.
These reports 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 2001.

Overall, there has been an increase in the number of commercial radio
stations of 7.1 percent between March 1996 and March 2001. The number of
radio owners declined by 25 percent during this five-year period. This
decline is primarily due to mergers between existing owners. 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 fewer than 65 radio stations each. In March 2000, the two
largest radio group owners consisted of more than 440 radio stations
each. In August 2000, the two largest radio groups merged, so that now
Clear Channel Communications owns approximately 1,000 radio stations,
with pending acquisitions before the Commission for over 200 additional
stations. The second largest group owner, Cumulus Broadcasting Inc, has
approximately 250 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, 46 percent of the market's
total radio advertising revenue. The largest two firms in each radio
market have, on average, 73 percent of the market's radio advertising
revenue. Overall, the variety of radio formats available to consumers
had held steady. However, in recent years the average number of formats
appears to have declined slightly for some of the large markets while
increasing slightly for most of the smaller ones.

Most of the financial-market trends reported in previous Radio Reviews
continue to hold through 2000. Our analysis of publicly-traded companies
whose primary business is radio broadcasting continues to reflect strong
earnings. Publicly-traded radio companies, however, still carry heavy
debt loads, which contributes to the high volatility observed in their
earnings. Also, the high debt loads of these publicly-traded radio
companies also contribute to the volatility of their stock market
valuations. Finally, except for the year 2000, the valuations of these
radio companies have outperformed the broad market of publicly-traded
companies, as reflected in Standard and Poor's 500 (S&P 500) index
returns.

**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.

In March 1998 and January 2001, the Mass Media Bureau Policy and Rules
Division released the 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 reports 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 2001. 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. Finally, Section 4 compares the financial performance of
several publicly-traded radio companies to firms in the S&P 500.

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

The trends in the radio industry continue through March 2001. 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, and March 2000
databases. In order to make the March 2001 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, ownership data from BIA were corrected 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, each "News" or "Sports" entry was
replaced by "News/Sports". Fourth, we note that the number of markets
has increased again, from 276 in March 2000 to 283 in March 2001, yet
the percentage of stations assigned to markets has remained at 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 7.1
percent since March 1996. As of March 2001, there were 10,983 commercial
radio stations in the United States.[^3] Of these, about 56 percent
(6,158) are FM stations and 44 percent (4,825) 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), by another 11.2 percent from
November 1998 to March 2000 (from 4,512 to 4,006), and by 4.2 percent
from March 2000 to March 2001 (from 4,006 to 3,836). As of March 2001,
there were 3,836 owners of commercial radio stations across the nation,
for a cumulative decline in the number of owners of 25 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 5
years, about 20 percent of radio stations have changed hands. As a
result of this trading activity, there are now 46 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 2001, the two largest radio group owners consisted of
972 and 257 radio stations, while the third, fourth and fifth largest
held 210, 185, and 97, 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 283 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 283 markets. The 283 radio markets consist of more than 900
counties, representing more than one-fourth of all counties in the U.S,
plus Puerto Rico.[^9] More than three-fourths of the U.S. population of
at least 12 years of age resides in the 283 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 smoothed lines reveal the extent of
concentration in the markets. 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 36 percent of market revenue, the second
firm holds 25 percent, and firms three and four split the next 26
percent. For the 100 smallest markets, on average the first firm holds
50 percent, the second firm holds 28 percent, and the next two firms
split 17 percent. Overall, in 173 of the 283 Arbitron radio markets
(over 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 (28 percent) the top two entities control more than 80
percent of market revenue.

Historical perspective for the four-firm concentration ratio 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 1998 can be largely attributed to the relaxation of the local
radio ownership rules required by the 1996 Telecom Act, as can the
smaller increase that occurred from November 1998 from November 1998 to
March 2000. The subsequent change from March 2000 to March 2001 is less
pronounced.

**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 2001, the
average number of owners across all Metro markets was 10.3, with a range
of 7.3 in the smallest Metro markets (ranks 101-283) to a high of 25.4
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
2001, 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.

**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 generally continues to be no trend toward change in
the diversity of radio programming available to consumers.[^14] 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. However, while the overall level of formats has held steady,
the chart suggests that the number of formats has declined slightly in
some of the larger markets while increasing in most of the smaller
ones.[^15] Finally, the chart illustrates that the number of formats
declines as the market gets smaller.

4.  **New Developments in Radio Service**

Sirius Satellite Radio Inc. and XM Satellite Radio Holdings are building
a subscription radio service that will provide national programming,
delivering up to 100 channels of digital audio news and entertainment
directly from satellites to vehicles, homes, and portable radios in the
United States. Each company holds one of the two licenses issued by the
FCC to build, launch, and operate a national satellite radio system.
Both companies have launched satellites to provide digital radio
service. XM Satellite Radio has announced that they will offer satellite
radio service in San Diego and Dallas/Fort Worth on September 12, 2001.
They plan to expand service to the entire southwest in mid-October, and
expect to commence nationwide service in November 2001.[^16] Sirius
Satellite Radio expects to commence service in the fourth quarter of
2001.[^17]

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**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).[^18] 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 2,215 radio stations and generate
more than 66 percent of total reported radio industry revenues.[^19]
Thus, most of the companies included in the analysis are larger
station-group owners, and therefore may not reflect the performance of
smaller owners. 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.

To give perspective to the calculated financial ratios, this report also
calculates similar ratios for the S&P 500 companies.[^20] The median
value of the calculated financial ratios for the publicly-traded radio
companies is then compared to the median value of the same ratios for
the S&P 500 companies. The median is used, rather than the average
(arithmetic mean), 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.[^21]
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
publicly-traded companies.[^22]

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.[^23] 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 diamonds) and for
the S&P 500 companies (grey squares).

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 15 out of the last 21
quarters. Also, 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 Debt as a Percentage of Total Capital**

*Debt as a percentage of total capital* represents a measure of a firm's
debt load. We use the ratio of long-term debt to total capital as this
is the typical measure of a firm's relative use of debt capital versus
equity capital.[^24] Quarterly data on debt as a percentage of total
capital are presented in Chart VII. Chart VII suggests 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.[^25]

**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 1
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.[^26] 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, until the year 2000, the market placed 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. Chart IX
shows that the market-to-book ratios of the radio companies exceeded
those of the S&P 500 companies in all 17 quarters before 2000. Although
the median market to book ratio for our sample of radio companies has
dipped below the median market-to-book ratio for S&P companies during
2000, it has remained above 1 throughout our time frame, perhaps
indicating an imperfect market.[^27] 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.[^28] 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, until the year
2000. 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.

Chart X shows that stock returns for the radio companies declined for
all four quarters in year 2000, the only four consecutive declines in
the chart. These lower returns undoubtedly depressed the market to book
ratio for these quarters as shown in Chart IX. Chart X also shows that
for these quarters, radio companies performed poorer than the S&P 500.
One likely reason for this shift in earnings from previous quarters is
the slowing economy. Revenues in radio depend exclusively on
advertising, and a firm's willingness to advertise is highly sensitive
to how much consumers are buying. Chart XI shows that the percent change
in retail sales and food services (adjusted for inflation) declined
sharply in the last three quarters of 2000. Thus investors would likely
expect overall radio earnings to fall in response to declining growth in
consumer spending. According to a recent investor report, growth in
radio advertising began to fall in the third quarter of 2000.[^29] An
additional factor the report cited was the recent collapse of
advertising by dot-com companies. One final source for radio's stock
decline may be the slowing of the radio industry's consolidation. As
fewer opportunities for increased profit through radio mergers present
themselves, investors' decline in demand may have depressed the value of
the radio industry's stock.

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[^1]: In the 1997, 1998, 2000 and 2001 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 2,140. 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 March 2001, the two largest radio group owners merged, so that
    now Clear Channel Communications owns 972 radio stations, and the
    second largest radio group owner, Cumulus Broadcasting, has 257
    stations. As mentioned above, the BIA numbers were adjusted for
    pending owners and LMAs. Prior to adjustment, BIA reports Clear
    Channel Communications to have 1166 stations as of March 2001.
    Removing those stations whose ownership changes are still pending
    yields 954 radio stations. When this number is further adjusted, so
    that stations with which Clear Channel has an LMA are attributable
    to Clear Channel, we find Clear Channel Communications has 972
    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 913 counties (including portions of counties) and independent
    cities in the Arbitron Metros make up almost 30 percent of all
    counties and independent cities in the U.S., plus Puerto Rico.

[^10]: ^?^ Arbitron\'s 283 markets represent about 78 percent of the
    U.S. population and Puerto Rico 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 get 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 William S.
    Cleveland, [The Elements of Graphing Data]{.underline} (Hobart
    Press, 1994). The specific implementation is from the "loess"
    command in the statistical package "S-PLUS 2000", with the smoothing
    parameter set to 0.5.

[^12]: For the current year, March 2001, the Metro market revenue is
    equated to the sum of the station revenue for stations assigned
    ("home") to their Metro market. In previous years, Metro market
    revenue was used. In some cases the differences between these
    measures of market revenue were the result of out-of-Metro market
    stations that earned a share of the Metro market revenue. There were
    other cases where in-Metro market stations earned a share of their
    revenue outside of their Metro market. These differences are
    generally small.

[^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; Carlton and Perloff, [Modern Industrial
    Organization]{.underline}, Carlton and Perloff, 2^nd^ edition, pp.
    344-349; and Giles Burgess, [The Economics of Regulation and
    Antitrust]{.underline}, pp. 310-312.

[^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.

[^15]: A number of theories and empirical studies on the diversification
    of formats in the radio industry suggest diversification of formats
    accompanies industry concentration. For example, see Steven T. Berry
    and Joel Waldfogel, [Mergers, Station Entry, and Programming Variety
    in Radio Broadcasting]{.underline}, NBER Working Paper 7080, April
    1999, forthcoming in the *Quarterly Journal of Economics*. These
    assessments are not necessarily in conflict with our results. There
    is probably a great deal of shifting of sub-formats that our
    relatively aggregated measure of format does not capture.

[^16]: *See,* *e.g*.
    [http://www.smradio.com/](http://www.siriusradio.com/),
    <http://www.xmradio.com/>[newsroom/screen/press release 2001 07
    24.html]{.underline}, and
    [http://biz.yahoo.com/p/x/xmsr.html]{.underline}.

[^17]: *See,* *e.g*. <http://www.siriusradio.com/>,
    <http://biz.yahoo.com/rf/010824/n24167062.html>, and
    <http://biz.yahoo.com/p/s/siri.html>.

[^18]: Standard & Poor's has produced an electronic database of
    financial information on over 20,000 public companies for 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. Since
    the Census is currently replacing the SIC system with the North
    American Industry Classification System (NAICS), we expect to be
    using NAICS in the future. Note that the data items obtained from
    the Compustat database are subject to revision, as Compustat updates
    its data.

[^19]: 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 2001.

[^20]: ^?^ 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.

[^21]: 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.

[^22]: 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 represents firms doing business in just
    about every segment of private enterprise.

[^23]: Compustat calculates the EBIT margin as (((sales + other income)
    -- (cost of goods sold + selling, general, and administrative
    expense + depreciation and amortization))/(sales + other
    income))x100.

[^24]: Short-term debt tends to be indicative of a firm's working
    capital policies, not its long-term financing policies.

[^25]: 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).

[^26]: N. Varaiya, R. Kerin, and D. Weeks, "The Relationship Between
    Growth, Profitability, and Firm Value," *Strategic Management
    Journal* 8: 487-497.

[^27]: ^?^ 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.

[^28]: ^?^ 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.

[^29]: Cohen, Jessica Reif and Fawcett, Keith, *Merrill Lynch, Comment
    Media/Brodoadcasting*, June 14, 2001.