FEDERAL COMMUNICATIONS COMMISSION 

MEDIA BUREAU STAFF RESEARCH PAPER 

Media Ownership Working Group 

Radio Industry Review 

2002: 

Trends in Ownership, 

Format, and Finance

By George Williams and Scott Roberts 

September 2002 

2002 - 

11
2

Radio Industry Review 2002: Trends in Ownership, Format, and 

Finance 

George Williams* 

Scott Roberts 

September 2002

* Media Bureau, FCC. The views expressed in this paper are those of the authors alone and do not necessarily 

reflect the views of the Federal Communications Commission, any Commissioners, or other staff. 

 
3

 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, January 2001, and September 2001, we 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 2002. 

 Overall, there has been an increase in the number of commercial radio stations of 5.4 

percent between March 1996 and March 2002. The number of radio owners declined by 34 

percent during this six-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. By March 2002, the leading radio group, Clear Channel Communications owns 

approximately 1,200 radio 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 increase in the revenue share of the top owners 

in each Metro market has generally leveled off. The largest firm in each radio Metro market has, 

on average, 47 percent of the market’s total radio advertising revenue. The largest two firms in 

each radio market have, on average, 74 percent of the market’s radio advertising revenue. 

Overall, the variety of radio formats available to consumers has held steady. However, in recent 
4

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 the first quarter of 2002. 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 

contribute to the volatility of their stock market valuations. Through much of the period before 

2000, the valuations of these radio companies have outperformed the broad market of publiclytraded companies, as reflected in Standard and Poor’s 500 (S&P 500) index returns. After 2000, 

however, the returns of radio companies have fallen sharply below the S&P index returns. 

 In a new section of this report, we examine recent trends in the size of radio’s listening 

audience and in radio advertising rates. In particular, we find that radio listening has decreased 

slightly since 1998, and radio ad rates have increased almost 90 percent since 1996. 

 
1 

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, January 2001, and September 2001, we released the previous Reviews of 

the Radio Industry 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 2002. 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, 
2 

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 examines trends in radio’s listening 

audience and in radio advertising rates. 

2. Changes in the Radio Industry - A National View

 The trends in the radio industry continue through March 2002. 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, March 2000, and March 2001 databases. In order to make the March 2002 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 

 1

 In the 1997, 1998, 2000, 2001, and 2002 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. 
3 

“News/Sports”. Fourth, we note that the number of markets has increased again, from 283 in 

March 2001 to 285 in March 2002, yet the percentage of stations assigned to markets is 

relatively stable at 59 percent. Sixth, 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. 

 Finally, since our last report, BIA has increased the number of radio stations identified as 

noncommercial. The reduction in the total number of commercial radio stations, therefore, 

reflects this reassignment of some commercial radio stations to noncommercial. In order to 

better compare with the previous year, we have attempted to incorporate this change to the data 

for March 2001. The tables in the Appendix, therefore, will reflect this change in status of 

commercial stations for March 2001 and March 2002, but not for the previous years. In 

addition, BIA has also reassigned a number of non-market radio stations as market stations. We 

have made no attempt to incorporate these changes prior to March 2002. 

 With the above caveats in mind, the analysis of the radio industry follows. The number 

of commercial radio stations has increased about 5.4 percent since March 1996. As of March 

2002, there were 10,807 commercial radio stations in the United States.2

 Of these, about 56 

percent (6,128) are FM stations and 43 percent (4,679) are AM stations. As we stated in last 

year’s report, 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 

 

 2

 This current number of commercial stations is (10,807) lower than the number of radio stations reported 

for March 2001 in last year’s report (10,983). This does not, however, reflect a reduction in the number of radio 

stations. Since our last report, BIA has adjusted its database with respect to which radio stations are identified as 

commercial and noncommercial. This reduction in total number of commercial radio stations, therefore, reflects this 

reassignment of some commercial radio stations to noncommercial. To gauge yearly change, we have adjusted the 

March 2001 numbers in Appendix A to reflect this change. Appendix A summarizes the changes in actual numbers 

of stations and owners since the Telecom Act. 
4 

4,006 to 3,836). As of March 2002, there were 3,408 owners of commercial radio stations across 

the nation, for a cumulative decline in the number of owners of 34 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 6 years, about 20 percent of radio stations have changed hands. As a result of 

this trading activity, there are now 50 radio station owners with 20 or more stations, compared to 

25 in March 1996.3 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.4 Also, the two largest radio group owners in 1996 consisted of fewer than 

65 radio stations each. As of March 2002, the two largest radio group owners consisted of 1156 

and 251 radio stations, while the third, fourth and fifth largest held 206, 184, and 100, 

respectively. 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 285 

different local geographic areas, or Metros, to reflect the audiences reached by local radio 

stations. Arbitron Metros generally correspond to Metropolitan Statistical Areas as defined by 

the U.S. Government.5

 About 60 percent of all commercial radio stations are licensed to 

communities in the 285 markets. The 285 radio markets consist of more than 900 counties, 

representing more than one-fourth of all counties in the U.S, plus Puerto Rico.6

 More than three-

 

 

3 See Appendix B. 

4 See Appendix C. 

 

5

 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. 

 
5 

fourths of the U.S. population of at least 12 years of age resides in the 285 radio markets.7 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.8

 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.9

 The concentration ratios used 

 6

 These 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. 

 

7

 Arbitron's 285 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. 

 

8

 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 (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. 

9

 For March 2001 and March 2002, 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 
6 

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.10 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 35 percent of market revenue, the second firm holds 26 

percent, and firms three and four split the next 25 percent. For the 100 smallest markets, on 

average, the first firm holds 54 percent, the second firm holds 27 percent, and the next two firms 

split 15 percent. Overall, in 180 of the 285 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 93 of these markets (23 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 to March 2001. The subsequent change from March 2001 to 

March 2002 is less pronounced. 

 

of their revenue outside of their Metro market. These differences are generally small. 

10 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, Revised, April 8, 1997; Carlton and Perloff, Modern Industrial Organization, Carlton and 

Perloff, 2nd edition, pp. 344-349; and Giles Burgess, The Economics of Regulation and Antitrust, pp. 310-312. 
7 

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 2002, the average number of 

owners across all Metro markets was 9.9, with a range of 6.7 in the smallest Metro markets 

(ranks 101-285) 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 2002, 

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.11 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 

 11 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. 
8 

declined slightly in some of the larger markets while increasing in most of the smaller ones.12 

Finally, the chart illustrates that the number of formats declines as the market gets smaller. 

3.4 New Developments in Radio Service 

Sirius Satellite Radio Inc. and XM Satellite Radio Holdings have built a subscription 

radio service that provides 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 launched their services in 2001. 

As of June 2002, these two systems serve over 140,000 subscribers.13 

 

 12 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, 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. 13 XM Satellite Radio, Second Quarter Report ending June 30, 2002, shows XM with 136,718 subscribers. 

 Sirius Radio, Second Quarter Report ending June 30, 2002, shows Sirius with 3,347 subscribers. 
9 

March 2002 Market Rank

Concentration Ratio

0 50 100 150 200 250

0 20 40 60 80 100 CR1, avg = 46.8 CR2, avg= 73.9 CR4, avg.=93.1

Chart I: Market Concentration - March 2002
10 

March 2002 Market Rank

Four Firm Concentration Ratio

0 50 100 150 200 250

50 60 70 80 90 100 Mar-02 Mar-01 Nov-98 Mar-96

Chart II: Four Firm Concentration Ratio
11 

March 2002 Market Rank

Number of Owners per Market

0 50 100 150 200 250

0 10 20 30 40 50 Mar-02 Nov-01 Nov-98 Mar-96

Chart III: Number of Owners per Market
12 

March 2002 Market Rank

number of formats per market

0 50 100 150 200 250

5 10 15 20 Mar-02 Mar-01 Nov-98 Mar-96

Chart IV: Number of Formats per Market
13 

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).14 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 25 large, publicly-traded radio companies, 

which in total own some 3,750 radio stations and generate more than 52 percent of total reported 

radio industry revenues.15 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 

 14 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. 

15 The 25 companies are identified in Appendix E. A few of these companies do not own radio stations but 

are classified as radio broadcasting nonetheless. The number of owned stations and the percentage of radio industry 

revenues were calculated based on data in the BIA database, March 2002. 
14 

ratios for the S&P 500 companies.16 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.17 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 publiclytraded companies.18

 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.19 As such, this 

 

16 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. 

17 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. 

18 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. 

19 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. 
15 

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 16 out of the last 26 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, since the passage of the Telecom Act 

at the end of the first quarter of 1996 up until the fourth quarter of 2000. Gross margins for radio 

companies have remained below their S&P 500 counterparts throughout 2001, but appear to 

have risen above them in the first quarter of 2002. 

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. As was the case for EBIT margins displayed in 

Chart V, Net Profit Margins for radio companies remained substantially below those for the 

typical S&P company during 2001. Unlike the EBIT margins, the Net Profit Margins for radio 

companies remain below the S&P benchmarks for the first quarter of 2002. 

4.3 Debt as a Percentage of Total Capital
16 

 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.20 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.21 

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 

 20 Short-term debt tends to be indicative of a firm’s working capital policies, not its long-term financing 

policies. 21 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). 
17 

cash flow to meet their interest obligations. The chart shows that fixed charge coverage for radio 

companies remains positive for all quarters except the first and third quarter 2001. 

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.22 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-tobook 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 

remained below the median market-to-book ratio for S&P companies since 2000, it has remained 

close or above 1 throughout our time frame, perhaps indicating an imperfect market.23 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. 

 22 N. Varaiya, R. Kerin, and D. Weeks, “The Relationship Between Growth, Profitability, and Firm Value,” 

Strategic Management Journal 8: 487-497. 

23 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. 
18 

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.24 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 almost all quarters 

since year 2000, although the sharpest declines occurred during 2000. These lower returns 

undoubtedly depressed the market to book ratio for these quarters as shown in Chart IX. Chart X 

also shows that since year 2000, 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) fell sharply beginning in the second quarter of 

2000. Chart XI also shows that, except for a brief rise in the fourth quarter of 2001, retail sales 

has remained down. Investors have forecast overall radio earnings to fall in response to 

declining growth in consumer spending. It is of interest to note that, despite the surge in profit 

margins that Charts V and VI showed occurring in the first quarter of 2002, stock market returns 

remain flat. These profit margins are likely tracking the surge in retail spending displayed in 

Chart XI. Yet the failure of stock market returns to follow this surge suggests that investors 

believed the fourth quarter increase in retail to be only temporary. 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 

 

24 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. 
19 

have depressed the value of the radio industry’s stock. 

 

5. Other Trends in the Radio Industry 

 

In previous sections, we’ve noted that the radio industry has consolidated significantly 

since the 1996 Telecom Act. Here we examine other aspects of the radio industry: radio 

audience and advertising rates. 

5.1 Radio Listeners 

 For radio ratings, we examine the average number of listeners to radio per quarter hour 

according to Arbitron.25 We include the following formats, listed on Arbitron’s website: Adult 

Contemporary, Alternative, Contemporary Hits Radio, Classical, Country, Adult Standards, New 

AC/Smooth Jazz, Talk, Oldies, Religious, Rock, Spanish, Urban, and Remaining Formats.26 

Chart XII shows that the trend in the average number of listeners to radio has fallen slightly in 

the last few years. The decline is gradual. Since the fall of 1998, the average number of 

listeners per quarter hour has fallen about 3.5 percent, from approximately 19.7 million to 

approximately 19 million. Earlier data than Fall 1998 is not available on Arbitron’s website, so 

we cannot specifically address the question how the number of radio listeners has changed since 

the passage of the Telecom Act. According to the Arbitron’s current data, however, the average 

number of radio listeners has been declining at an average annual rate of 1 percent over the past 

three years. 

We are not suggesting here a link between this decline in the average number of listeners 

and the recent consolidation in the industry. These changes may be the result of a number of 

possible causes, for example radio listeners choosing to spend more time listening to CD’s or 

downloaded MP3’s,27 which has likely increased over the past few years. We do not speculate 

 25 We obtained this data on radio listeners from Arbitron’s Format Trends report on its website. 26 These formats are chosen by Arbitron to display information on trends in radio listeners in their Format 

Trends report. 27 MP3 stands for Motion Picture Expert Group Audio Layer 3. It is a format for audio compression that 

significantly reduces file size while preserving audio quality. 
20 

here on the underlying reasons for this current trend in radio listeners. 

5.2 Radio Advertising Rates 

Radio companies obtain their revenue solely through selling advertising time on their 

stations. Advertising is sold in both local and national markets. The radio consolidation 

discussed above may have an effect on radio advertising prices if advertisers have fewer radio 

owners to bargain with over prices. Consolidation in the radio industry may allow radio 

companies to exercise market power in local markets or possibly nationally. 

To estimate the change in radio advertising rates since 1996, we use as our data for radio 

advertising the Service Quality Analytics Data (SQAD) data and BIA data. The SQAD data 

derives from participating national and regional advertisers, who report the price of their local 

advertising buys for a given radio market. The prices for each local buy for each local market 

are then averaged together, giving a single advertising price for each radio market. SQAD 

advertising rates represent actual rates paid by advertisers for spots on local radio stations in 

each market. For our purposes, we take SQAD CPMs (cost of reaching 1,000 listeners aged 18-

49 with a 30-second advertisement) averaged across all markets from 1996 to the first two 

quarters of 2002.28 

Chart XIII shows that radio advertising prices has risen substantially since March 1996. 

Since March 1996, average radio advertising prices have increased almost 90 percent. By 

contrast the consumer price index,29 also displayed in Chart XIII, increased only 16 percent. 

Radio advertising prices have clearly increased dramatically more than inflation since the 

passage of the Telecom Act. Although consolidation is an obvious possible explanatory factor, 

we do not here provide the analysis necessary to determine its exact role. 

 28 To smooth the graph, we use as points the average of the previous two quarters, the current quarter and 

the next quarter. In addition, we take 1996 as a benchmark year (1996=100). 29 The Bureau of Labor Statistics produces the consumer price index to represent the prices paid by urban 

consumers for a representative basket of goods and services. 
21 

Chart V: EBIT Margins

-10

-5

50

353025201510

Radio Companies S&P 500 Companies
22 

Chart VI: Net Profit Margin

-10-15-20

-5

50

201510

Radio Companies S&P 500 Companies
23 

Chart VII: Debt as a Percentage of Total Capital

0

70605040302010

4Q951Q96Q2 96Q3 96Q4 96Q1 97Q2 97Q3 974Q971Q982Q983Q984Q981Q99Q2 99Q3 99Q4 991Q002Q003Q004Q001Q012Q01Q3 01Q4 01Q1 02

Radio Companies S&P 500 Companies
24 

Chart VIII: Fixed Charge Coverage

-1

543210

Radio Companies S&P 500 Companies
25 

Chart IX: Market to Book Ratio

76543210

4Q951Q962Q963Q964Q961Q972Q973Q974Q971Q982Q983Q984Q981Q992Q993Q994Q991Q002Q003Q004Q001Q012Q013Q014Q011Q02

Radio Companies S&P 500 Companies
26 

Chart X: Stock Market Returns

-10-20-30-40

0

40302010

Radio Companies S&P 500 Companies
27 

Chart XI: Percent Change in Retail Sales and Food Services

-0.2-0.4

0

0.80.60.40.2

1

1.61.41.2

4Q95
28 

Chart XII: Arbitron Radio Ratings

205000200000195000190000185000180000175000

FA98 WI99 SP99 SU99 FA99 WI00 SP00 FA00 SU00 WI01 SP01 SU01 FA01 W02

Quarter

) hundreds( Listeners 

Series1
29 

Chart XIII: Prices in Radio Advertising

0

80604020

200180160140120100

Mar 9- 6

Quarter

1996 = 100

Cost per Thousand CPI