Source: https://www.justice.gov/atr/comment-and-petition-hearing
Timestamp: 2020-07-10 19:23:42
Document Index: 535036717

Matched Legal Cases: ['§ 310', '§ 4', '§ 9', '§ 310', '§ 310', '§ 18']

Capstar Radio Broadcasting
Licenses of Stations
KFH-AM, Wichita, Kansas
KQAM-AM, Wichita, Kansas
KWSJ-FM, Haysville, Kansas
KRBB-FM, Wichita, Kansas
KEYN-FM, Wichita, Kansas
KZSN-FM, Hutchinson, Kansas
BTCH-980821EJ
To: Chief, Mass Media Bureau
and Director of Operations Craig W. Conrath
1401 H Street, N. W., Suite 4000
II. The Parties 2
III. The Proposed Acquisition 3
IV. The Commission Properly May Consider Antitrust Issues, Under the Communications Act, in Approving the Transfer of a Station License. 4
V. Radio Advertising is the Relevant Product Market in Which to Analyze the Competitive Effects of the Proposed Transaction. 7
VI. The Geographic Market is the Wichita, Kansas Metro Market or the Three County Metro Market of Butler, Harvey and Sedgwick Counties. 8
VII. Capstar's Proposed Acquisition Should Be Designated for Hearing Because it Presents Issues of Material Fact as to Whether It Contrary to the Public Interest Because It Will Enable Capstar to Control Almost Half of the Advertising Revenues and Demographic Shares in Wichita, Thereby Reducing Competition. 10
The Department of Justice of the United States of America ("Department") submits this
Comment and Petition for Hearing to the Federal Communications Commission ("Commission")
in connection with the Commission's request for comment on Capstar Broadcasting Partner
Inc.'s ("Capstar") proposed acquisition of Triathlon Broadcasting Company ("Triathlon").
Capstar currently owns KKRD-FM, KRZZ-FM, and KNSS-AM in Wichita, Kansas.
Triathlon currently owns six radio stations in Wichita: KZSN-FM, KRBB-FM, KEYN-FM,
KWSJ-FM, KFH-AM, and KQAM-AM. Although Capstar acknowledges in its Commission
filing that it must divest two FM stations, its share of market revenue would still be over 45%
after it divests the two least significant FM stations. In addition, Capstar and Triathlon may
even be closer competitors than their revenue shares suggest because their combined share of
certain demographic groups would exceed 50% -- even after it divests the two least significant
FM stations. These levels of concentration raise substantial and material questions of fact as to
whether the transaction is anticompetitive.
The Commission has the responsibility under Section 310(d) of the Communications Act,
47 U.S.C. § 310(d), to consider antitrust issues in approving the transfer of a station license.
Under such a public interest evaluation, Capstar's proposed acquisition of Triathlon's station
licenses presents a number of issues of material fact as to whether the proposed transaction is
anticompetitive and will lead to higher prices for radio advertising in Wichita, Kansas. Because
the transfer of Triathlon's stations raise serious issues as to whether sufficient competition will
exist after the acquisition, the Department believes that the Commission should hold a hearing
and determine whether the transfers serve the public interest.
On September 18, 1998, the Federal Communications Commission ("Commission")
announced its concerns relating to increased concentration created by the proposed transfers of
the above-mentioned licenses by issuing a public notice requesting comments on the transfers,
Based on our initial analysis of this application and other publicly available
information . . . the Commission intends to conduct additional analysis of the
ownership concentration in the relevant market. This analysis is undertaken
pursuant to the Commission's obligation under section 310(d) of the
Communications Act, 47 U.S.C. section 310 (d), to grant an application to
transfer or assign a broadcast license or permit only if so doing serves the public
Broadcast Applications, FCC Report No. 24329, at 6 (1998).
In response to the Commission's notice, the United States Department of Justice
("Department") submits this Comment and Petition. The Department is charged with enforcing
the antitrust laws under the Sherman Act, 15 U.S.C. § 4, and under the Clayton and Hart-Scott-
Rodino Acts, 15 U.S.C. §§ 9, 18a(f), and 25. Pursuant to the discharge of these duties, the
Department has begun an investigation of the merger that would result in the proposed license
transfers. Based upon this review, the Department believes the proposed grant of Triathlon
Broadcasting Company's ("Triathlon") applications and subsequent consummation of the
transactions raise substantial and material questions of fact as to whether the license transfers
would be anticompetitive. The Department therefore believes that it would be appropriate for
the Commission to conduct a hearing pursuant to Section 310(d) of the Communications Act, 47
U.S.C.§ 310 (d), to examine whether the acquisition is in the public interest. The Department
will complete its investigation into the potential anticompetitive nature of the proposed
acquisition and may bring an action in United States District Court if it concludes that the
proposed acquisition violates the antitrust laws and is likely to have an anticompetitive effect on
the market for radio advertising in Wichita, Kansas.
Capstar Radio Broadcasting Partners, Inc. ("Capstar") is the fourth largest radio
broadcaster in a rapidly consolidating radio broadcasting industry. According to industry
estimates, Capstar currently owns approximately 300 radio stations in 75 markets in the United
States.1 The Capstar stations generate annual combined revenues of approximately $350
million. Capstar revenues in 1997 from KKRD-FM [Wichita], KRZZ-FM [Derby] and KNSS-
AM [Wichita] in Butler, Harvey and Sedgwick counties totaled $4.96 million.2 KKRD has a
Class C1 signal while KRZZ has a Class C2 signal. Broadcast coverage maps are attached to
this Petition as Exhibit B.
Triathlon Broadcasting Company ("Triathlon") owns or operates approximately 35 radio
stations located in seven markets in the United States. Its licensee, Triathlon Broadcasting of
Wichita Licensee, Inc., holds the licenses for the following six stations in Butler, Harvey and
Sedgwick counties: KFH-AM, Wichita, Kansas, KQAM-AM, Wichita, Kansas, KWSJ-FM,
Haysville, Kansas, KRBB-FM, Wichita, Kansas, KEYN-FM, Wichita, Kansas and KZSN-FM,
Hutchinson, Kansas. All four FM stations have Class C signals. Triathlon's revenue in 1997 was
approximately $33.6 million, about $8 million of which was derived from sales by its Wichita-
based radio stations.
On or about July 23, 1998, Capstar and Triathlon entered into an Agreement and Plan of
Merger ("Agreement"). Under the terms of the Agreement, Triathlon agreed to transfer its
licensee companies, including Triathlon Broadcasting of Wichita Licensee, Inc., to Triathlon
Broadcasting Company. Also under the terms of the Agreement, Triathlon agreed to sell
Triathlon Broadcasting Company to Capstar. Capstar has not yet consummated the acquisition
of the Wichita stations.
Capstar acknowledges that it must divest two FM stations for Commission purposes.
Application for Consent to Transfer of Control of Corporation Holding Broadcast Station
Construction Permit or License, Capstar Radio Broadcasting Partners, Inc., Transferee, Response
to Section II, Question 7, Exhibit 7, at 3. The application does not indicate which stations will
be divested. Id., at 4. For the purposes of this petition, the Department has assumed that
Capstar will divest the two FM stations generating the smallest revenues: KWSJ-FM ($450,000)
and KEYN-FM ($1,400,000).
IV. The Commission Properly May Consider Antitrust Issues, Under the
Communications Act, in Approving the Transfer of a Station License.
Section 310(d) of the Communications Act provides that the Commission shall determine
whether applicants seeking a transfer of licenses have demonstrated that granting such
application serves the public interest:
No . . . station license . . . shall be transferred . . . except . . . upon finding by
the Commission that the public interest, convenience, and necessity will be served
47 U.S.C. § 310(d). The applicable regulations state that the Commission will make the grant
on the application, pleadings and materials that it may notice if it finds that
the application presents no substantial and material question of fact and
(4) A grant of the application would otherwise serve the public interest,
47 C.F.R. 73.3591(a) (emphasis added). If the Commission is unable to make the specified
findings based upon a written record, it will designate the application for hearing. 47 C.F.R.
73.3593.
It is well established that the Commission may consider antitrust concerns when
evaluating whether the public interest is being served. The United States Supreme Court has
repeatedly recognized that antitrust concerns are a relevant part of the Commission's public
interest inquiry under the Communications Act. See Federal Communications Comm'n v.
National Citizens Committee for Broadcasting, 436 U.S. 775, 795 (1978) (noting that the
Commission may properly consider antitrust issues and collecting cases); United States v. RCA,
358 U.S. 334, 351 (1959) (observing that in certain cases the Commission may find that antitrust
considerations alone would prevent the public interest standard from being satisfied); Federal
Communications Comm'n v. RCA Communications, Inc., 346 U.S. 86, 94 (1953) (noting that
"[t]here can be no doubt that competition is a relevant factor in weighing the public interest");
National Broadcasting Co. v. United States, 319 U.S. 190, 222-23 (1943) (holding that the
Commission may consider the effect of a broadcast license applicant's anticompetitive conduct
on the public interest).
More recently, the United States Court of Appeals for the District of Columbia Circuit
has repeated that the Commission must consider competitive concerns. Specifically, the D.C.
Circuit has held that the Commission must "make findings related to the pertinent antitrust
policies, draw conclusions from the policies, and weigh these conclusions along with other
important public considerations." United States v. Federal Communications Comm'n, 652 F.2d
72, 82 (D.C. Cir. 1980) (en banc) (quoting Northern Natural Gas Co. v. Federal Power
Comm'n, 399 F.2d 953, 961 (D.C. Cir. 1968)).3 See also Rogers Radio Communication
Services, Inc. v. Federal Communications Comm'n, 593 F.2d 1225, 1230 (D.C. Cir. 1978)
(noting that the "[e]ffect on competition [is] clearly a proper factor for the Commission to
consider under the public interest, convenience, and necessity standard . . . ."); Home Box Office,
Inc. v. Federal Communications Comm'n, 567 F.2d 9, 41 n.68 (D.C. Cir. 1977) (noting that
"there can be no question that the commission can properly consider antitrust issues" and
The public interest standard of Section 310(d) is a flexible one that encompasses the
"broad aims of the Communications Act." Application of WorldCom, Inc. and MCI
Communications Corp. for Transfer of Control of MCI Communications Corp. to WorldCom,
Inc., Memorandum Opinion and Order, FCC 98-225, ¶ 9 (1998) ("WorldCom/MCI Order").
Among these broad aims is to realize Congress's desire to implement a "pro-competitive, de-
regulatory national policy framework designed to . . . open[] all telecommunications markets to
competition . . . ." WorldCom/MCI Order, ¶ 9 (quoting H.R. Rep. No. 104-458 at 1; Preamble
to Pub. L. No. 104-104, 110 Stat. 56 (1996)).
Since Congress passed the Telecommunications Act of 1996, the Commission has
routinely integrated concerns about antitrust issues into its public interest examination of
mergers by considering antitrust principles as part of its public interest assessment. In analyzing
the competitive effects of a proposed merger, the Commission does not attempt to determine
whether mergers violate specific antitrust laws -- though it specifically retains the right to do so.
Instead, the Commission considers more general antitrust or competitive issues as part of its
public interest assessment. See WorldCom/MCI Order, ¶ 15; Applications of NYNEX Corp.,
Transferor, and Bell Atlantic Corp., Transferee, For Consent to Transfer Control of NYNEX
Corp. and Its Subsidiaries, Memorandum Opinion and Order, 12 FCC Rcd 19985, 20008, ¶ 37
(1997) ("Bell Atlantic/NYNEX Order"); In the Matter of the Merger of MCI Communications
Corp. and British Telecommunications PLC, Memorandum Opinion and Order, 12 FCC Rcd
15351, 15367, ¶ 33 (1997) ("BT/MCI Order"). The Commission has created this framework
using the principles embodied in the United States Department of Justice/Federal Trade
Commission Horizontal Merger Guidelines, as revised ("Merger Guidelines"); existing antitrust
case law; and past Commission analyses of market power. See WorldCom/MCI Order, ¶ 15;
Bell Atlantic/NYNEX Order, 12 FCC Rcd at 200008, ¶ 37; BT/MCI Order, 12 FCC Rcd at
15367, ¶ 33.
V. Radio Advertising is the Relevant Product Market in Which to Analyze the
Competitive Effects of Capstar's Proposed Acquisition.
Radio has unique advantages over other forms of media that make another radio station a
closer substitute for a specific radio station than other media. Unlike other media, radio is
exclusively sound-based. Affidavit of Dr. Sean F. Ennis, ¶ 14 ("Ennis aff." attached as Exhibit
C). Second, radio allows advertisers to narrowly focus on specific demographic groups (e.g.,
women ages 18-49) that are attractive to many advertisers. Id. Third, radio is typically
inexpensive enough to allow an advertiser to build repetition or frequency through its advertising
at a reasonable price. Id. Fourth, the cost of producing a radio commercial is much lower than
producing a television commercial, id., thus allowing advertisers to change advertisements more
often. Fifth, radio allows for very fast turnaround of advertising copy. Id. Sixth, radio is
portable can therefore reach people driving in their cars. Id.
As a result of these unique characteristics of radio, advertisers will often consider one
radio station, rather than an alternate form of media, as the closest substitute for another radio
station. Id., ¶ 15. Radio stations are also aware that one radio station is the closest substitute for
another radio station; therefore, they tend to set the price of their radio advertising time based
upon prices charged by other radio stations -- rather than those of alternative media. Id., ¶ 16.
The price for radio advertising time is generally individually negotiated between a radio
station and an advertiser. An advertiser will typically contact the stations upon which it would
consider advertising and will receive price quotes that may include added value such as
promotions, sponsorships, live reads, and remote broadcasts that many advertisers find attractive.
After receiving its quotes -- and perhaps contacting the stations to conduct further negotiations --
the advertiser will determine the stations upon which it will place its advertising. Id., ¶ 22.
Inherent in this process are individually negotiated prices (in economic terms, "price
discrimination") -- a process by which radio stations charge different prices for the same
advertising spot to different advertisers depending upon how efficient the spot is for an
advertiser's demographic target and the degree to which the advertiser needs to advertise on that
specific radio station. Id., ¶ 23.
VI. The Geographic Market is Wichita, Kansas or the Three County Metro Market of
Butler, Harvey and Sedgwick Counties.
The Department's initial investigation suggests that Wichita, Kansas and/or Butler,
Harvey and Sedgwick counties constitute a relevant geographic market within which to assess
the competitive effects of the proposed acquisition. Three factors are especially relevant in
determining the relevant geographic market in this matter: industry recognition, geographic
coverage of broadcast signals, and customer demand.
First, the professional radio trade services treat the three county area as a distinct
economic unit. BIA reports which radio stations are contained in a metro market and defines the
Wichita metro area as Butler, Harvey, and Sedgwick counties. See generally BIA. Whether an
advertiser would consider buying radio time on a certain station in order to reach that
advertiser's target geographic audience is an important factor in determining the relevant
geographic market. See Ennis aff., ¶ 26. The fact that the industry recognizes an area as a
relevant geographic market is significant because it generally identifies the radio stations within
that geographic market which media buyers would consider close substitutes. Id. In addition,
the Arbitron rating service will generally allow a radio station to declare itself as belonging to
only one home geographic market. Stations therefore will generally declare their home market
as the one from which they believe they will attract the most advertisers. Id, ¶ 25. The fact that
both industry trade groups indicate that Wichita, Kansas is a distinct geographic market is an
important indication that it may be a geographic market for antitrust purposes.
Second, examining population density and contour maps of stations' signal strength
reveals that the three county metro area constitutes the core of the listening audience. According
to BIA industry statistics, the Wichita metro market is the 89th largest metro market in the
United States in terms of population. BIA, at 382. The population of the Wichita metro market
is concentrated in Sedgwick county, with approximately 423,700 residents, including the city of
Wichita. Id. The adjacent counties of Harvey and Butler contain relatively smaller populations
of 31,900 and 58,900, respectively. Id. Moreover, the Wichita metro market is isolated from
other densely populated areas surrounding the metro area. Few Wichita consumers, therefore,
listen to radio stations from other areas. The closest cities to Wichita are Hutchinson, Kansas
(59 miles away), Salina, Kansas (92 miles), topeka, Kansas (140 miles), Kansas City, Missouri
(188 miles), and Joplin, Missouri (211 miles). Rand McNally Road Atlas, at 36 (1998 ed.).
Third, and perhaps most importantly, radio advertisers customarily recognize and rely
upon industry geographic distinctions in making their purchasing decisions. Ennis aff., ¶ 26.
Thus advertisers wishing to reach radio audiences in the Wichita metro region must advertise on
radio stations in the Wichita metro market rather than on stations in distant cities that do not
reach Wichita and to which Wichita consumers generally do not listen.
VII. Capstar's Proposed Acquisition Should Be Designated for Hearing Because it
Presents Issues of Material Fact as to Whether It Is Contrary to the Public Interest
Because It Will Enable Capstar to Control Almost Half of the Advertising Revenues
and Demographic Shares in Wichita, Thereby Reducing Competition.
Capstar currently controls 20.3% and Triathlon controls 32.8% of Wichita metro market
radio advertising revenues. If the combined entity were to divest only the two least significant
FM radio stations to meet the Commission's guidelines, Capstar would still have a market share
of 45.5%.4
In addition, the Wichita radio market is already concentrated. The level of
concentration in the Wichita radio market is similar to that where courts have presumed antitrust
violations. Courts presume a transaction challenged under Section 7 of the Clayton Act, 15
U.S.C. § 18, to be illegal if the government can show that the combined entity would have a
significant market share in a concentrated market. United States v. Philadelphia Nat'l Bank, 374
U.S. 321, 363 (1963); Federal Trade Comm'n v. University Health, Inc., 938 F.2d 1206, 1218
(11th Cir. 1991). In Philadelphia Nat'l Bank, the Supreme Court held that a merger resulting in
a single firm controlling 30% of a market in which four firms had 78% of the sales was
presumptively illegal, calling the merger inherently likely to lessen competition substantially.
Philadelphia Nat'l Bank, 374 U.S. at 364. Similarly, in United States v. Continental Can Co.,
378 U.S. 441, 461 (1964), the Court found a merger presumptively illegal where the combining
firms' aggregate market share was 25%, the acquired firm's pre-merger share was 3.1%, and the
leading four firms accounted for 64.7% of the relevant market.
A growing number of courts, including those in the District of Columbia Circuit, have
relied upon the Merger Guidelines' approach for assessing pre- and post-merger concentration
through use of the Herfindahl-Hirschman Index ("HHI"). See, e.g., Federal Trade Comm'n v.
PPG Indutries, Inc., 798 F.2d 1500, 1503 n.4 (D.C. Cir. 1986) (noting that the Merger
Guidelines provide a useful illustration of the application of the HHI); Federal Trade Comm'n
v. Cardinal Health Care, Inc., 12 F. Supp.2d 34, 53 (D.D.C. 1998) (stating that while the
Merger Guidelines are not binding, they constitute the agencies' informed judgment on the area
of their expertise; accordingly, the courts have turned to the Merger Guidelines for assistance
and over the years have come to accept the HHI as the most prominent and accurate method of
measuring market concentration); Federal Trade Comm'n v. Staples, Inc., 970 F. Supp. 1066,
1082 (D.D.C. 1997) (noting that the Merger Guidelines are useful and provide guidance). The
HHI for a market is calculated by summing the squares of the individual market shares of all
firms participating in the market. Merger Guidelines, ¶ 1.5.
unconcentrated; those with an HHI between 1000 and 1800 are moderately concentrated; and
those with an HHI above 1800 are termed highly concentrated. Id., ¶ 1.5. In cases where the
post-merger market is highly concentrated, and an acquisition would result in an increase of
more than 100 points in the HHI, the acquisition is presumed to be likely to create or enhance
market power or facilitate its exercise. Id. For example, the court in Staples found that the
proposed merger would increase the HHI by an average of 2715 points in already highly
concentrated markets, and thus the FTC had shown a "reasonable probability" that the proposed
merger would have an anti-competitive effect. Staples, 970 F. Supp. at 1082. Similarly, in
Cardinal Health, the court found that an increase in HHI from 1648 to 2450 (802 points)
brought about by one proposed merger, and from 1648 to 2277 (629 points) brought about by a
second proposed merger, required the court to presume that the proposed mergers pose a risk to
competition. Cardinal Health, 12 F.Supp.2d at 53.
In this case, the market is already concentrated. The second largest radio company in
Wichita -- Great Empire -- directly controls 35.5% of the market. Great Empire further
maintains a joint selling agreement with Violet, Viola and Gary -- owners of KDGS and KAYY
with 3.7% of the market. Counting post-acquisition Capstar and Great Empire's joint selling
arrangement, the two largest radio companies in Wichita would control 84% of the market.
Currently, the HHI is 3040. If Triathlon divests only the two least significant FM stations, the
post-merger HHI would be 3680, representing an increase of 640 points. Ennis aff., ¶ 9. This
level of concentration is higher than that in either merger in Cardinal Health, and presents
"substantial and material reasons to believe that the merger may reduce competition among radio
stations that serve Wichita." Id., ¶ 5.
In addition, if Capstar divests only the two least significant FM stations, it will control
over 50% of key demographic groups that many advertisers are interested in reaching. For
example, Capstar currently controls 24.6% of the adults ages 25-54 demographic while Triathlon
controls 39.6% of this demographic. Id., ¶ 32. If the acquisition proceeds, Capstar would
control 54.0% of this demographic. Id. This level of control would make it difficult for
advertisers seeking to reach many listeners, but also attempting to avoid Capstar stations, to do
so. Id. Advertisers would thus have fewer choices on where to place radio advertising, id., ¶¶
11 & 32, and may therefore have to pay higher prices.
Capstar and Triathlon propose a merger that would result in a highly concentrated
market. After an initial review, the Department believes that the proposed transaction raises
substantial and material issues of fact as to whether the proposed transaction is anticompetitive
because of the currently concentrated Wichita radio market, the increase in concentration that the
merger creates, and Capstar's potential control over important demographic groups. The
Department therefore believes that the Commission should fully investigate whether the
acquisition serves the public interest by designating a hearing. The Department, meanwhile, will
Director of Merger Enforcement and Director of Operations
Atorrneys
I, Rex Y. Fujichaku, of the Antitrust Division of the United States Department of Justice,
do hereby certify that true copies of the foregoing Comment and Petition for Hearing were
served this 19th day of October, 1998, by hand delivery, to the following:
Roy J. Stewart, Esq.
1919 M Street, N.W., Room 314
Counsel for Capstar Broadcasting Partners, Inc.
1 These figures are for Capstar only. Capstar and Chancellor Media Company have announced plans to merge. Chancellor is a sister company of Capstar with whom it has common shareholders. Alejandro Bodipo-Memba and Carlos Tejada, Hicks-Muse to Combine Big Radio Firms, Wall St. J., August 28, 1998, at A3. If the merger proceeds, the combined entity will own 463 stations in 105 markets. Id.
2 Revenue figures for each station are derived from BIA, Investing in Radio Market Report Ã¦98, 3rd ed. ("BIA") (attached as Attachment A).
3 The District of Columbia Circuit's reliance upon Northern Natural Gas in Federal Communications Comm'n is further support for the proposition that regulatory agencies should generally consider antitrust issues when evaluating the public interest. See, e.g., Federal Maritime Comm'n v. Aktiebolaget Svenska Amerika Linien, 390 U.S. 238, 245-46 (1968) (approving the Federal Maritime Commission's conclusion that antitrust violations constituted substantial evidence that steamship agreement was contrary to public interest); McLean Trucking Co. v. United States, 321 U.S. 67, 86-88 (1944) (holding that the Interstate Commerce Commission had a duty to consider the effect of common carrier consolidation in evaluating the public interest); United Distribution Cos. v. Federal Energy Regulatory Comm'n, 88 F.3d 1105, 1163 (D.C. Cir. 1996) (holding that FERC's power to protect competition exceeds that of the Federal Trade Commission and noting that "[a]ntitrust policies governing the FTC do not exhaust the public interest authority under which the Commission may [act]"); Northern Natural Gas Co. v. Federal Power Comm'n, 399 F.2d 953, 961 (D.C. Cir. 1968) (noting that "competitive considerations are an important element of the Ã¦public interest'").
4 Since Capstar must divest two FM stations to satisfy other Commission regulations relating to the number of stations that can be owned in a given market, this petition and the accompanying affidavit have assumed that the two smallest FM stations will be divested. The two smallest FM stations -- KEYN and KWSJ -- account for approximately 7.5% of market revenue.