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The Charlottesville question

Six years ago, the FCC abolished its expensive and time-consuming practice of doling out broadcast licenses by holding endless rounds of expensive hearings in front of an agency judge.

Washington media attorneys might have a sense of déjà vu. Last week, the FCC said an administrative law judge will determine whether to allow the country's largest radio group to add a station in Charlottesville, Va., where it already owns five outlets and captures 31% of local advertising revenue.

No one predicts that designating thorny radio mergers for judicial hearing will compare in sheer numbers with the hundreds of license applications once subjected to review before the process was eliminated. But the cumbersome process is an unwelcome prospect for lawyers representing big station groups aiming to get bigger and smaller group hoping to cash out.

"What the commission is doing is reprehensible," said George Bosari, a Washington attorney with a large radio-transaction practice.

Raising his ire is a March 20 decision designating Clear Channel's plan to buy WUMX(FM) from Air Virginia Inc. for a review. The deal is one of hundreds slowed by regulators under a controversial practice aimed at preventing undue concentration.

Clear Channel's hearing process is expected to provide the first clear example of how the FCC will resolve the toughest deals snagged by the agency's controversial "flagging" policy established in 1998.

Deals are flagged and subjected to an extra layer of review when they result in one company's controlling 50% of a market's ad revenue or two companies' controlling 70%.

The policy was established during the tenure of Democrat FCC Chairman William Kennard to stem a tidal wave of radio consolidation launched when Congress removed the national cap on radio ownership and allowed companies to own as many as eight stations in the largest markets. Since 1996, the average number of radio owners in each market has dropped from 13.5 to 10.3. The number nationally has plunged 25%, from 5,100 to 3,800.

Broadcasters have been frustrated by the policy because the targeted mergers otherwise met government ownership limits and the FCC never established policies for resolving the reviews. More than 200 mergers have been flagged for added FCC scrutiny in the past four years. None have been denied, although several were canceled after the parties grew frustrated by delay.

But foes of the consolidation trend say broadcasters have no reason to complain about the scrutiny. In fact, several dozen protesters picketed the FCC last month complaining about what they consider the Powell FCC's indifference to media- concentration issues.

"It's almost laughable," said Media Access Project President Andrew Schwartzman about broadcasters' complaints over the Charlottesville review. "This is the exception to the rule; the commission will accept almost anything."

Broadcaster complaints are particularly galling, he said, given the level of concentration in local markets. "That they are shocked the FCC is enforcing the law is a sad statement on the current situation."

As an indication of the importance the commission places on the proceeding, lawyers note that Chief Administrative Law Judge Richard Sipple will hear the case and Broadcast Investigations and Hearings Division Chief Chuck Kelley will make the case against the WUMX deal.

The FCC gave Clear Channel and Air Virginia until Wednesday to decide whether to make their case before the judge or simply cast the merger's fate to an ongoing FCC rulemaking that would establish permanent rules for radio mergers.

If the companies wait on the rulemaking, the deal would be denied if it doesn't comply with new concentration limits.

But even if the companies choose not to pursue the case, the commission's directions cast a light on the route the agency will take on future flagged deals that are difficult to resolve.

Clear Channel and Kelley were ordered to submit economic data indicating whether:

  • Radio advertising is a relevant measure of the Charlottesville market.
  • Stations in nearby towns should be considered part of the market.
  • New stations are likely to be added.
  • Standard market-concentration models used by antitrust regulators are the appropriate measure.
  • The deal will adversely affect competition.

Last November, FCC commissioners approved sales of 62 radio stations, clearing most of a backlog of flagged deals. The policy nevertheless continues, although the FCC has established an interim policy that considers the likely impact of the proposed merger: specifically, control over radio advertising in an Arbitron market, barriers to new entrants, adverse competitive affects of the proposed merger, and any potential public benefits. Under the interim policy, the commission two weeks ago approved mergers in Columbus, Ga.; Cheyenne, Wyo.; Trenton, N.J.; and Starkville, Miss.

The Charlottesville deal, however, was too much even for the three Republican commissioners. Post-merger, the market's top two owners would control a combined 94.2% of the market's radio ad revenue. "This level of concentration, in the absence of any countervailing considerations or public-interest benefits, is simply too significant for us," said FCC Chairman Michael Powell.

Broadcasters argue that the hearing process is a crutch to avoid establishing clear rules.

"Why should merger parties suffer because the FCC can't come to grips with its basic responsibility?" asked Bosari, who last year advised client Anderson Broadcasting to cancel sale of five North Dakota stations to Cumulus when word leaked about an attempt to designate the deal for hearing.