Last week, Chairman Pai gave a speech to the Media Institute in Washington, talking about his deregulatory accomplishments during his tenure as FCC Chairman. Central to his speech was the suggestion that the broadcast ownership rules no longer made sense, as they regulate an incredibly small piece of the media landscape, while digital competitors, who are commanding a greater and greater share of the market for audience and advertising dollars, are essentially unregulated. Not only are they unregulated, but the digital services that compete with broadcasting are owned and financed by companies who are the giants of the US economy. In his speech, he noted that the company with the most broadcast TV ownership is dwarfed in market capitalization by the companies offering competing video services.
While the Chairman’s speech concentrated on television, mentioning radio only in passing, we note that many of these same issues are even more at play in the audio entertainment marketplace. When the Chairman two months ago offered remarks on the hundredth anniversary of the first commercial radio station in the US, he recognized that radio has played a fundamental role in the communications world over the last century. But that role faces more and more challenges, perhaps exaggerated by the pandemic when in many markets listeners are spending less time in cars where so much radio listening takes place. There are many challenges to over-the-air radio as new sources of audio entertainment that sound and function similarly are more and more accessible to the public and more and more popular with listeners. Over-the-air radio is already less a distinct industry than a part of the overall audio entertainment marketplace competing with streaming services, podcasts, satellite radio and other audio media. These changes in listening habits are coupled with a change in the advertising marketplace, as the digital media giants now take over 50% of the local advertising market that was once the province of radio, television and newspapers.
These changes in the media marketplace, particularly for radio, will be facing any new administration at the FCC starting in January. The ownership rules for local television ownership and the cross-ownership rules restricting daily newspaper owners from also holding radio or TV interests may well be resolved by the current Supreme Court review of the Third Circuit decision overturning the 2017 changes adopted by the Commission. But a review of radio ownership rule changes, started as part of the FCC’s required Quadrennial Review of the broadcast ownership rules, has been on hold for the last year and a half at the FCC. Comments on proposals to amend those rules were filed in the Spring of 2019, but they have not been acted on, as the Third Circuit decision effectively froze consideration of changes to any of the FCC’s ownership rules. The underlying basis of that decision — whether the FCC adequately considered the impact of ownership changes on minorities and other potential entrants to broadcast ownership — would impact any further relaxation of any broadcast ownership rules, so the radio rule review is on hold.
There have been no substantial changes in the ownership rules for radio since 1996, during a period where there have been massive changes in the rest of the audio industry. In 1996, streaming was something only a few technologically-forward people even knew existed. Pandora did not launch its streaming service for another decade, and Spotify was even further behind – not launching in the US until 2011. Even those few people who knew that audio streaming existed in 1996 would never have thought that they could listen to a streaming service in their cars. Apple was not offering a streaming music service – in fact it had not even introduced the iPod (introduced in 2001) or the iTunes store (2003) – both themselves technological relics because of subsequent changes in the audio marketplace. Given that there was no iPod, there were obviously no podcasts to bring audio storytelling to the millions who now listen to their favorite programming through the multitude of services that provide podcasts on almost any subject. There was no Alexa to bring Amazon and other music services into the home – in fact, Amazon itself had only begun selling books online in 1995. Even Sirius XM (then Sirius and XM as two competing companies) had not initiated their services at the time of the 1996 Act – as XM did not start providing service to consumers for another 5 years (with Sirius launching a year later). And the pace of change for audio technology is not slowing.
Streaming to cars – radio’s most important listening venue – is already a reality. Between streaming and satellite radio, an unlimited number of audio channels are available to most Americans. Even drivers in rural areas with little or no mobile coverage providing sufficient bandwidth to deliver streaming services can receive Sirius XM service, and podcasts and cached content from certain subscription streaming services provide additional audio options. And, over time, with driverless cars on the horizon, video may too become a competitor to radio in the car.
Radio reception in the home is changing as well. Alexa, Google Home, and its imitators provide direct voice-activated access to audio content that does not include traditionally-delivered over-the-air radio. Here, too, the number of channels of programming available from these services is effectively unlimited. These digital giants providing new audio competition – including Facebook, Amazon, Google and Apple – all have market capitalizations at or well above 500 billion dollars, dwarfing the total capitalization of the entire radio industry which is less than 10 billion dollars.
The competition for radio revenue has also dramatically changed since 1996. In 1996, local advertising competitors were the local newspaper, some TV ads, and direct mail. Local cable TV ad insertion networks were in their infancy. And digital advertising competition really did not exist. Facebook did not launch to the general public until 2006 (being available to college students two years before), and Google wasn’t launched until 1998. Analysts say that digital services now take over half of the local advertising in most radio markets. Even regulators seem to recognize this dominance, as witnessed by the recent antitrust lawsuits filed against digital media giants Facebook and Google.
The fact that over-the-air radio continues to command a significant audience share is no doubt attributable to the quality and relevance of the content that it provides to local listeners, its ease of access, the lack of subscription fees and habit. But with all the competition now in the radio marketplace, rules that were written when the only competitive mobile audio content was from the cassette player would seem ripe for review. So how will the new FCC react to these marketplace changes as it completes the work on the Quadrennial Review begun in 2019?
What changes in the ownership rules will the new FCC be prepared to make to address the seismic shift that has occurred in the audio marketplace? Will the FCC recognize that radio is no longer an island unto itself? Will they recognize that radio no longer is a separate market where radio stations only compete with other radio stations? That is a real question, as sometimes the government is slow to recognize the transformation of the marketplace.
In the past, some radio companies have suggested a lifting of the “subcaps” in the radio ownership rules that limit the number of AM or FM stations that can be owned in a single market (see our article here). Right now, in the largest markets, one party can own up to 8 stations, but no more than 5 can be in one service – AM or FM. Some fear that lifting the subcaps will mean that the big players will all migrate to FM, further damaging the already-ailing AM band. The FCC will need to address whether this artificial support for the AM band is still in the public interest – and consider whether, even if the big radio owners move to FM, that won’t create more opportunities for niche programmers on the AM dial. In the comments filed in 2019, even some broadcasters who opposed relaxation of FM ownership supported deregulation of AM ownership, seeing the lifting of AM limits as a way in which innovation in AM operations might be possible.
A more far-reaching question is whether the lifting of the subcaps goes far enough to allowing radio owners to develop the synergies needed to compete with the plethora of new audio competitors. Some suggest that, to compete effectively against the digital giants who are thus far subject to little or no regulation, radio owners need to be able have a marketplace presence that is even deeper than 8 stations. For instance, in a market like New York City, BIA Kelsey (the broadcast analysis service on which the FCC relies to determine which stations compete in each market) says that there are 154 radio competitors serving all or part of the market. In Los Angeles, BIA says that there are 93 stations that compete in the market. Are 8 stations enough to really compete in the media marketplace in those markets?
Others worry that more concentration will shut out potential new owners and believe that new technologies still don’t provide an equivalent means to reach the radio audience. Fearing that new entrants, diverse owners, and niche programmers will be priced out of radio ownership if more consolidation is allowed, some are likely to continue to oppose any change in the radio ownership rules just as they have opposed changes to the TV and cross-ownership rules in the pending Supreme Court case.
Small market radio provides its own challenges. In markets not rated by Nielsen, the FCC looks at the overlap of radio station’s service contours to determine which stations compete, and how many radio stations are in any market. In the smallest markets, a broadcaster can own up to 5 stations, no more than 3 of which can be in any service, and in no case can the broadcaster own more than half the stations in a market. Some small market broadcasters suggest that these limits often leave one or two weak stations in a market – stations that provide little local service. Just as many markets have a single newspaper (if they even have one); some argue that some smaller markets simply cannot support multiple commercial radio operators. Should the more successful stations in the market be allowed to own some of these orphan stations, or would further consolidation in the small markets foreclose service from some operator who might come up with a unique idea that could revive an otherwise failing station?
These are the issues that will likely face the new FCC as they finish the Quadrennial Review after the Supreme Court decision clarifies the issues that the FCC needs to consider in these reviews. Given the age of the record in this proceeding, the new faces at the FCC, and the guidance that will be coming from the Supreme Court decision, there are quite likely going to be additional comments filed in this proceeding before any final resolution takes place (see, for instance, the decision on Friday extending a temporary waiver for Fox to own two TV stations and a daily newspaper in New York through the end of the Quadrennial Review, apparently anticipating that further consideration will be given to the newspaper-broadcast cross-ownership rule if the Supreme Court does not itself uphold the 2017 FCC decision to abolish it). So it may be some time until the FCC will have the opportunity to evaluate its radio rules to see if they can catch up to the marketplace realities identified by the Chairman in last week’s speech.