How Is Removing The Ownership Subcaps Good For All?

Earlier this month six group owners wrote a letter to the FCC petitioning for the removal of the AM/FM band subcaps per market.

The heads of Alpha Media, Connoisseur Media, East Arkansas Broadcasters, Galaxy Communications, Jackson Radio Works, and Roberts Communications seek the FCC to act on a previous NAB petition to reconsider the limits on the amounts of stations a company can own in a market.

The Commission originally adopted the AM/FM subcaps in light of technological and marketplace differences between AM and FM stations that the FCC feared disadvantaged AM stations. The Commission’s most recent broadcast ownership order ignores record evidence that any technical and marketplace dynamics that may once have differentiated AM and FM stations no longer exist. On reconsideration, the Commission should find that the subcaps do not protect competition in local radio markets in light of today’s marketplace dynamics and eliminate the subcaps.

In the leadup to the 2010 Quadrennial Review, the FCC itself wrote:

Those advocating elimination of the subcaps argue that recent advances in technology, including online streaming, HD radio technology, and the use of FM translators to augment AM station broadcast signals, have improved the ability of AM radio to compete in the marketplace. In addition, they assert that many of the top stations in large and small markets are AM stations, which undercuts any argument that AM radio will flounder if the subcaps are removed. Some broadcasters also assert that lifting the subcaps will create new ownership opportunities of divested station [sic] for entities, which include minorities, women, and small businesses, because broadcasters will buy and sell certain in-market stations to strengthen existing station clusters. In addition, they state that the owners of these station clusters would then be in better financial positions to devote additional resources in local programming.

This statement was used by the letter of the six group owners as were many of the highly dubious comments filed by other station owners seeking the removal of the counts. Let’s look at these comments and show how out of place to reality these comments are.

  • A joint filing by 21 broadcast owners representing 668 AM and FM stations, highlighting the technological advances and regulatory changes, including the daytime contours of AM versus FM stations, HD technology, changes to the FM translator rules, Arbitron (now Nielsen) ratings, diverse ownership of AM stations and marketplace dynamics of radio.

668 stations represents just 4.3% of all licensed radio stations as of the end of 2016. By no means do they represent the radio industry as a whole.

  • Comments by Clear Channel Communications, Inc. discussing the increasing competition from other audio platforms, including satellite and mobile phones, the strong performance of AM radio as a competitor, the technical parity between AM and FM stations, and attaching a study by BIA/Kelsey dispensing the notion that AM stations are weak competitors.

Yes the increasing competition of other audio platforms is a major concern. The numbers from the Infinite Dial annual research by Edison Research earlier this month clearly defend that. How does owning eight FM stations in a market rather than five change that? All it does is allow a group to further consolidate costs and the amount of FM competitors in a market. In theory lack of FM format competition will just drive more listeners to digital platforms.

Then there is the comment about the strong performance of AM Radio as a competitor. In the Top 10 markets a total number of TEN standalone AM stations appear in the top 10 on the ratings for their specific markets. Also all of the stations are licensed with 50kW giving them a signal advantage over the majority of the signals on the AM band. Four more AMs (Including three 50kW signals in Atlanta, Chicago, and San Francisco) also make the Top 10 thanks to their full-powered FM simulcast. The numbers are not much different as you go to smaller markets that see the majority of their groups subscribe to Nielsen’s ratings.

And technical parity? Electrical noise and market growth have made most AM signals useless in many parts of their coverage areas. Hence one of the reasons for the current AM Revitalization process.

  • Comments by Frandsen Media Company LLC, highlighting the changing marketplace dynamics “where audio service is simply audio service,” and where AM stations can be rebroadcast by FM translators, over the internet, digitally and on FM HD-2 channels.

So because an AM can be rebroadcast via other distribution methods means that they are equal to FMs? If that were the case wouldn’t that mean that these group owners would see their values and want to retain the AM stations which they could acquire for less than an FM and use the new digital transmission methods to create assets equal or greater than their existing FMs, no?

  • Comments by Entercom Communications Corp. demonstrating the challenges posed by the AM/FM subcaps in “delivering full market service with a diversity of programming.”

Diversity in programming in this case means eliminate in-format or demographic competitors so they can have the majority of the local listening and revenue.

  • Comments by the National Association of Broadcasters highlighting the competitive advancements of AM stations and the possibility for increased market entry by diverse owners through elimination of the subcaps.

Only because these group owners will be seeking to dump off their now unwanted AM’s at fire sale prices. Yet these diverse owners will be stuck with limited options to compete on an equal level with the sellers.

  • As CBS Corp. succinctly stated:

    These subcaps were historically premised upon supposed technological and marketplace disparities between AM and FM stations which have been eradicated by the increasing competitiveness of AM stations and the advent and increasing utilization of digital radio technology. As the record compiled in response to the initial Notice of Inquiry in this proceeding conclusively demonstrated, the subcaps have long been unsustainable, are even more so now, and cannot lawfully be maintained as an aspect of any local radio ownership rule that might be left in place

As CBS Corp. succinctly did:

Paying $75 million in 2012 for 101.9 in New York in order to move Sports 660 WFAN to FM in order to keep up with the demographic shift of its listeners away from AM. CBS also eliminated stand-alone FM brands in Chicago, Detroit, Philadelphia, San Francisco and for awhile in Las Vegas to either simulcast or completely shift an AM station’s brand to FM. How did that make AM more competitive?

This all comes down to one thing. AM stations are increasingly useless in a market and unable to compete on a local level. The NAB and large group owners have spent the past two decades blocking any large-scale attempt to put AM and FM stations on truly equal levels (moving to a new all-digital band like the rest of the world, or keeping all FM HD Radio subchannels for the original analog FM). Now they see the values of these AMs at an all-time low and want to be able to dump them off and spur another round of consolidation without creating a public outcry about the government eliminating further competition.

But call it what it is. Don’t try to feed us bull that the remaining AM stations are better off or more competitive now than at any time in the recent past. Or that the public will be better served because you can now own eight FMs in a market and take some of your competition out of a market.

Small and independent owners that make up the majority of radio station licensees should be banding together to ensure their wants and needs are heard by the FCC. Being rendered further unable to compete with large groups that fear being rendered further unable to compete with digital platforms does no good for the industry as a whole.

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Lance Venta is the Owner and Publisher of RadioInsight.com and a consultant for RadioBB Networks specializing in integration of radio and the internet. Lance has two decades of experience tracking the audio industry and its use of digital platforms.

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