San Diego Has Jacor, the megamillion-dollar radio holding company that owns or controls ten San Diego stations, including KSDO, KGB, and KOGO, broken antitrust laws in its haste to gobble up the local radio market? Jacor confirms that an antitrust probe investigating alleged anticompetitive activities that began last year in Jacor's home market of Cincinnati was extended earlier this year to San Diego. Mike Glickenhaus, vice president and general manager of Jacor San Diego, insists the probe "to the best of my knowledge" is over, based on the fact that Jacor has been allowed to proceed with its station-buying binge here.
Justice Department spokeswoman Gina Talamona will neither confirm nor deny whether Jacor's San Diego purchases - which involved snapping up ten AM and FM stations, nearly one third of the area's total - have come under scrutiny. "We cannot comment on specific investigations until they are resolved," Talamona says. Others familiar with local radio say federal investigators have been active. "I know some clients have been contacted and some agencies have been contacted," says Randy Bixler, senior vice president of Western International Media, which buys radio advertising for clients. "They began calling people up in the fourth quarter of last year, and it all started heating up then."
Critics say Jacor, which recently fired controversial talk-show host John Coleman, is trying to fix both opinion makers and advertising rates by building a monopoly of the airwaves. But Glickenhaus characterizes the probe as more general than that. It involved, he says, "a total analysis of the market and our place in it. They researched things like our revenue shares and ratings shares and asked certain demographic questions." Glickenhaus won't go into detail, saying, "I don't believe it's proper for me to comment on the investigation." He does say that the investigation was not unexpected, "based on our experience with other companies and in other markets."
Last fall, Justice officials said the ownership dominance of Jacor in Cincinnati and American Radio Systems in Rochester, New York, was too great. The two stations promptly swapped stations to satisfy the government's concerns. Jacor traded an FM station in Cincinnati for three of American's stations in Rochester. That matter "is now resolved," according to Talamona, but federal antitrust regulators continue to look at "different radio station mergers and transactions in other markets."
Bob Bolinger, general manager of KFMB-AM and KFMB-FM, says he's heard of the probe but has not been contacted. He sticks up for his competitor and notes that Jacor has already divested itself of one local station, KCBQ-AM. The number of Jacor's stations combined with pending deals exceeded the FCC limit on how many stations a company can own in a single market. "I think the marketplace will dictate fair competition," Bolinger says. "Our medium is underbought and only commands 7 percent of all ad dollars. I hardly think that's unfair competition. I hope the Justice Department lets the marketplace determine what it can support."
Ever since the federal Telecommunications Act of 1996 was signed into law in February 1996 by President Clinton, federal regulators have been worried about trust building and price fixing. The law upped the number of radio stations a company can own in a single market from 4 to 8 and eliminated the previous national cap of 20 broadcast properties.
Since then, dozens of publicly traded broadcast giants like Jacor, which is controlled by Chicago financier Sam Zell, have sprung up and embarked on buying sprees across the nation. They often cluster their purchases in specific markets to consolidate operating expenses. According to a report from the New York investment banker Veronis, Suhler and Associates, broadcast merger and acquisition activity totaled $80.1 billion in 1996, a 74 percent increase from the $46 billion spent in 1995. By last October, Jacor had spent more than $1 billion acquiring 100 stations in 21 markets, 10 of them in San Diego (2 broadcast from Mexico and thus are not covered by the 8-station limit). Recently Glickenhaus was installed as head of the San Diego Radio Broadcasters Association, a networking group whose membership dropped from more than a dozen to eight in less than one year.
Federal regulators began looking at radio station mergers and acquisitions from the onset of deregulation. According to the department's official analysis of radio mergers, presented by acting Assistant Attorney General Joel I. Klein last February in Washington, D.C., about 140 of the 1000 or so mergers that have taken place since February 1996 have come under Justice Department scrutiny. Klein said these reviews are "essential for protecting American consumers from mergers that can create market power and result in noncompetitive price increases or other anticompetitive effects."
Of those 140 mergers under review, Klein said, 50 have been investigated. Three of these have led to an action. Number one: the Jacor/Citicasters merger in Cincinnati. "We required that one station be divested," Klein said, "resulting in a post-merger market share of advertising dollars of 46 percent, as compared to 53 percent without the divestiture."
Swapping stations, as Jacor and American did in Cincinnati, is a way out for broadcasters accused of commanding too high a market share. Since February 1996, 123 radio stations have changed hands via trade, 27 of them in the first three months of this year, according to BIA Research, a broadcast consultancy based in Chantilly, Virginia.
As of February 19, Klein said, 25 more radio mergers were under investigation. Around this time, Justice officials contacted Glickenhaus and others in San Diego about Jacor's local interests. In defense of the Justice Department's interest, Klein cited examples of price fixing and anticompetitive tactics unearthed from documents and correspondence. "One document we uncovered stress[es], as part of the pitch during a road show for investors, that the right combination of advertisers makes it 'difficult [for advertisers] to buy around.' Another document touted that a principal advantage of consolidation was that 'back-side profits [would] result from aligning multiple properties in such a way as to eliminate today's competitors, while deterring tomorrow's.' "
Glickenhaus says he's familiar with Klein's comments and he disagrees. "That certainly did not come from our company, to the best of my knowledge," he says of the examples cited by Klein. "I can understand Justice wanting to protect consumers from unfair competitive practices, but it takes a long way to get it to a monopoly, and that is not the case here. It all goes back to the basic premise that radio does not compete against radio alone. Advertisers have many choices, from cable and television to print and outdoor, and with radio accounting for just 7 percent of all ad dollars, that means advertisers are putting 93 percent of their investment into other areas. So even if we owned every station in the market, we would still only be acquiring 7 percent of total advertising dollars - which is a very small share."
Even so, San Diego's two remaining independent broadcasters are feeling the squeeze. They can't buy more stations, even if they wanted to, because the buying spree by public giants like Jacor has sent the cost of stations spiraling, not just here in San Diego, but all over the country. "Man, it's tough," says Bolinger, whose stations are both owned by Midwest Communications of Champagne, Illinois. "What broadcasters did in the 1980s, going out and buying stations with really no money, just raising venture capital, can't be done, and that's a shame."
Jonathan Schwartz, an owner of the locally based Compass Radio, agrees. "We just can't compete with these major groups who have cheap access to capital through public markets and are paying pretty rich prices because of deregulation," he says. "They can afford to pay more than an independent because they are able to take advantage of cost efficiencies as well as the revenue opportunity that will eventually come out of deregulation, which is to control more inventory."
Four years ago, when Compass entered the San Diego market with its purchase of KCBQ-AM and KCBQ-FM, it owned six radio stations in three markets - San Diego, St. Louis, and Phoenix. Today, Compass owns just one, KXST-FM, a low-powered rock station based in Oceanside. At the time there was only one national broadcast giant in the market, Gannett Broadcasting, competing against more than a dozen independents. Today, this order is reversed. All but 3 of the 32 AM and FM frequencies in San Diego are controlled by Jacor and a handful of other big operators.
So far, the Justice Department's fears that Jacor and other public giants would lockup markets and drive up ad rates have not materialized, says Rita Zanella, a media analyst with Gruntal & Company in New York. "Going from $1000 a spot to $1500 is not going to happen," she says. "There's a watchful eye out there. You're not seeing a lot of ad rate growth, outside of the normal, because it's still under such scrutiny."
Schwartz, of Compass Radio, believes Jacor hasn't raised its local rates much for another reason: its desire to build market share. "Right now these large groups, and Jacor is one of them, are going more for share of the market to get advertisers used to buying groups of stations, and they are doing that through attractive pricing," he says. "Jacor will walk up to an advertiser and say, 'You can buy all ten of our stations in San Diego, and here's the price we'll give you.' That way they can eliminate the advertiser from buying other stations in the market."
Glickenhaus insists Jacor's ad rates are "a function of demand, a function of the marketplace. Our advertisers set our price. If you continue to build demand, then you can possibly raise your rates, but at this point we're still in the process of building our radio stations."
He would not, however, rule out future rate increases. Zanella is not surprised. As she told the Chicago Tribune shortly after deregulation took effect, when you're as big as Jacor is, "you control pricing. You eliminate your competition and have greater control over what you can charge."