How Radio Became Big Business
by Alex Cosper

Commercial radio was ushered into American culture in the early 1920s by some of the biggest corporations in the nation. The early pioneers of the industry were GE, AT&T, Westinghouse and RCA. GE and Westinghouse owned stations and made receivers. AT&T made transmitters while RCA marketed radio receivers made by GE and Westinghouse.

Soon the medium attracted local owners such as local newspapers, churches and various mom and pop businesses. One newspaper owner, Ohio Governor James Cox, unsuccessfully ran for U.S. President in 1920, but then went on to concentrate on what became Cox Radio, a major radio chain.

By the end of the twenties radio networks emerged to own or program several stations across the country. In the 1940s the three major radio networks were ABC, CBS and NBC. A fourth network was Mutual Don Lee.

The FCC was established in 1934 to oversee media communications in the United States. Radio had previously been overseen by The Department of Commerce. With the establishment of the FCC came new rules to keep big players from dominating local markets or the industry, as radio was seen as a local public service funded by advertisers.

In 1940 the FCC began to limit the amount of time a station could broadcast network programming. This new direction, combined with the popularity of television in the 1950s, which cut into radio listening, created a whole new sound as radio moved away from "block programming" (various scheduled formats on one station) and began to adopt one format per station.

Up until the early 1990s, American markets were filled with a mix of small radio owners and a handful of big national companies. RKO had been a successful national radio chain for decades until its demise in the eighties due to legal problems of parent company General Tire. Other large chains for the era with under 40 stations included Gannett Broadcasting, ABC Radio, MetroMedia, Group W and Nationwide.

In the 1980s the FCC began to loosen up ownership rules as part of the Reagan Administration's federal de-regulation policy. With further de-regulation in the Bush Administration, by 1992 companies could now own up to two AMs and two FMs per market. The biggest sweeping changes came with the Telecom Act of 1996, signed by President Clinton. This new law allowed radio companies to own as many as eight stations in a market. The limit was also removed on how many stations across the nation one company could own.

Prior to the Telecom Act, the most number of radio stations one company could own in America was about 40. But the new law now allowed for the possibilities of huge empires. By 1997 CBS Radio had taken the lead to become the first industry giant, after buying American Radio Systems, which had just merged with EZ Communications.

CBS Radio also merged with Infinity Broadcasting that year to become CBS Radio, which was acquired by Viacom for $37 billion in 2000, as the radio division name changed to Infinity Broadcasting. The company changed its name back to CBS Radio in 2006 upon Viacom's split with the radio division.

Mergers became the catalyst for creating huge radio companies. Clear Channel became the biggest radio company in 2000 after a series of mergers. Clear Channel had been a much a smaller company through most of its development, founded in 1972 by Lowry Mays and Red McCombs in San Antonio, TX. Prior to the Telecom Act, Clear Channel owned 43 radio stations across America.

Jacor had become a top three radio company in 1996 after buying Citicasters and Regent Communications. Within a year 200 Jacor stations were purchased by Clear Channel for $6.5 billion. The next year Capstar had purchased SFX Broadcasting while Chancellor merged with Evergreen Media. Then in 1998 Hicks merged Chancellor Media with Capstar to become the biggest radio chain in the country, AMFM.

What put Clear Channel on top of the radio industry with most number of stations was the merger with in 2000 that stunned the industry as the smaller company bought out the top player in the industry, AMFM. The acquired chain was an investment of Thomas Hicks, who had started the company as Chancellor Media in 1994. Hicks had been a radio investor for years with his Texas firm Hicks, Muse, Tate, Furst, the firm that also purchased George W. Bush's share of the Texas Rangers in 1999. Hicks decided to trade radio for sports. In 2000 Hicks sold AMFM to Clear Channel for $23 billion.

Throughout the 2000s Clear Channel has owned up to 1200 radio stations, topping out around ten percent of all U.S. commercial radio stations. But since 2006 the company has been selling off many smaller market stations to concentrate on the larger markets. At the end of 2006 Clear Channel announced it would go private, after years of the stock price hanging well below 2000 levels. It was still the biggest player in the radio industry, in terms of revenue and number of stations. The other big player throughout the consolidation era continues to be CBS Radio.

The merger deals that produced Clear Channel Communications and CBS Radio set precedents in the radio industry that created a buying frenzy, driving radio property values to the moon. The consequence appears to be that the public doesn't like corporate radio as much as a more market-defined sound.

Since the mid-nineties radio ratings have been on a steady decline. Part of the problem is that radio faces new competition from new media such as the internet and portable mp3 players. Another problem is that the duplication of programming from one market to another seems to produce a very bland product for people who grew up on unique radio personalities and music that reflected more the metro than the national scene.

Both Clear Channel and CBS Radio became known in the radio industry for favoring an aggressive sales and marketing effort even to the point of over-shadowing programming. This new direction for radio was in amazing contrast with previous radio mantras that dictated programming came first and if the programming worked, then it would be marketed and sales would follow.

In the new scheme, however, programming simply became a vehicle for sales and marketing, although attention was paid even closer to audience research. This shift created a much tighter, more predictable sound than audiences had been conditioned to hearing.

Another interesting development that happened at the same time as radio consolidation was record industry consolidation. In the nineties, six companies ruled the music industry, but after a series of mergers four major music companies stood in the 2000s. The decline in music industry shipments and revenue that marked the era of the internet and the iPod, could also be seen as contributing to radio's decline.

Perhaps, people don't want their music to be so corporate after all. CBS Radio has tried to emulate the benefits of the iPod in some of their programming, such as the Jack format, which comes off like a shuffled playlist. The point is that corporate radio is now seen by many as either fading or jumping on board as a partner with new media.

Throughout the 2000s even the leading radio companies have suffered from falling stock prices and stagnant or declining revenue. Entercom purchased stations from Bonneville in 2007 in an attempt to grow on leveraged purchases while other radio companies are selling off or suffering. In 1996 the company jumped from being a very small chain to a top fifteen chain after buing into the Jacor sell-off.

By the 2000s it was a top five company in the radio industry. But like many of the other publicly-traded radio companies, in 2007 Entercom's stock price stayed below its late nineties initial public offering price.

Disney sold off most of its radio division ABC Radio Holdings to Citadel, as ownership shifted in June 2007. Included in the deal was San Francisco's long running top-rated station, KGO, KABC in Los Angeles and all other stations under the ABC Radio umbrella except for the Radio Disney and ESPN stations.

Ironically, Citadel's stock price - far below the Initial Public Offering - sank to all-time low levels the week following the takeover, and continued to sink for several months. ABC Radio had a lot of debt.

Cumulus Media, which purchased Susquehanna in 2006, emerged in the 2000s as another fairly big player. They surprised the industry July 23, 2007 when they announced their plan to become a private company after a buyout from an investment group for just over a half billion dollars.

Other companies that have a national presence in the 2000s are Cox Radio, Emmis, Radio One, Bonneville, Salem Communications, Entravision, Hispanic Broadcasting, Univision and Saga Communications. Today over forty percent of all radio stations in America are owned by corporations, but in most major markets a majority of stations are corporate.

While radio companies saw their stock prices diminish in the 2000s with their staunch stance on the product being shaped by audience research and marketing, a company with a very different approach was tearing upward in the stock market. Apple Computer, which became Apple Inc in 2007, saw its stock price more than quadruple in a three year period following the iPod and iTunes. Apple's mission was not so much to give the public what they already asked for, but to give the public an innovative solution to an underlying dissatisfaction in the purchasing and consumption of music.

In the nineties the public debate was non-existent on media ownership, but in the 2000s the public has made its voice heard to the FCC and Congress. It appears that a growing group of people unhappy with corporate consolidation are speaking up. The common complaint is that diversity has been lost when there are only three big players in a market that own most of the radio stations. With merger-mania, big companies simply bought out their competition and owned corners of the market. For example, one company might own both rock stations in a market and both stations might be programmed by the same person. That's exactly what happened with The Rise of Alternative Radio.

The main difference between the pre-Telecom Act era and now is that then the competition was across the street and now the competition is across the hall.