An Antitrust Analysis of Clear Channel's Radio and Concert Empire Adam J
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University of Minnesota Law School Scholarship Repository Minnesota Law Review 2004 Clear Control: An Antitrust Analysis of Clear Channel's Radio and Concert Empire Adam J. van Alstyne Follow this and additional works at: https://scholarship.law.umn.edu/mlr Part of the Law Commons Recommended Citation van Alstyne, Adam J., "Clear Control: An Antitrust Analysis of Clear Channel's Radio and Concert Empire" (2004). Minnesota Law Review. 715. https://scholarship.law.umn.edu/mlr/715 This Article is brought to you for free and open access by the University of Minnesota Law School. It has been accepted for inclusion in Minnesota Law Review collection by an authorized administrator of the Scholarship Repository. For more information, please contact [email protected]. Note Clear Control: An Antitrust Analysis of Clear Channel's Radio and Concert Empire Adam J. van Alstyne* No, you are not imagining it; the same mediocre song is on every radio station. The music promotion industries of radio and concerts were significantly consolidated over the last dec- ade.' In 2000, the industries wed when Clear Channel, the dominant parent company in radio consolidation, purchased SFX, the largest concert promoter conglomerate.2 Today, a few large corporations control most commercial radio and concert promotion firms. Concentration in these industries, however, is not just about what songs you hear on the radio and what con- certs come to your town. Advertising in these media-driven in- dustries generates billions of dollars annually.3 Consolidation in the music promotion industries allows firms to rapidly change operations to realize economic efficien- cies. These efficiencies, however, are not always in the long- term interests of the industries. This Note applies a rule of rea- son antitrust analysis to the consolidation of radio broadcasting and concert promotions, and the vertical integration of the two industries. This Note contends that federal regulation of radio * J.D. Candidate 2004, University of Minnesota Law School; B.A. 2001, Grinnell College. The author would like to thank his family for their love and support; Professor Brett McDonnell for his advice and feedback on this Note's formative drafts; the Staff and Board of Volumes 87 and 88 of the Minnesota Law Review for their diligent efforts; thanks in particular to Jared Hager, Jim Toomey, P. Joshua Hill, and Sten-Erik Hoidal. 1. See discussion infra Part III. Record labels are also consolidated but that is not discussed here. For a brief discussion of record label consolidation, see Andrew Marton, Requiem for the Record: The Grammy Win by the 0 Brother Soundtrack Is Another Sign that the Original Concept of the Rock Al- bum Is Dying, FORT WORTH STAR-TELEGRAM, June 23, 2002, at D1. 2. CLEAR CHANNEL COMMUNICATIONS, INC., 2001 10-K 35 (2001). 3. Another major concern arising out of the consolidation of media indus- tries is the issue of editorial control and distribution of thought. See generally Maurice E. Stucke & Allen P. Grunes, Antitrust and the Marketplace of Ideas, 69 ANTITRUST L.J. 249 (2001). 628 MINNESOTA LAW REVIEW [Vol 88:627 station ownership fails to address vertical integration in the music promotion industry, and that agency tendency toward deregulation reduces competition and diversity to the detri- ment of the public. Additionally, this Note addresses the short- comings of proposed legislation addressing vertical integration in the music promotion industries and offers groundwork for potential solutions. Part I provides a brief overview of the his- tory of federal radio regulation. Part II introduces a few anti- trust principles applicable to an analysis of the music promo- tions industries' consolidations. Part III traces the sources and extent of consolidation in the radio and concert industries, in- cluding the 2000 Clear Channel-SFX merger. Part III also pro- vides an overview of the Competition in Radio and Concert In- dustries Act, ' Congress's recent attempt to regulate the consolidation and anticompetitive practices in the concert pro- motion and radio industries. Part IV analyzes the competitive efficiencies and harms of consolidation in radio, concert promo- tions, and the vertical integration of the two concentrated in- dustries. Part V analyzes the role of government intervention and proposes a framework to regulate the vertical integration of radio and concert promotions. The conclusions this paper draws are not limited in appli- cability to the merger of radio stations. With the June 2003 Federal Communications Commission (FCC) media ownership regulations5 currently under an emergency stay, and close scru- tiny, when lawmakers and courts evaluate the proposed rules, they should consider the impact that media conglomeration has on closely related industries. As the Third Circuit acknowl- edged in justifying the court's September 3, 2003, order staying 4. Competition in Radio and Concert Industries Act, S. 221, 108th Cong. (2003); H.R. 1763, 108th Cong. (2003); S. 2691, 107th Cong. (2002). 5. The new media ownership rulings allow one parent company to con- trol the television signal of up to forty-five percent of television's total national audience. See Jim Landers, FCC Votes Along Party Lines to Relax Most Media Ownership Rules, DALLAS MORNING NEWS, June 3, 2003, at Al, 2003 WL 56750600. The rulings also allow media conglomerates in the largest cities to own media across platforms, i.e., radio, newspaper, and television, by loosen- ing cross-ownership bans, a policy rejected by Congress under the 1996 Tele- communications Act. See id. Overall, the new rulings promote greater integra- tion across industries and greater editorial control in conglomerates' hands. See id. The proposed rules are located in the Commission's 2002 biennial re- view of its broadcast ownership rules. Broadcast Ownership Rules, 68 Fed. Reg. 46,286 (Aug. 5, 2003) (to be codified at 47 C.F.R. pt. 73). For a discussion of the impact of the proposed rules on radio see infra notes 39-42 and accompanying text. 2004] ANTITRUST ANALYSIS OF CLEAR CHANNEL 629 the new media ownership rules, the "alleged harms from indus- try consolidation [are argued to] be widespread and irreversible if they occurred. ' With the potential for irreparable harm, examining the impact media consolidation has on closely related industries is important to insure ownership regulations will operate soundly. As Senator John McCain stated to the Senate Com- mittee on Commerce, Science, and Transportation, "the broad- cast radio industry was the 'miner's canary'. [i]t alerted [the committee] to the growing consolidation and vertical integra- tion in media."7 As a result of the 1996 Telecommunications Act, the radio broadcast industry operates without any national limits on ownership." The experiences within the radio and con- cert promotions industries can serve as an example for the regulation of other industries by illustrating the flaws in failing to account for how one industry's consolidation affects other closely related industries. I. HISTORY OF FEDERAL RADIO REGULATION A. BIRTH OF RADIO REGULATION The public owns radio bandwidth; thus, the radio industry has been government regulated since its inception.9 The gov- ernment must limit the number of stations that operate within the confines of the bandwidth to prevent signal interference.' ° The Radio Act of 1927" created an administrative board to 6. Prometheus Radio Project v. FCC, No. 03-3388, 2003 WL 22052896, at *1 (3d Cir. Sept. 3, 2003) (per curiam) (granting motion to stay the effective date of the FCC's new ownership rules pending judicial review). 7. Media Ownership (Radio Consolidation):Hearing Before the S. Comm. on Commerce, Sci., and Transp., 108th Cong. (2003) (statement of Sen. McCain, Chairman, S. Comm. on Commerce, Sci., and Transp.). 8. Telecommunications Act of 1996, Pub. L. No 104-104, § 202(a), 110 Stat. 56, 110. 9. See Nat'l Broad. Co. v. United States, 319 U.S. 190, 210-11 (1943); see also Carl J. Friedrich & Evelyn Steinberg, Congress and the Control of Radio- Broadcasting,I, 37 AM. POL. SCI. REV. 797, 797 (1943); Michael Ortner, Note, Serving a Different Master-The Decline of Diversity and the Public Interest in American Radio in the Wake of the Telecommunications Act of 1996, 22 HAMLINE J. PUB. L. & POL'Y 139, 141-42 (2000) (discussing how early radio regulations were promulgated to reduce conflicting signals). 10. See Nat'l Broad. Co., 319 U.S. at 213 (citing JOHN H. MORECROFT, PRINCIPLES OF RADIO COMMUNICATION 355-402 (3d ed. 1933); FREDERICK EMMONS TERMAN, RADIO ENGINEERING 593-645 (2d ed. 1937)). 11. Radio Act of 1927, ch. 169, 44 Stat. 1162 (current version at 47 U.S.C. 630 MINNESOTA LAW REVIEW [Vol 88:627 oversee radio stations' operations by promoting access to the airwaves and reducing interference on the dial. 12 The Commu- nications Act of 193413 established the FCC and granted the FCC oversight of licensing radio stations. 4 The FCC's purpose is to ensure radio operations meet the public interest." In par- ticular, the FCC will grant a license if it finds that "public in- terest, convenience, and necessity would be served." 6 In 1938, the FCC limited station ownership to promote the public interest and encourage diversity and competition. 17 The Supreme Court's position on this action has been to note that while the FCC "does not have power to enforce the antitrust laws as such, it [was] permitted to take antitrust policies into account in making licensing decisions pursuant to the public- interest standard."' 8 The FCC's decision to limit concentration of ownership was consistent with the Court's declaration that the "[First] Amendment rests on the assumption that the wid- est possible dissemination of information from diverse and an- tagonistic sources is essential to the welfare of the public."' 9 B. FCC's EARLY ATTEMPT TO DEAL WITH VERTICAL INTEGRATION: CHAIN BROADCASTING Also in 1938, the FCC began the chain broadcasting hear- ings2° to investigate network monopolization of radio program- § 151 (2000)).