Is Clear Channel Hogging the Airwaves?

Its radio, TV, concert, and billboard empire, amassed with little antitrust scrutiny, is drawing howls from rivals

Five years ago, Clear Channel Communications Inc. (CCU ) was barely a blip on the radar screen among the nation's owners of radio stations. Few outside the industry had ever heard of the San Antonio-based broadcaster. But that was before consolidation swept through the industry in the late 1990s. Spurred by deregulation, Clear Channel began to gobble up assets under the leadership of its low-key CEO, rancher L. Lowry Mays. In August, 2000, the company topped off its acquisition spree with the $23.8 billion purchase of radio-station and billboard giant AMFM Inc. and the $4 billion buyout of promotions-and-venue behemoth SFX Entertainment Inc., which itself had been on a four-year buying binge.

That one-two punch made Clear Channel the nation's No. 1 radio chain, billboard owner, venue operator, and concert promoter. Today, the company, with $5.3 billion in annual revenues, has operations in 63 countries, including some 1,200 radio stations, 19 TV stations, 770,000 outdoor ad displays, and 135 live-entertainment venues. The next-largest radio company, Infinity Broadcasting Corp., pales by comparison, with just 183 stations.

QUESTIONS. Now, having amassed its Texas-size empire with relatively little regulatory scrutiny, questions are being raised about the company's leverage and reach. One group in particular is crying foul: regional concert promoters. In recent months, these promoters, who rely on radio airplay and touring to break new acts and strengthen established ones, have been accusing Clear Channel of anticompetitive practices. They say it uses its radio influence to boost its concert business by withholding radio play from artists who aren't booked on Clear Channel tours--thus squeezing small promoters out of business.

The antitrust complaints culminated on Aug. 6, when Nobody In Particular Presents (NIPP), a Denver concert promoter, sued the media giant in federal court. NIPP accuses the company of "monopolistic and predatory practices," including claims that Clear Channel's promotion arm, Clear Channel Entertainment (formerly SFX Entertainment), blocks other concert promoters from properly publicizing their shows on Clear Channel's radio stations. Clear Channel has until Oct. 5 to respond to the lawsuit. "Yes, we're big," CEO Mays told BusinessWeek. "But big is not bad."

NIPP's lawsuit represents the first time anyone in the music business has tried to curb Clear Channel's market clout in court. But it may be just the beginning. In July, Representative Robert E. Andrews (D-N.J.) requested an investigation by Attorney General John Ashcroft into whether Clear Channel is engaging in unfair business practices after New Jersey rock-concert promoters complained. Meanwhile, NIPP and other concert promoters, such as Jam Productions Ltd. in Chicago, say the Justice Dept. contacted them a few months ago regarding Clear Channel. Justice declined to comment, but a source close to the agency says Justice has been "monitoring Clear Channel and SFX for some time."

Clear Channel execs insist the company doesn't stifle competition unfairly. Mays counters that consolidation is good for the industry, creating efficiencies of scale and benefits for consumers. Mays and other Clear Channel brass say that, to their knowledge, there is no Justice Dept. investigation under way. "Our interest is not in squeezing the little guy out," says Mays. "But we want to expand and grow our business the best we can."

MANY TENTACLES. Clear Channel is certainly a powerful presence in some major markets, where it is able to use its entire spectrum of businesses to promote local entertainment events. For example, it can give away tickets on its radio stations for a rock concert it's promoting in one of the halls it owns. Meanwhile, those stations can push the band on the air and the company can deploy its bevy of local billboards to trumpet the event. Clear Channel has such overlapping assets in about 85 markets (table).

That kind of clout is what's bugging competitors. Clear Channel execs respond that if the company were pursuing the strategy alleged by its competitors, it would be hurting its own business. Steve Smith, chief operating officer of Clear Channel Entertainment, says it would be counterproductive for Clear Channel to let its concert lineup dictate the playlists of its radio stations. That could jeopardize ratings in the radio business, says Smith, where profit margins are about 40%. And though the concerts division is Clear Channel's fastest-growing unit, margins there are only about 12% "on a very, very good day," he says. So to jeopardize the radio business for the concert business "would be like tripping over dollars to pick up dimes," says Smith.

And these days, Clear Channel has a keen interest in doing anything to bolster its radio revenues, which have been hit hard by a decline in advertising. Like most of its media brethren, the company has been facing a dismal advertising environment since last December. Prior to the terrorist attacks on Sept. 11, its stock, at 43, was down 30% over the previous year, and down from a high of 67 in February. Now, the economic fallout from the attacks will likely include a new blow to ad spending.

Already, during its second quarter, pro forma radio revenues declined 7.1% from the year-ago quarter. For all units of the company, pro forma second-quarter revenues declined 1.5%, to $2.20 billion, from $2.23 billion for second-quarter 2000. Meanwhile, the company racked up a second-quarter net loss of $237 million, vs. net profits of $31.2 million a year earlier. Clear Channel is now warning that it will report a net loss in the third quarter, too, with cash flow falling below expectations.

Despite the gloomy numbers, Wall Street still likes Clear Channel. "They are in strong financial, strategic, and competitive shape," says analyst Paul T. Sweeny of Credit Suisse First Boston. True, the company's earnings before interest, taxes, depreciation and amortization (EBITDA), by which performance at many media companies is measured, fell 13% in the second quarter, to $615 million, and could decline for the year by 10%, to $2.2 billion, estimates analyst Gordon Hodge of Thomas Weisel Partners. But because of its acquisitions, Clear Channel's reported revenues will grow by a robust 51% this year, to $8 billion, predicts Hodge. Even so, Clear Channel is so skittish about ad revenues that in August it said it was hiring 500 new account executives for its 8,000-person radio ad-sales team to drum up new accounts. "Clear Channel has been the lightning rod of investor scorn because of decelerating advertising growth," says Hodge. "When there's a turnaround, they'll be the lightning rod on the way back up."

Meanwhile, among competitors, the outcry is growing about what is seen as Clear Channel's near-monopoly. "Clear Channel uses the leverage of their radio stations to intimidate groups to play [concerts] for them," charges Jerry Michelson, a partner at Chicago's Jam Productions. "We should have a level playing field." John Scher, a director of Metropolitan Entertainment Group, an independent promotions company in New York whose events have included the Woodstock revivals in 1994 and 1999, says Clear Channel has created a difficult environment in which to book shows. "It's an awesome task to compete against a company that controls most of the music radio in a market," he says. "Consolidation has left the industry in a less healthy state."

CRUSHING PRESENCE? In Denver, where Clear Channel owns 628 billboard displays, the 3,600-seat Fillmore Auditorium, and eight radio stations, including all of the area's rock stations, NIPP partner Jesse Morreale charges that "there's way too much potential conflict of interest here." Before Clear Channel's rapid expansion, Morreale says NIPP was putting on some 600 to 800 shows a year. He blames Clear Channel's overwhelming presence in the Denver area for the 14-year-old company's loss of numerous shows and events.

Even so, some analysts are skeptical that Clear Channel's rivals can build a successful antitrust case. "It's clear that their competitors are at a competitive disadvantage," says analyst James M. Marsh of Robertson Stephens. "But the fact that your competitors are crying doesn't make it an antitrust issue." If enough of them start crying louder, though, it just might become one.

By Stephanie Anderson Forest in Dallas, with Tom Lowry in New York

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