Justice makes radio waves

0 Comments | Insight on the News, Jan 27, 1997 | by Gene Koprowski

The Antitrust Division is unhappy about a trend toward consolidation in the broadcasting industry.

Steve Ruxton hosted a radio show on WJJD in Chicago for five years -- until last month. Ruxton didn't lose his broadcast slot due to poor ratings. The radio veteran was replaced because of the policies of the Clinton Justice Department.

WJJD is owned by Westinghouse Corp., which recently purchased Infinity Broadcasting for $3.7 billion. In approving the deal, Justice forced Westinghouse to diversify some of its holdings, insisting that the corporation's Chicago station be sold to a minority-owned beneficiary. The new management of WJJD then laid off Ruxton and his colleagues. The move by the department was unprecedented.

Since Congress passed and President Clinton signed the Telecommunications Act loosening restrictions on the ownership of broadcasting stations, 120 mergers and acquisitions have transpired in the radio industry But former Whitewater spinmeister Joel Klein, now deputy assistant attorney general for antitrust, has taken a dim view of the mergers. He and fellow Clinton trustbusters say they're breaking up potential advertising monopolies. Their opponents claim they are using their powers of investigation to extract concessions from radio stations to meet social-policy goals -- including diversity of ownership.

Until this summer, the Justice Department never had conducted an antitrust investigation of radio, according to Ted Henneberry, an attorney who represents the National Association of Broadcasters, or NAB. "The Federal Communications Commission had always handled radio deals," he tells Insight. But the FCC has not flagged any potential antitrust violations. And other critics claim that Justice lawyers on the cases have a limited understanding of the radio business, which competes with television, newspapers and magazines but receives just 7 percent of all marketing dollars.

Indeed, many stations say they are barely surviving. Some on-air personalities with years of experience in big-city markets make around $20,000 per year, hardly a glamorous show-biz salary. To survive, the industry "is not only consolidating, but rearranging itself, rapidly," says Sandy Phunder, an antitrust attorney with Gibson, Dunn & Crutcher in Washington. "Stations are being bought and sold and flipped and traded. But the [Justice Department's] Antitrust Division has brought three cases in the last four months challenging the acquisitions."

In recent weeks, Klein and his aides have ordered Midwest radio-giant Jaycor to divest itself of a station in Cincinnati when it purchased Citycasters, another broadcaster. They also compelled American Radio Systems Corp. to divest stations it owned in Philadelphia and Boston after it purchased a smaller broadcast company

How onerous were the Justice investigations? "The halls of our office were lined with boxes all over the place, filled with documents to be checked by the DOJ," recalls Ruxton. Those boxes had to be shipped to Washington and delivered to Klein even as the announcement of the acquisitions were being made, notes Henneberry. Otherwise, the entire deal would have been scotched by the lawyers.

"There is no question this is being directed by Klein," Henneberry tells Insight. "One of the criticisms of them is that there is no rhyme or reason to how they were approaching the deals.... They do not have a base of experience with which to understand radio. Then here comes the Telecommunications Act. Everything changes. There is a lot of misunderstanding by the anti-trust authorities."

For example, says Henneberry, the FCC allowed radio stations to create local marketing agreements through which a station buys a competitor's air time and resells it. But Justice threatened to take civil action against the practice "to the tune of $10,000 per, day." He explains, "You do a deal in June and then they come to you in October [saying] that they're going to sue you for using agreements that you've been allowed to use for umpteen years. Imagine the frustration."

Henneberry has written a letter to Justice offering a compromise that would stop the marketing agreements in the future -- even though they are quite lucrative for the stations -- if the department allows the already-completed deals to stand. The NAB also has asked Justice to expedite its approval process.

While the Clinton administration continues to insist that radio is a separate advertising medium from all others, the broadcasters argue the Justice investigations flaunt the intentions of the GOP Congress that passed the bill. "Let radio grow," says Henneberry "Let market forces take effect."

Meanwhile, industry insiders say Clinton trustbusters are preparing to go after television stations, which also are starting to merge as a result of the Telecommunications Act. The question is, will they have learned anything about the business before they start requiring reforms, or will they adhere to their dogmatic approach?