Antitrust Regulators Scrutinizing Radio Transactions


During the past year, the radio industry has experienced an unprecedented wave of mergers and acquisitions. The dramatic changes in station ownership were made possible by the Telecommunications Act of 1996 (the "Telecommunications Act"), which eliminated the nationwide radio broadcast ownership limit and increased the maximum number of commercial radio stations that a single entity can own, operate or control in a market. However, the Telecommunications Act explicitly preserves antitrust review of radio and other media company mergers. And, not surprisingly, the new consolidation in the industry has sparked the interest of federal antitrust regulators, particularly the United States Department of Justice (the "DOJ").

Prior to the Telecommunications Act, the FCC's caps on radio station ownership generally inhibited a station owner's ability to accumulate extremely high audience shares in a particular metropolitan market. However, with the liberalization in station ownership caps has come what the DOJ calls the "traditional burdens of antitrust review and exposure." In fact, in several instances since the Telecommunications Act's enactment, the DOJ has filed suit to prevent certain radio station mergers and acquisitions. Thus far, parties have settled some of the cases by agreeing to divest radio stations in markets where the DOJ had determined the transaction would result in one owner controlling a substantial percentage (e.g., 35% or more) of radio revenues in a market, or where the transaction would consolidate a significant number of same-formatted stations.

Although no "bright line rule" has emerged concerning radio consolidation, the following general observations can be gleaned from the DOJ's recent investigations of radio station deals:

  • Most of the DOJ's investigations of radio station deals have arisen in the context of the DOJ's review of the transactions under the federal Hart-Scott-Rodino Act, which only applies to certain fairly large (i.e., generally $15 million or greater) transactions. The DOJ can, however, commence investigations on its own initiative, and has done so in the radio station context.
  • The DOJ has focused its review of radio transactions on the prospect of increased prices for radio advertising. Using analytical techniques under the DOJ's Horizontal Merger Guidelines, the DOJ has concluded that radio advertising is a distinct, relevant "product market" for antitrust purposes, and that the geographic market for antitrust review purposes is a station's metropolitan market (rather than all areas in which a station can be heard).
  • In considering whether a merger will create or enhance market power within a market, the DOJ interviews (among others) advertisers and competitors, and reviews the parties' internal documents discussing the merger, "in an effort to determine whether the choices available post-merger would be sufficiently reduced to give rise to an anticompetitive price increase to a significant number of advertisers."
  • Once the DOJ assesses that there may be anticompetitive post-merger effects, it looks at whether changed behavior by current competitors (e.g., improved ratings, format changes) or the possibility of new entrants may ameliorate the competitive harm. However, the DOJ has publicly recognized the difficulties faced by new entrants in the radio industry due to the scarcity of available radio spectrum.
  • The DOJ has approved mergers resulting in more than a 40% market share (e.g., the Jacor/Citicasters merger in Cincinnati, which represented a post-merger market share of 46% of the market's advertising dollars, even after a DOJ-mandated divestiture). However, the DOJ has also acknowledged that less than a 40% market share might allow a company to exercise market power.
  • While antitrust review under the Hart-Scott-Rodino Act is pending, parties should not enter into Local Marketing Agreements ("LMAs") in anticipation of acquisitions. DOJ officials have stated that LMAs entered into in contemplation of acquisitions transfer effective operating control of the assets or business, in violation of the Hart-Scott-Rodino Act, and can result in substantial penalties.
  • While the DOJ has declined to issue steadfast "rules of the road" for radio transactions, DOJ officials have cautioned that radio deals that result in 35% or more market share or that consolidate a large part of a particular format (even when less than 35% of an overall market's revenues are involved) may raise antitrust concerns and warrant antitrust counsel's advice.

As consolidation in the radio industry proceeds, and as it expands to medium and smaller-sized markets, the DOJ will undoubtedly continue to scrutinize mergers and acquisitions in this industry. It is unlikely that the DOJ will issue any precise rules on market share; rather, the DOJ will focus instead on a market-by-market determination of a station owner's ability to create or enhance market power, to the detriment of advertisers.