Hearing of the Senate Commerce, Science, and Transportation Committee Subject: Hearing on Media Ownership

HEARING OF THE SENATE COMMERCE, SCIENCE, AND TRANSPORTATION COMMITTEE
 
SUBJECT: HEARING ON MEDIA OWNERSHIP
 
SEN. GORDON SMITH (R-OR): Thank you, Mr. Chairman. I have been in and out this morning trying to cover commitments in three different committees, but I particularly appreciate you holding this hearing because I think it is so interesting and it's an area I'm trying to get up to speed on, but it frankly strikes me that if it wasn't this industry, we could bring the airlines in here and have the same discussion. We could bring the banks and the credit unions in here and have the same discussion. We could bring the farmers in who complain about packer concentration and then we could bring the packers in to complain about retail store competition, and this is called a marketplace and it seems to be working.

This area is new to me and it's fascinating to me. I earned my living growing and processing peas. And I remember when I first got into my business there was Green Giant and there was Birds Eye and they dominated everything. And now they're just labels, they don't even produce anymore because some of us figured out how to pick up the crumbs falling from their table and little businesses want to become big businesses.

And it does seem to me what I want to focus on is, is there anything in this system that prevents little guys from becoming big guys like Clear? And that I think is the real central question we have to ask, because right now United is bankrupt and JetBlue and Southwest are prospering. They've figured out how to undercut those guys to provide customers quality, service and price. And I just think it's impossible for us as U.S. senators to figure out the intricacies of every industry. What we've got to make sure is that the door is open to newcomers, that monopolies don't exist or at least there are the abilities to stop illegal activities which prevent newcomers and new capital from coming in.

I guess that's really my central question, I'd love to know it. You know, I think the proposal here is that we have ownership caps. And whether—my question is how do ownership caps actually translate into getting more local people on local stations? I'm not sure I understand that nexus.

And I also think, Mr. Chairman, one of the benefits of your having this hearing is that Mr. Henley, whose music I have loved since I was a little boy—actually we're probably the same age, but that he has the ability to come here and complain and express the fear that he might have retribution. I bet you won't because we're going to be watching to make sure you don't. And so I thank you for your courage to come here and I frankly plead with the industry generally to make sure that if there are features in how you do your business that look like payola, look like a bribe, that you purge yourself of those things. But I guess my question is are there—is there a proposal here like ownership caps that actually make sense to help local artists, and what is the nexus there? And I ask that just for information.

MS. TOOMEY: Chairman, in the interest of fairness I want to address first Mr. Fritts' attempt to discredit our study. We are not a rogue organization, we represent over a dozen artist organizations and we have 40 letters of support for this study with everyone from all the unions, Don Henley's group, the Artist Empowerment Coalition, Just Plain Folks, everything from very big and very small organizations, consumer groups, Consumer Union, Consumer Federation, Media Access Project et cetera. All of them have looked at our study and said the numbers ring true.

Now, Mr. Fritts does raise an interesting issue. We cite most of the studies that he offered up in comparison to our studies within our study, because we say these studies, they tell us half the picture, they just don't tell us the next. It's almost as if the detective has chased the thief into the drawing room but then doesn't look in the closet, and what our study does is it goes into the closet and says this is where the problems are.

The problem is as soon as we put our study out the NAB said well, you've got the wrong numbers. Now, the reason it's taken us so long for us to do a study like this is because it's expensive to buy industry data and we were—it was very important to get a grant to do that kind of work. But the fact of the matter is this should be public data. And if anything really good can come, if we can understand how these dramatic changes are affecting the landscape, what we need to know is publicly what is happening at all of these radio stations.

So one thing that I would suggest maybe come from a hearing like this is the idea that we make as a requirement of a station's license, that they file certain pertinent bits of information that's held publicly so citizens groups and musicians and artists can all see the statistics that it took so long to bring forward. And I think if we could see them and anticipate what trends are coming down the line, we might be able to adjust for them and make sure that the full diversity of citizens are being served by the public airwaves.

SEN. SMITH: So what you're asking is in law is some regulation that requires so much local content in what is presented by these stations?

MS. TOOMEY: Even more basically, just information about the stations themselves so that we can know what percentage of marketplace they're controlling, what other connections they have, whether they are actually programming stations whose licenses they don't own but who they have a relationship with which, you know, extends the number of stations they have in a market.

SEN. SMITH: Mr. Fritts is there anything in the—you know, about ownership caps that in your view assures that local producers of music get on the air?

MR. FRITTS: Well, you know, I guess I'm not a very good singer, but if I wanted on the air, I'd have to get on on the merits, quite frankly, and I don't think that—put it this way. If there's a worthy audience or artist, rather, they'll make their way on to the air. I used to own and operate a chain of small town radio stations, and I know the system pretty well. Our stations were so small that no independent record promoter wanted to come to us, we programmed for the local community just as radio is doing now. I think the overview here is the FCC has on the public record documents that Ms. Toomey was talking about, and we would be happy to provide response to the myths that are sometimes alluded to in these studies.

The problem, I would submit, that Mr. Henley has is not with the radio stations but indeed is with the record companies. There are only five record companies and they operate as monopolies and they dictate to the artist what the terms and agreements will be. And if it's different than that, then I'd like to hear it.

MR. SMITH: Talk to the food industry, and then the banks and credit unions, and we ought to bring the recording folks in here, too.

MR. FRITTS: Just one final point. Mr. Mays has not always been a large company. He started with one radio station many years ago and built his company in the American system --

SEN. SMITH: Is there anything in the system that would prevent a start up operation like Mr. Henley may want to start a radio station, is there anything that Mr. Mays can do to him to prevent him from going in to this business if he so chooses?

MR. FRITTS: Not that I'm aware of.

SEN. SMITH: Mr. Henley.

MR. HENLEY: All right. Well, if I was going to get into radio business I should have done it in the '70s, but you and I have more in common than just my music. I know something about farming and I know something about peas because I grew up on a farm in east Texas picking peas for my father. And what has happened to the radio industry is exactly what has happened to the agriculture industry. I'm a member of the American Farmland Trust, and I know about the decimation of the small family farms in this country, they have virtually disappeared. Why? Because big agri-business has taken over the industry. And that's exactly what's happened in the music business. You know, you can do all these research models and you can concentrate on the business factor, but what's left out of the equation is the impact on the culture.

In my humble opinion, research has ruined the radio business because of the way they do it. You know, they do callout research, they do focus groups, they bring people into a room or they'll call them up and play 10 seconds of a song to them and they'll say, do you like this? They'll do even galvanic skin response for Christ sake, and see if the heart rate increases. That's not the way people listen to music, people have to come acquainted with the song, it has to grow on them. And music doesn't get a chance to do that any more. So in my estimation research has ruined radio. It's not realistic, it doesn't have a human element or a human factor in it. Everything is built on a business model and that doesn't take into account our culture and our feelings as human beings and our emotions and our need for creativity and expression. Thank you.

MR. SHORT: To answer your question, I think it's similar to me as saying could someone, one individual, start the next Microsoft or start the next General Motors or next whatever giant corporation that exists. Technically, the answer is yes. But realistically how can you do it, particularly given that you have a monopoly in place? Many of these companies I just mentioned, they were kind of like the first and that was their end. Now that everybody knows how to do it, it's unlikely that since everybody knows the secrets that it's going to be the next one any time soon.

Clear Channel was basically first to—you know, they were in position when the law changed. They were out of the gate, they did whatever they had to do quickly and, maybe to their credit, they saw a loophole and they took advantage of it. And now that other people see this loophole they say, "Well, let us try to jump through it." Well, the knot is a little smaller now and you might get hung trying to go through there, okay? There's other reasons. Access to capital is extremely difficult. Who's going to lend a small entrepreneur, first time out of the gate, many, many millions of dollars to go up against a giant? I wouldn't risk my money with that scenario and most other prudent businessmen or women would not either.

I think Senator McCain had mentioned earlier when he started about the legislation for a tax certificate, or something of that nature. I think that we do need to look at a tax certificate with some provisions for small businesses, and particularly for minorities. One of the things that happened if you look at the history of the Telecommunications Acts in the past, from 1934 through 1978 hardly any stations were owned by African Americans. It wasn't because no African American thought of the idea. Who was going to lend you the money and then who was going to advertise after you got it? But they made provisions with the tax certificate that allowed a significant growth in minority ownership from 1978 through 1996. That's probably the greatest growth in terms of African American and other minority participation in the broadcast industry.

And then came the bolo punch, the knockout punch, in 1996. While they had all these supposedly great intentions, it for practical purposes is no better than the guys who invented the leisure suit. I mean, it was supposed to be a nice style, but who needs it now, okay? Get rid of it. If it's no longer appropriate, if it's no longer relevant, make adjustments. The 1996 Telecommunications Act was supposed to be an amendment to the 1934 Act, not a replacement so that the new smart lawyers can figure out a way to make one or two, three companies control not only the media, but control—look at the elections, control the public viewpoint. If you own the airwaves, you can basically push whatever agenda that you have personally and it may not necessarily be the agenda that's best for the country.

So I would say institute a tax certificate, make banks and lending institutions lend money and you will—and if you take away some of these stations—Clear Channel has what? I have information that says—well, correct me. He's got his information. But that Clear Channel has an estimated revenue of over $3 billion annually.

SEN. SMITH: But if you want to go into Mr. Clear Station's business, can you do that?

MR. SHORT: Can I do what?

SEN. SMITH: Is there any—I mean, you may have to have a business model, you may have to go get a loan. Can you get into the business? Can you get a license?

MR. SHORT: Yes, you can. If you're a U.S. citizen, no felony and you have a few bucks in your pocket, yes. Will you survive?

SEN. SMITH: Can you be a JetBlue? I don't know. I mean, that's just a question I'm asking. I want to make sure --

MR. SHORT: Is it --

SEN. SMITH: -- that we have the kind of regulation that give people ins to it. But in the end, we can't guarantee that anybody succeeds.

MR. SHORT: Can you be a family farmer.

SEN. SMITH: That's the great question. I mean, I know some family farmers that are doing very, very well and there are some that just don't. And I know a lot of food processors very frustrated with Wal-Mart because they absolutely dominate the market. But eventually somebody is going to figure out how to do better what Wal-Mart does.

MR. SHORT: But it's frustrating when you—I did that. I was the guy who was an accountant. I was the guy who believed the American dream that, yes, you could own a radio station.

Well, when I had my station—and, you know, Jim Winston (sp) is behind me sitting here—there probably weren't 100 African Americans who owned a station at that time. And Mr. Mays talk about more African Americans own stations. Well, I think there are more African American owned stations, but the number of African American owners is down. You have maybe Radio One, Inner City and a few companies like that that have a lot. So now the chances if you're an African American growing up in this country and you say, "You know what? This guy over here made $3 billion in radio advertisement. I think that's what I want to do. I don't want to be a teacher, I don't want to be a scientist. I want to be a broadcaster if they got that kind of money in broadcasting." How can that person do it with monopolies in place, limited access to capital and, you know, there seems to be no end in sight.

SEN. SMITH: Monopoly is a legal term --

MR. SHORT: Oligopoly, monopoly. If it walks like a duck, quacks like a duck, it's a duck.

SEN. SMITH: But that's why we have the Sherman anti-trust law and I assume that they're going to enforce it. And I guess what I want to find out is are they enforcing it?

MR. SHORT: That's a great question.

SEN. SMITH: Are there things that are going on in this industry that make it impossible for others to compete against monopolies, or what—maybe they are, maybe they aren't. But if they're big businesses they tend to be called monopolies. And I want to make sure that little businesses aren't impeded from becoming big businesses by some structural impediment.

MR. SHORT: Right, when the DoJ had said that—I believe if you exceeded the 40 percent ruling, or you owned more than 40 percent of the market, many of these stations that were—you know, companies that were trying to buy more in that market were denied because you were considered to have enough market dominance. Syracuse is a good example that either the DoJ has either kind of looked the other way or there are new rules or something, because they have greater than 40 percent. And then you go out and you combine that—your strength in radio by purchasing television stations in the same market. So it just goes on and one.

SEN. SMITH: Just --

SEN. McCAIN: Yeah, I think Mr. Mays is eager to --

SEN. SMITH: I think he wants to talk. I just want to say big isn't always better. Bigness does not always equal most profitable and so sometimes when you get too big, you're going to find all kinds of inefficiencies that come from scale and they're going to break you down and you're going to get some competitors coming in that have figured out how to take you down.

Mr. Mays, is anybody working at taking you down?

MR. MAYS: I don't know, but certainly United Airlines might have a different view of that. Let me say that 20 percent of the industry revenues is not a monopoly. Yes, you can --