Radio Broadcasting Stations

SIC 4832

Companies in this industry

Industry report:

This industry consists of establishments engaged in broadcasting radio programs to the public. This includes commercial, religious, and educational stations and establishments primarily engaged in broadcasting and broadcasters that produce radio program materials used by other stations.

Industry Snapshot

The radio station industry is divided into two basic groups, commercial and noncommercial stations. Commercial stations earn their revenue from advertisers who pay for radio advertising time based on listener ratings. Noncommercial stations (also called "educational" or "public" stations) earn revenue from public subscriptions or, in the cases of colleges and religious stations, from the institutions they represent. Many of the large radio stations hire media research firms. The differences between large and small stations are revealed by their internal organization. Large stations have additional station management and employ promotion and public affairs directors to better understand listener tastes. Small radio stations conduct these services exclusively in-house.

Network programs, mainly news, are transmitted to many more radio stations than are owned by the network. Similarly, outside programming, such as pop music's Top 40 countdowns, are produced within the entertainment industry and sold to stations throughout the country.

In 2009, this industry consisted of approximately 14,355 radio stations in the United States, including 4,789 AM stations, 6,460 FM stations, and 3,106 educational FM stations. Although the success of radio might seem paradoxical in the age of computers, 99 of every 100 households had a radio, with the average number of radios per household at 5.6. The typical listener tuned in for an average of 3 hours and 20 minutes each day.

As of December 31, 2011, the Federal Communications Commission (FCC) listed 14,952 radio broadcasting stations throughout the United States. Of the 14,952 stations, 4,766 were AM stations, 6,542 were FM stations, and 3,644 were educational stations. According to Arbitron Inc.'s March 2012 RADAR 112 National Radio Listening Report, 241.2 million people, or 93 percent of the overall population from 12 years and older listened to the radio on a weekly basis.

Regulatory changes following the passage of the Telecommunications Act of 1996 increased the limit on the number of radio stations one company could own. As a result, there was a sharp increase in the level of merger and acquisition activity resulting in industry consolidation. The largest merger in the history of radio was announced in November 1999 when Clear Channel Communications, which owned the largest number of radio stations in the United States, acquired AMFM Inc. (formerly Chancellor Media Corporation) for $23.5 billion.

Background and Development

The first radio station in the United States was KDKA in Pittsburgh, which began operating in 1919. The concept of using radio waves to broadcast information and entertainment spread quickly, and by 1922, 570 licensed stations operated in the United States. The idea of networking emerged with this and stations formed chains to broadcast programs simultaneously. In 1926, the National Broadcasting Company (NBC) was established with two networks of 24 radio stations under its parent company RCA. By 1928, Columbia Broadcasting Systems (CBS) had established a network of 16 stations.

During the 1920s, this industry experienced many innovations as stations experimented with power, looking for ways to increase frequency distance and strength, and with acoustics, learning which environments blocked out unwanted background sounds. The 1930s witnessed a large increase in radio listeners. This was due in large part to the fact that it was a source of free entertainment during the Great Depression. As the Depression ended, World War II continued to keep the public tuned in, and by 1939, 1,465 stations were licensed in the United States, with network stations having 90 percent of the audiences.

The early 1940s continued with a slow and steady increase in the number of radio stations operating, and by 1945, 95 percent of all homes in the United States had a radio. The end of the 1940s saw an emerging interest in television, which took away from radio's audiences.

Television's presence had a negative impact on the radio industry's expectations for growth and the formats of radio programs. Across the United States, many radio-station owners sold their stations, while others kept their stations but sold their large studios intended for staged performances. Radio stations changed their format during the 1950s from presenting story and news programs, which were more graphically presented on television, to mostly music. The 1950s also saw a development of the transistor radio, which was created at Bell Laboratories and allowed radio manufacturers to produce small portable radios, bringing this medium outdoors and into cars. The transistor radio helped radio retain some level of popularity

During the 1950s and into the 1960s, FM radio stations, which were created in the 1940s, appeared with a better, static-free sound quality than existing AM bands. By 1961, FM offered stereo sound as well. These features appealed to audiences of special interest groups, such as classical music fans. By the end of the 1970s there were 2,000 FM radio stations in the United States, but with many of them operating for limited hours and regarded as providing only background music.

During the 1960s the growth in rock and roll recordings and the widespread acceptance of portable radios helped AM stations continue to flourish. By the end of the 1960s, there were 4,300 AM stations in the United States. Many transmitted only during the daytime.

A change from AM to FM stations occurred in the 1970s and 1980s as FM stations started to offer programming similar to AM, mainly popular and rock and roll music, and had better sound quality. By the mid-1980s, FM radio had taken over much of AM's audiences and held 70 percent of the nation's radio listeners. AM radio stations reacted to their loss of popularity by offering more news and talk radio, and some converted their equipment for stereo broadcasting. Further losses for AM radio, however, were predicted, as well as eventual closure of the band.

By the 1990s and the first decade of the 2000s, industry leaders and decision-makers were focused on the satellite and digital radio industries, although studies showed that traditional radio stations were not losing listeners even as new technologies flooded the market.

Radio Stations and the Government.
Government legislation played a major role throughout the history of this industry. In 1927, the newly formed Federal Radio Commission ordered electronic requirements on equipment, the costs of which caused nearly 150 stations to close, including 100 educational stations. In 1934, the Federal Communications Commission (FCC) was established. This governing body issued licenses for television and radio stations and enforced regulations dealing with ownership practices, radio frequencies, and broadcast programming (the most notable being restrictions on offensive language). During World War II, the FCC placed a wartime freeze on the establishment of new radio stations. At this time, the FCC also ordered this industry to conserve its power use 10 percent, allowing energy use for other industries contributing to the war effort.

Throughout its history, the FCC influenced programming by legislation related to issues such as rebuttal practices for editorial statements and political remarks and restrictions against offensive language. The Communications Act of 1934 prohibited the FCC from censorship, but allowed it to enforce criminal fines and probations of license for "obscene or indecent language." In 1978, the Supreme Court affirmed that the FCC had the authority to act against radio (and television) stations that broadcast indecency during times that children were likely to be listening. The FCC, however, did not enforce fines until 1987.

Lawsuits were filed after Clear Channel stopped airing the Howard Stern show in February 2004 following repeated federal indecency violations. Approximately one year later, the suits were dropped by both Clear Channel and Stern. Andrew Levin, Clear Channel's executive vice president and chief legal officer, said "Congress and the FCC should be troubled that the current law unwittingly creates a safe haven for indecent programming on other media platforms, including satellite radio." In January 2006, Stern moved his show to Sirius in a $500 million-dollar deal that freed Stern from FCC content regulations.

In 1940, the FCC set up a duopoly policy limiting station owners to only one AM station and one FM station in a given locality and up to four stations nationally. In the 1970s, the laws on this were changed to seven AM and seven FM stations. In the 1980s, the FCC eased regulations further to 12 AM stations and 12 FM stations nationally. By 1992, the FCC allowed owners two AM stations and two FM stations in a single locale and 18 AM stations and 18 FM stations nationwide. When the Telecommunications Act of 1996 was passed, these rules were changed yet again. The act lifted all national restrictions and increased single market ownership to eight stations, with a maximum of five FM stations.

Controversy over Arbitron.
Arbitron, a national research firm, provided the ratings used by radio stations and their advertisers to determine advertising prices and other marketing terms. Arbitron used a combination of statistics based on government census reports and data collected from diaries filled in by sample groups of listeners. Radio stations paid for this service by purchasing periodic reports and surveys. Over the years there was tension between station owners and Arbitron for the most part about the accuracy of ratings, but also in the 1990s about Arbitron's pricing policies. Listener diaries relied on the accuracy of listeners and on the size of the sample group. Arbitron's pricing policies drew criticism from the Radio Advertising Bureau and the National Association of Broadcasters because Arbitron changed its policy from charging stations based on their revenues to charging them based on the size of their listening audience.

The Telecommunications Act of 1996 had a dramatic impact on the radio industry. The largest radio corporations, which had grown in profit and size during the 1980s by acquiring additional stations, were given the opportunity to expand even further, thanks to the looser ownership guidelines. The resulting consolidation of station ownership among a relative handful of large companies was characterized as "the modern version of the Oklahoma land rush" by the Pittsburgh Post Gazette. Broadcast companies quickly sought to achieve a concentration of stations in single major markets. This boon to large companies meant the prospect of hard times for small owners and for radio station employees.

During the year following deregulation, the size of the growing companies was tested at the urging of advertising executives. As a result, the U.S. Department of Justice ruled that broadcasting companies would be limited to a 40 percent share of any given market. Radio advertising revenue increased 12 percent in 1998 to $15.2 billion. Ad revenues were conservatively forecast to increase by another 9 or 10 percent in 1999, based on a 9 percent increase for local advertising, 12 percent for national spot advertising, and 11 percent for network advertising. Strong advertising growth was supported by a robust economy, continuing industry consolidation, new advertisers, and cross-media marketing.

Major industry consolidations included the $4.1 billion merger of Chancellor Media and Capstar Broadcasting in 1998, which created the nation's largest radio station owner in terms of 1998 revenue. As of March 1, 1998, Chancellor owned 97 stations (69 FM and 28 AM). Through the Capstar merger and other acquisitions, Chancellor owned 465 stations by the end of 1998 and had estimated 1998 revenues of $1.9 billion. A year later, in November 1999, Chancellor, which had changed its name to AMFM Inc. earlier in the year, was acquired by Clear Channel Communications, which owned 459 stations at the end of 1998. The $23.5 billion acquisition was the largest merger in radio history.

Another major acquisition affecting the radio industry was the 1999 merger of CBS Corp. and Viacom, valued at $36 billion. In 1998, CBS had acquired 98 radio stations from American Radio Systems Corp., vaulting it into the second spot among radio station owners in terms of 1998 revenue, estimated at $1.7 billion. Viacom's acquisition of CBS, though, was expected to force the new company to divest up to 10 radio stations. In the Washington, D.C.-Baltimore, Maryland, market, for example, Viacom and CBS owned 11 radio stations, exceeding FCC limits.

Powered by significant growth during the late 1990s, the radio industry reported a record year in 2000 as revenue increased more than 12 percent, reaching $19.8 billion. However, a number of negative factors impacted the industry in 2001. Topping the list was a weakening economy, made worse by the terrorist attacks against the United States on September 11. As companies cut spending levels, the advertising market suffered in general. Specifically, the radio segment saw revenues drop 7.4 percent, falling to $18.4 billion.

After surviving a year that one industry publication called "devastating," the radio industry began to recover in 2002. Revenues rose 6 percent to $19.6 billion as the radio segment outperformed other forms of media.

On the other hand, the events of September 11 and the U.S. war with Iraq, which began in early 2003, increased the attention radio stations placed on timely news coverage. For example, industry leader Clear Channel Communications established its own news service with some 174 news bureaus and 450 reporters. As part of this approach, large broadcasting companies mapped out strategies for disseminating more information faster. Many directed listeners on music stations to affiliated news channels, where updates on military developments in the Middle East were provided as often as six times per hour.

The biggest news in radio broadcasting by 2007 was the explosion of satellite and Internet-based radio stations. The digital age of broadcasting brought with it the question of royalties, which are not imposed on traditional radio stations in exchange for airplay. Artists and labels hoped the industry would set standards for higher royalties to be imposed on Internet radio broadcasters due to the nature and ease of the business. Resolving royalties issues was critical for radio at the end of the first decade of the 2000s, as people turned more to their computers and portable listening devices for their music and radio broadcasts.

Companies owning radio stations grew dramatically since the passage of the Telecommunications Act of 1996. By the early 2000s, consolidation had changed the face of the industry considerably. By 2009, the leading radio station owners included Clear Channel Communications Inc. (1,172 stations, $6.7 billion in revenue in 2006); Cumulus Media Inc. (311 stations, $350 million in 2008); Citadel Broadcasting Corp. (233 stations, $863 million in 2006); CBS Radio (formerly Infinity Broadcasting Corp.) (130 stations); and Cox Radio Inc. (86 stations, $410 million in 2008).

Current Conditions

Following three consecutive years of stagnant radio advertising revenues, the industry was finally staging a comeback during the first quarter of 2010, posting double-digit ad revenue. One industry standout, Clear Channel, reported a 19 percent rise in bookings in January 2010. Early indications revealed ad spending increased in four out of five of radio's "historically biggest categories," which included finance (up 7.1 percent), entertainment (up 20.3 percent), automotive (up 27 percent), and telecommunications and wireless (up 19.7 percent). Although some industry analysts suggested the industry might end 2010 with flat revenue or a mere two percent over 2009, this would mark the first time the industry posted a quarterly gain since 2006.

Radio stations revenues grew 0.4 percent to $14.1 billion over 2010, whereas online ad revenue grew 15.1 percent to $439 million in 2011. Top performing markets in 2011 were Portland, Maine with revenues up 22.8 percent over the previous year, followed by Worcester, Massachusetts with a 15.8 percent increase in 2011. Others included Ann Arbor, Michigan with a 10.5 increase and Providence-Warwick-Pawtucket, Rhode Island with a 9.9 percent increase over 2010. Going forward, online revenues will remain robust throughout 2012 and beyond, reaching $505 million in 2012 and $767 million in 2016. Radio station revenues were projected to reach $14.6 billion in 2012, an increase of 3.5 percent over 2011 boosted by increased political ad spending, with continued modest gains through 2016.

Although industry consolidation picked up dramatically in 2011, the most significant was the acquisition of Citadel Broadcasting Corporation by Cumulus Media, Inc. completed in September of 2011. The joining of Cumulus-Citadel created a company with 572 radio stations in 120 markets, eight of which are in the top 10. In all, there were a total of 1,080 transactions, most of which were centered in metropolitan regions valued at $4.3 billion in 2011. "The major transactions of the year turned out being unique unto themselves due to strategic decisions made by each company," Mark Frank, vice president and chief economist of BIA/Kelsey noted in Radio Magazine in April 2012, adding that "In 2012 we think the improving economy will increase the number of station sales, particularly as they prove themselves to be more than an over-the-air profit center."

Industry Leaders

In January 2012, Clear Channel changed its name to Clear Channel Media and Entertainment to compliment the vast array of offerings, including broadcast, satellite, online, and mobile resources. The company reached an estimated 237 million U.S. listeners each month in 150 cities by way of 850 company-owned radio stations in 2011. The company reported revenues of $6.16 billion, up 5 percent over $5.87 billion in 2010. Following its acquisition of AMFM, Clear Channel was clearly the industry leader. In 2009, it owned 1,172 radio stations in the United States and had interests in some 220 international stations, in addition to outdoor advertising displays and television stations. Through Katz Media, Clear Channel sold spot advertising for more than 3,000 radio and TV stations. Clear Channel launched a "Less is More" initiative with fewer commercials being played. Independent research studies from Burke Inc. and Naviguage said related listenership and retention of ad content had grown substantially. In 2007, Clear Channel Radio announced that it had begun offering HD digital radio broadcasts on 300 stations across the country, with the commitment to air HD broadcasts on 95 percent of its stations in the top markets by the end of the year.

Citadel Broadcasting Corp. owned and operated more than 233 stations in leading markets. Before the end of 1999, it acquired 35 radio stations for $190 million from Broadcast Partners Holdings LP, giving Citadel ownership of 161 radio stations in 34 markets. The acquisitions continued into the early 2000s. For example, the company acquired 86 stations in 2000. Those acquisitions resulted in substantial debt. In 2001, Citadel was purchased by Forstmann Little & Co. Citadel Broadcasting also owns ABC Radio Networks, which offers programming to approximately 4,000 affiliates. Citadel was unable to rise above debt incurred with its acquisition of 22 ABC Radio stations and ABC Radio Networks in 2006, which was followed by an economic downturn lasting three years. The company was removed from the New York Stock Exchange in March 2009 after a sinking stock price. By December of 2009, Citadel filed for Chapter 11 bankruptcy protection. Upon reorganization, the company was then forced to withdraw stock grants to key executives and replace grants with options once a private equity shareholder filed a lawsuit. Cumulus Media, Inc. initially approached Citadel Broadcasting Company in 2010 and in September 2011 Citadel was acquired by Cumulus Media.

Hertel Broadcasting, which changed its name to Hispanic Broadcasting Corporation in 1999, was radio's largest Hispanic broadcaster in the early 2000s. By 2002, the company operated about 65 stations in key markets, such as Miami and Los Angeles. In 1999, it created the HBC Radio Network, took a 4.1 percent interest in Z-Spanish Media, and acquired a second Spanish-language radio station in Las Vegas, Nevada. As of early 2003, Clear Channel had a 26 percent stake in Hispanic Broadcasting, at which time the company was in the process of acquiring even more stations. Hispanic Broadcasting evolved into Univision Radio and is the largest Spanish-language radio broadcaster in the United States. Univision Radio, with 70 radio stations and 2005 revenues of $359 million, is owned by Univision Communications, which bought Hispanic Broadcasting in 2003 for $3.2 billion, and posted 2008 revenue totaling $2.1 billion. Univision Communications Inc. posted net revenue of $2.27 billion in 2011 of which Univision Radio accounted for $323 million.

America and the World

Because radio frequencies operate at low and medium levels, there has not been an international market for radio stations in the strict sense. High-frequency (shortwave) bands, however, were allocated for broadcast between nations through the U.S. Information Agency. Most of these stations were managed by Voice of America (VOA), Radio Free Europe, and Radio Liberty, which broadcast mostly in foreign languages and were not regulated by the FCC.

For more than 40 years, these services were government owned, but in the early 1990s a presidential task force suggested privatization on the premise that pro-Western ideals were not needed in the newly democratized Eastern Europe. The VOA Europe responded by airing English-language popular music and selling advertising time. In 1996, Voice of America broadcasts expanded to Tuzla, Bosnia-Herzegovina, while U.S. troops participated in peacekeeping efforts in that country. That same year, the Asia Pacific Network was created, having been mandated by the U.S. International Broadcasting Act of 1994.

Research and Technology

Satellite transmission and Internet broadcasting, known as "netcasting" influenced the radio industry at the start of the twenty-first century.

Satellite Radio.
During much of the 1990s, radio broadcasters awaited the formulation of FCC guidelines that would give them the ability to market national services akin to that of cable television. In 1997 the FCC auctioned two satellite radio licenses to CD Radio for $83.3 million and its rival, XM Satellite Radio, for $89.8 million. Using a technology called the unified S-band, these satellite services sought to offer a range of programming choices to a national audience. After spending 1999 signing up content providers, CD Radio and XM Satellite Radio were set to launch satellites in early 2000. By 2003, the technology was being used in cars. Industry leaders like XM had poured several billion dollars into the technology and were pushing to sign up subscribers in order to recoup their investment. By 2009, virtually all automakers offered factory-installed satellite radio access as an option on new vehicles, with General Motors, Honda, and Subaru among the makers offering XM access. Chrysler, Ford, VW, and Volvo offered Sirius access, while Nissan, Toyota, and Subaru were among makers offering both options.

In February 2007, XM and Sirius announced their intention to merge, pending approval by federal regulators. At the time of announcement, the two companies, which each had struggled to make a profit, had a combined 14 million subscribers. According to Arbitron research, the companies together had reached an awareness level among 61 percent of people age 12 and older.

Internet Radio.
A less pressing but inevitable source of competition emerged on the Internet. Netcasting of radio programming initially was hampered by technological obstacles that reduced the quality of its sound, but showed a potential to provide listeners with unprecedented options. As computer technology became more mainstream, with more than one-third of U.S. households equipped with computer modems in 1999, competition for the "desktop" audience increased. This trend continued into the early 2000s, as more Americans obtained high-speed connections that enabled them to leave their computers connected to the Internet all the time. Most radio stations had their own Web sites by the early 2000s, and slightly less than half supplied streaming audio via the Internet. In 2006, an estimated 30 million Americans tuned into Internet radio stations on a weekly basis, according to the Wall Street Journal.

In the late 2000s, Internet stations such as Pandora continued to entice listeners. Pandora announced over 100 million people have registered for Pandora's free radio service from computers to smartphones and other mobile devices, thus expanding the audience and time spent listening. In fact, Pandora attracts some 36 million loyal listeners monthly. In 2010 the company reported 2.3 percent market share of total radio listening in the United States, followed by a 3.6 percent share six months later.

Low-Power Radio Stations.
A low-power FM (LPFM) radio station initiative introduced by the FCC in 1999 might result in competition for local listeners with established FM stations. Since 1978, when noncommercial educational radio licenses were discontinued because of interference concerns, only college radio stations and specialized programming such as travelers' advisories had operated legally at low power. Between 1997 and 1999, the FCC shut down 480 LPFM stations that were operating without a license. Most of them specialized in alternative music, commentary, and news stories targeted to local communities. During 1999, the FCC commissioned studies of the interference issue and invited comments on the LPFM initiative. Although the proposal to license LPFM stations attracted the opposition of the radio establishment, it was supported by religious broadcasters and a coalition called the Media Access Project.

Digital Radio.
In November 1999, the FCC formally began the process of creating a terrestrial digital radio service. It began evaluating competing technologies, with "in-band, on-channel" appearing to be the favored technology. Companies such as USA Digital Radio, Lucent Technologies, and Digital Radio Express, however, were pursuing competing technologies. The FCC has studied digital radio since 1990. In 1995, the FCC approved a satellite-delivered digital radio system. By 1999, the agency believed digital technology offered promise for a land-based service, and in 2002, the FCC selected in-band, on-channel (IBOC) technology as the technology AM and FM broadcasters would use for digital radio broadcasting. By 2003, the technology was in use on an interim basis and as of 2007, radio broadcasters were not yet required to convert to all-digital broadcasting. Although it was expected to deliver very clear signals, digital radio required the use of special software, and transmission signals were affected by distance.

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