Right of the Dial: The Rise of Clear Channel and the Fall of Commercial Radio - Hardcover

Foege, Alec

Hardcover

ISBN 10: 0571211062 ISBN 13: 9780571211067

Publisher: Faber & Faber, 2008

Synopsis

In Right of the Dial, Alec Foege explores how the mammoth media conglomerate evolved from a local radio broadcasting operation, founded in 1972, into one of the biggest, most profitable, and most polarizing corporations in the country. During its heyday, critics accused Clear Channel, the fourth-largest media company in the United States and the nation's largest owner of radio stations, of ruining American pop culture and cited it as a symbol of the evils of media monopolization, while fans hailed it as a business dynamo, a beacon of unfettered capitalism. What's undeniable is that as the owner at one point of more than 1,200 radio stations, 130 major concert venues and promoters, 770,000 billboards, 41 television stations, and the largest sports management business in the country, Clear Channel dominated the entertainment world in ways that MTV and Disney could only dream of. But in the fall of 2006, after years of public criticism and flattening stock prices, Goliath finally tumbled--Clear Channel Inc. sold off one-third of its radio holdings and all of its television concerns while transferring ownership to a consortium of private equity firms. The move signaled the end of an era in media consolidation, and in Right of the Dial, Foege takes an insightful look at the company's successes and abuses, showing the ways in which Clear Channel reshaped America's cultural and corporate landscapes along the way.

About this title

About the Author

Alec Foege has written for Rolling Stone, The New York Times, New York, People, Spin, Playboy, Details, and many other national publications. He currently is a contributing writer at Fortune Small Business. His previous books are Confusion Is Next: The Sonic Youth Story and The Empire God Built: Inside Pat Robertson’s Media Machine. He lives in Connecticut with his wife and two children.

Reviews

Journalist Foege (Confusion Is Next) brings objectivity and insight to this exploration of Clear Channel, one of the most reviled media conglomerates in the U.S. The author aims for an unbiased understanding of the corporation and its practices, how it came to be and what it says about our culture. The reader follows the Clear Channel operation from its inception as a family business in the 1990s through commercial expansion, megamergers, vertical integration, antitrust lawsuits and the eventual sale of a third of its holdings. Foege cobbles together an oral history of the company, painting Clear Channel executives as businessmen first and foremost. To them, payola (accepting financial gifts in exchange for airplay) and voice tracking (phoning in local broadcasts from a centralized location) just made sense for the bottom line. The result has been the homogenization of radio—a phenomenon that has produced one, single, all-too-familiar classic rock station that Foege characterizes as a mild condition of being. Like a toothache or a strained knee. While many are quick to call this evil, media monopolies of this kind have been sanctioned by the government through deregulation. Foege's history is at its best while unpacking this confrontation of American values between art and commerce. (Apr.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

For Ronald Reagan, the Soviet Union was “the evil empire,” but for music mavens, Clear Channel, the biggest radio-station owner in history, is the real deal. Its mastermind, Lyle Mays, made himself and his closest associates rich by gutting news, local content, and musical variety and laying off thousands at the stations it devoured. Mays’ golden-goose idea was that radio is essentially for advertising; programming is just, as another company higher-up put it, the “shit” between commercials. Besides 1,200 radio stations, the company sucked up billboards, TV outlets, and pop-concert venues and promoters (ticket prices soared). Nobody of consequence, certainly not the Clinton–Bush II FCC, seemed to object. Clear Channel’s glory days are gone because the Internet has made entertainment much more available and big advertising more avoidable, but its blighting effects on broadcasting continue. Mays and his two sons and successors wouldn’t talk to Foege, and this fascinating, appalling business history suffers accordingly, for the question of how the Mayses’ getting rich served the public interest—radio’s mandate, after all—goes begging. --Ray Olson

Excerpt. © Reprinted by permission. All rights reserved.

 

Right of the Dial

1.

THE CONTROVERSY

Howard Stern shuffled onto the stage of the Late Show with David Letterman on the eve of November 18, 2004, much in the way he had on plenty of other occasions over the previous fifteen years. Clad in jeans, a black T-shirt, black sport coat, and dark sunglasses, the tall, shaggy-haired radio host looked a lot like an aging rock star but with none of the attitude or bitterness. Instead, he flashed a warm smile, waved to the studio audience, amiably rubbed the bald head of Letterman’s bandleader, Paul Shaffer, and greeted Letterman with a hearty handshake. The self-proclaimed King of All Media—and the man for whom the term “shock jock” was practically minted—in a word, ruled.

And why not? With more than twelve million daily listeners and an annual salary of more than $30 million, Stern was one of the biggest stars the radio business had ever known. For more than two decades, he had thrived on the controversial humor that filled his meandering five-hour daily morning broadcast, where guests over the years had included porn stars, dwarfs, strippers, and his personal favorite, lesbians. A magnet for criticism and censure, Stern was responsible for more than half of the $4.5 million in fines for obscenity meted out by the Federal Communications Commission since 1990.1 But for years his employer, Infinity Broadcasting (now CBS Radio), didn’t seem to mind, since he also brought in multimillions per year in revenue. At the time of his 2004 Late Night appearance, Infinity was a division of Viacom, the same corporation that owned CBS Television, Letterman’s employer.

But on this particular night, Stern was neither outrageous nor particularly funny. He had a serious announcement to make. “Always a lot of controversy when I come here,” he told Letterman, as he slouched into the guest chair. “My career is never normal, there’s always a lot of pressure.”

The biggest personality in radio was leaving radio. And he was blaming it on the nation’s biggest radio company, Clear Channel.

Indeed, the occasion for Stern’s appearance was the official announcement of his newest job. Just six weeks earlier, Stern had revealed his plan to abandon free broadcast radio for good and to begin appearing on Sirius Satellite Radio, a relatively new company that sold a subscription-based medium whose business model was akin to cable television: “In recent years because of the government interference and what’s been going on with the FCC [and] Clear Channel Broadcasting, doing my job every day has become increasingly difficult.” Sirius had agreed to pay Stern $100 million per year for the next five years, which included the costs of producing his show. In return, Stern was expected to draw untold millions of new listeners to a kind of radio they had to pay for.

In February of that same year, in the wake of a highly contentious incident during the broadcast of the Super Bowl halftime show in which the singer Janet Jackson bared a single breast while performing a musical dance number choreographed by MTV, the FCC decided to flex its muscles by fining Clear Channel Communications $495,000 for broadcasting a twenty-minute segment of Stern’s show featuring sexually suggestive humor on some of its stations. On April 9, 2003, Stern discussed the discomforts of anal sex and a potion the FCC characterized as “a purported personal hygiene product designed for use prior to sexual activity.” The sophomoric bit was accompanied, according to the FCC report, “by sound effects of flatulence and evacuation.” In response, Clear Channel dropped Howard Stern’s network program from six of its radio stations in mostly conservative markets. It later paid $1.75 million in fines to the FCC for obscenity on Stern’s show and others, including that of an outrageous Florida disc jockey known as “Bubba the Love Sponge,” who had been fired a few months earlier after racking up $755,000 in fines from the FCC for his lewd on-air patter.2

Had the incident involved anyone else, it likely would have faded away. But Stern was different. For one, he was so huge for radio. Second, he seemed genuinely radicalized by the event.

In a presidential election year, Stern, not usually regarded for his political banter, started delivering on-air political tirades against President George W. Bush, blaming Republicans and the religious right for creating a culture of censorship. Then, on Letterman that night, he introduced the nation to another, far more tangible target: Clear Channel Communications, the world’s largest radio company.

As for Letterman, he seemed peculiarly impassioned by Stern’s diatribe that night, his trademark wire-rimmed glasses adding an air of erudition. “Here’s what I know about Clear Channel,” Letterman said, interrupting Stern. “And, you know, I’m not paying attention to anything, I’m just doing my little dog-and-pony show here,” he said, pausing for a breath. “I read an article in Rolling Stone this summer: Clear Channel owns 1,200 radio stations, many stations in the same markets. They’ve essentially wiped out individuality of the radio stations and played havoc with the record industry and the music industry and live concerts. I was stunned.” Letterman went on to note that three corporations controlled more than 60 percent of the nation’s radio audience.

Then Stern added, “When I was working for Clear Channel, they fired me I think from nine stations on a whim. And one of the reasons they fired me is I didn’t support President Bush. Clear Channel is busy throwing parties in markets for the Iraq war. And I hardly think that’s something you should be throwing a party for. They’re throwing rallies. So I didn’t support that and the next day I was fired. My fellow broadcasters are not standing up for me. I am turning my back on regular terrestrial radio. I believe in five years … satellite radio will be the dominant medium in radio broadcasting.”

Within a mere five minutes of late-night network television programming, Clear Channel Communications had been introduced to an unsuspecting general public, a large portion of which had probably never even heard its name before that night. On the other hand, they were probably familiar with some of the company’s products. At the time of the broadcast, Clear Channel stations reached nearly 60 percent of the nation’s radio audience and represented around 20 percent of the radio industry’s total revenue. Its concert division had a virtual headlock on America’s live-entertainment market. And its outdoor billboard displays lined ribbon after ribbon of highways from New York to California.

 

 

Just as MTV dominated the 1980s, and Microsoft defined the 1990s, Clear Channel became the defining media and technology story of the early years of the twenty-first century.

In 1995, when Congress was reconsidering media ownership rules, Clear Channel ran just forty-three radio stations and sixteen TV stations across the country. The next year, when Congress deregulated radio, allowing radio groups to own as many stations as they wanted (with some regional restrictions), Clear Channel began to gobble up stations at an incomparably breathtaking rate. In that very same year, it acquired forty-nine more radio stations, more than doubling its holdings. And in an industry built on leveraged capital, Clear Channel liked to pay cash. By 2001, the company had acquired several rivals and laid claim to more than twelve hundred stations. It also got into the billboard business in a very big way, purchasing Eller Media, a large Arizona-based billboard company, in 2000, adding 700,000 billboards nationally to its advertisingfriendly roster. Clear Channel’s idea was to buy broadly, working its way into a wide variety of local markets. The basic plan was to sell ads nationally and regionally, as well as locally. The word for this plan was “synergy.”

Around 2000, the music business got its first wake-up call about Clear Channel when the company extended its synergistic plan by buying SFX Entertainment for $4.4 billion. Suddenly the world’s largest radio company was also the world’s largest concert promoter. For Clear Channel, the logic was crystal clear: It could promote its concerts on Clear Channel radio stations. In addition, local Clear Channel stations could advertise at the concert venues. Clear Channel’s local ad sales teams could drum up business on all platforms—radio, billboards, and concerts. It was a music-biz slam dunk. Or as one music manager and producer put it to Fortune, “They are the devil.”

Clear Channel had ruined radio, according to its critics. It was a leader in employing some of radio’s most controversial practices, including “voice tracking”—in which DJs dial in their “local” broadcasts from centralized locations and simply customize them with a few local references, some syndicated programming, and a hightech national network that seamlessly enables the implementation of the first two. Since purchasing the largest concert tour promoter, SFX, in 2000, it was now ruining the concert business. And, unlike most other concert promoters, Clear Channel also ran the venues. In the New York City area, traditionally known for its diverse ownership, the company controlled major venues such as Irving Plaza, Roseland Ballroom, the Beacon Theatre, and the Jones Beach amphitheater.

Regulators and watchdog groups regularly excoriated the company for its insensitive, overtly political, and monopolistic tendencies. New York State’s attorney general, Eliot Spitzer, had roped Clear Channel into his investigation of the music biz’s anticompetitive practices. In a typical deal, Clear Channel reached an agreement in December 2004 with Fox News in which Fox would become the primary news provider for Clear Channel stations. Though the deal only ran in the millions, it greatly benefited the conservative-leaning Fox by providing a strong radio presence for the fledgling news operation to do battle against larger competitors like ABC Radio and CBS Radio.

Yet Clear Channel, at the time, was hardly a household name. Even in corporate media circles, Clear Channel was something of a cipher. But thanks to the censure of a high-profile talk-show host, Clear Channel hit the national consciousness as a brand literally overnight.

The only problem was that this was a brand established almost wholly on negative connotations. Stern and Letterman didn’t create it; they merely reflected an opinion that had been simmering for months, in a host of places, from the halls of major recording labels to the minds of legions of concertgoers. Prior to Stern’s appearance on Letterman, “Clear Channel sucks” had already become something of a mantra in popular-music circles; and online, ClearChannelSucks.net was a popular destination.

Some sly marketers might have argued that brand awareness was valuable regardless of the connotations. But this was different. Very different. Never before had the American citizenry seemingly come to loathe a public corporation so quickly. It seemed almost unfathomable. Not even the animus that had built up against Microsoft over the decades could match the out-and-out hostility that Clear Channel engendered in a matter of months. The controversy had stirred a latent American passion for radio that had lain buried in the nation’s collective psyche.

Despite all the newfangled tech-comm innovations, the airwaves were still owned by the public, presciently established by the federal government as a cornerstone of democracy during the postindustrial era of the early twentieth century. An electrified forum to amplify the views and desires of “the people.”

Sure, radio had taken its hits. Smeared even in its earliest days as being overly commercial, it lost serious economic ground in the first years of television. By the end of the 1950s, it was all but a footnote in the histories of ABC, NBC, and CBS, once its largest producers. Then, with the birth of rock and roll, radio got a much-needed jolt. The rise of Top 40 and later FM radio revived its prospects, but in the early 1960s the payola scandals, whereby record labels proffered illegal payments or gifts in return for highly coveted airplay, established radio forever after as a slightly shady, morally dubious corner of the American economy.

But at the end of the day, radio still mattered. For the millions of commuters who drove to and from work for more than a hundred hours a month per year on average, it was a reassuring companion, a relatively pleasant and undemanding way to pass the time. For music fans, it remained a way to hear the most popular music in the nation. For musicians, it was still the best route to jump-starting a career.

How did Clear Channel, once a sleepy little company from Texas, arrive at the center of an American institution that traces its roots back to Thomas Edison? Did it deserve such pointed attacks? Who were the people behind this corporate monolith? And what were they actually doing that pissed so many people off?

Just a few years earlier, Clear Channel was the darling of Wall Street. Between 1986 and 2000, the company’s revenues grew at an annual rate of 46 percent. Shareholder return averaged 36 percent annually during that same period, at a rate 21 percent higher than shareholder cost of equity. Clear Channel was the fourth-largest media conglomerate in the United States—rivaling NBC and Gannett in revenues—and the subject of case studies pored over at prominent business schools.3 It was the shining example of media consolidation done right. It had rescued radio, a national treasure, from history’s dustbin and built itself into an Internet-age corporate beacon. Even its detractors, who dubbed it the Evil Empire, grudgingly had to concede the reach of its power and influence. Certainly Stern didn’t provide any real clues that fateful night on Letterman. Indeed, it was entirely possible that the radio giant was just looking for some free publicity. (Clear Channel would later settle a pair of competing lawsuits involving Stern, his relating to his termination and Clear Channel’s to Stern’s refusal to adhere to the FCC’s indecency rules.)

How did it come to this?

Radio is the oldest of the electronic mass media, tracing its roots back to the late nineteenth century, as well as the most ubiquitous. Most households in America still have more radio receivers than occupants. It’s also the most underappreciated, long ago relegated to third-tier status as a kind of bush league for the entertainment world, where flashier media such as movies, television, and the Internet easily overshadow it.

It also is the most profitable of the traditional media, due to its relatively low overhead, and thus regarded as a bellwether of the media industry.

But in the last few years, radio hit a snag. In 2005, broadcast radio advertising expenditures grew at a paltry rate of 0.3 percent while total listenership dropped 0.8 percent to 27.4 million, its worst year since 2002.4 And that was before new competing technologies, such as subscription-based satellite radio, portable iPods, Internet radio, and podcasting, had really begun to take root.

Suddenly the idea of Clear Channel’s owning 1,200 radio stations (the actual number had dropped slightly to 1,182 by the end of 2005) didn’t seem like such a great thing, at least in purely financial terms.

How would radio compete, particularly in its current contenthobbled state (homogenized programming plus indecency monitoring equals subpar ratings)? And more important, was it all Clear Channel’s fault?

 

 

To be fair, media consolidation became something of a disease beginning in the late 1990s. In the 1970s, the media business was still regarded as a noble calling tied to rationality and intelligence, run by serious people with a sense of the power involved and all of the social responsibility that came with that power. In the two decades following, the landscape changed dramatically as others realized how much cash some media businesses generated. The margins, particularly in advertising-based media businesses with relatively low ownership barriers like radio, were nothing short of spectacular. So by the mid-1990s, the media business was filled with “assholes run amok,” in the words of the trenchant media critic Michael Wolff.5

By the first half of 1998, the media business was all about mergers, nothing but mergers. An unprecedented $99 billion of media mergers and acquisitions took place in that six-month period as compared with $77 billion for all of 1997.6 Then came the onslaught of mega-big, mega-unimaginable, mega-moneyed megadeals. Vivendi and Universal, then Viacom and CBS, and finally AOL and Time Warner. It was as if a collective idea bulb had lit up over the heads of the world’s media moguls: This is the way.

Audience fragmentation had begun taking its toll. And media consolidation was just about the best method in theory with which to hedge one’s bets. The thought process went like this: an economy of scale created certain cost efficiencies that would result in historically high profits for segments of the American economy that traditionally did not worry themselves so much about profits.

And if a media corporation could boil down popular taste to sell more units of fewer choices, greater revenues would surely follow. The paradigm in the music industry was Michael Jackson’s 1982 album, Thriller, which sold more than sixty million copies worldwide. In movies, James Cameron’s Titanic, released in 1997—which ultimately grossed over $1.8 billion in worldwide box-office sales alone—became the standard by which all others were judged.

Blockbuster hits became the real currency of the media industry. Outrageously expensive to make (Titanic cost a reported $285 million), but even more outrageously profitable once they were released, blockbusters, so the theory went, financed everything else put out by a big media conglomerate, relieving countless niche products of their various worldly burdens, namely profitability.

In radio, the equivalent was, as always, the hit single. But in an increasingly consolidated media world, hits suddenly had a lot more riding on them. Record labels no longer permitted artists to develop over a series of albums but rather expected big debut sales built upon the number of radio plays of one or more hit singles.

The reality was that media companies started getting so large that no one really controlled them, or even understood them. By the earliest years of the twenty-first century, it had become clear that the media moguls who had engineered these feats of magic were at the top of the list when it came to lack of comprehension.

Michael Wolff writes eloquently of that period in his 2003 book, Autumn of the Moguls: “You couldn’t say what seemed pretty obvious: that nobody knew how to run the superaggregated and radically transformed companies that came into being during the past decade. That these companies defied control, were too vast and far-flung and composed of too many recalcitrant people and inimical functions. This, together with the fact that the guys who ran these companies often clearly had no idea what they were doing.”7

It was within this cultural-industrial petri dish that Clear Channel began getting huge. Until 1998, it had made money the old-fashioned way. It bought stations it found to be financially attractive and ran them better than most other radio companies. But in the late 1990s, it changed tack and initiated a series of megadeals that transformed at least two industries and cornered another.

In recent years, Clear Channel has had some second thoughts. No wonder. From September 18, 1984, the date of Clear Channel’s first recorded stock price, through October 19, 2004, the day Lowry Mays officially stepped down as chief executive, the company’s total annual return was 25 percent. That figure was nearly double the Standard & Poor’s 500’s 13 percent rate of return for the same period.8

From that same day—the day Mark Mays became CEO—going forward to March 24, 2006, Clear Channel’s total return was 2.4 percent per year, compared with 15 percent total annual return for the S&P 500. Put another way: some 79 percent of companies in the S&P 500 index outperformed Clear Channel during that period.

The ascents of Mark and Randall Mays dovetailed with a period in which Clear Channel’s corporate DNA was irrevocably altered. And by all accounts, the new species was not faring well. By the time a majority of Clear Channel’s shareholders voted in favor of management’s plan to go private again in September 2007, the company was a pale shadow of its former self.

In the 1950s, radio had reinvented itself as a purely local medium. Then Clear Channel came along in the late 1990s and eradicated radio’s localism, making it more formatted and formulaic, less personalized and more national. The world’s biggest radio company deconstructed a medium that prided itself on its intimate connection with its listeners and made it as uniformly bland and anonymous as anyone could bear.

This was what was necessary, Clear Channel argued, to save radio from almost certain and painful death. To give the people what they wanted. What they really wanted, which, as it turned out, wasn’t all that unique—at least according to Clear Channel’s extensive research.

So listeners got fewer musical formats and insanely repetitive playlists. And advertisers were happy. And investors were happy.

Radio would survive. It always had before. And Clear Channel would find new ways to preserve its famously rich margins.

Or would it? Clear Channel, by dint of its size in comparison to its closest competitors, had the power to shape radio’s future. But for the first time in its nearly thirty-five-year history, Clear Channel was facing a future it couldn’t control. New technologies were gushing out of the pipeline, and Clear Channel was still holding more conduits for the old technology than anyone else on the planet.

Radio had commenced a whole new phase, one of reinvention and revision. Was Clear Channel up for the challenge? Was the company really the media monster Howard Stern and nearly everyone else claimed it was? Or was Clear Channel an innovator that simply saw radio’s future before anyone else could own up to it?

Of course, nobody knew the answers to these questions yet. But at least there was the history. To understand Clear Channel’s current ability to compete required a parsing of the past, an analysis of these San Antonio firebrands from the very beginning.

If radio was dying, could Clear Channel save it? Or had Clear Channel pumped the offending bullet into its heart?

I was determined to find out.

Copyright © 2008 by Alec Foege

Edition details

• Publisher: Faber & Faber
• Publication date: 2008
• Language: English
• ISBN 10: 0571211062
• ISBN 13: 9780571211067
• Binding: Hardcover
• Edition number: 1
• Number of pages: 320