Free Radio and
Milton Friedman's Free Market

Can the free-market disciples of the just-departed Milton Friedman have a clear conscience about Clear Channel, America's biggest commercial radio station empire?

November 20, 2006

The “free market” lost its most celebrated cheerleader last week, with the death of 94-year-old economist Milton Friedman. Admirers immediately rushed to gush about Friedman’s pivotal role in the deregulation — the “liberation” — of America's private enterprise.

Ironically, on the same day Friedman died, almost on cue, the free market delivered a king-sized reminder of just what that “liberation” has wrought, in the lives real Americans lead.

The reminder came via the announcement that two Boston investor groups have reached an agreement to buy up Clear Channel Communications, the mega media empire that currently owns 1,150 radio stations spread all across the United States.

Lowry Mays, the banker who founded Clear Channel in 1972, and his sons Mark and Randall figure to net $1.3 billion from the $26.7 billion deal. The six investment banks that are handling the deal — Citigroup, Credit Suisse, Deutsche Bank, Morgan Stanley, Royal Bank of Scotland, and Wachovia — will likely realize $130 million in fees.

Just a dozen years ago, the thought of paydays so huge from wheeling and dealing with radio stations would have seemed an idle daydream. Radio in the United States, at the time, still operated under strict government regulations passed originally in 1934.

Under these regulations, notes media watcher Eric Boehlert, no radio company could own more than 28 stations nationwide and no more than two in any one metro area.

“Government policy enforced the notion that radio was broadcast on the public airwaves and had an accompanying public trust,” Boehlert explains. “Local stations were supposed to be assets to local communities.”

In 1996, Congress would put those “assets” in play — on Wall Street. The Telecommunications Act lawmakers passed that February followed the basic Milton Friedman “free market” playbook and totally cleared away over a half-century of restrictions on who can own America’s airwaves.

Lowry Mays at Clear Channel immediately took advantage of the new radio “free market.”. By 2001, after $100 billion worth of buyouts, radio had been completely “nationalized” under corporate chain control. The dust settled with Clear Channel owning at least one station in 247 of the nation’s 250 biggest markets — and 60 percent, overall, of rock radio.

What did the listening public get out of this merger binge? A totally homogenized — and frustrating —listening experience. Clear Channel, moving quickly to maximize earnings, downsized thousands of local station employees and replaced local DJs with programming piped in from centralized programming hubs.

And the commercials. To squeeze out as much profit as possible from each station in the new Clear Channel empire, the company turned airtime into ad spiels interrupted by occasional content. By the end of the 1990s, some Clear Channel stations were running uninterrupted blocks of commercials that lasted eight minutes long.

Clear Channel’s share price would soar, in the late 1990s, as this rampant profiteering kept Wall Street happy. But the Clear Channel share price stumbled when the stock market tumbled in 2000 and never regained its luster, despite Clear Channel’s relentless push to pump out as many dollars as possible from its local stations.

Clear Channel, in many cities, even cut ties with local charity events that had been counting on their local radio station’s support for years.

In 2004, Clear Channel tried spinning a new, more responsible image, declaring a “less is more” approach that would reduce the number of commercial minutes per hour. Company executives figures they could recoup that revenue loss by breaking the remaining 60- and 30-second ad slots into more expensive 15-second ad blocks.

But “less is more” didn’t turn around the company’s share price either, and Clear Channel’s braintrust decided to pull the plug on their empire as a publicly traded entity and put the company up for sale, to the highest private-equity bidder.

The agreement announced last week won’t become final until later this year. But if you’re a radio listener, don’t look for any improvement in your listening experience, even after the deal goes through.

The reason? The current Clear Channel top executive team will be remaining in charge. The investment banks that are underwriting the the buyout see no reason to tinker with the cash-cow formula that Clear Channel has perfected.

“It hasn’t been a poorly run company,” Royal Bank of Scotland managing director David Bank noted last week, “from an expense perspective.”

In other words, the new owners of the Clear Channel will keep spending as little as possible on programming.

Radio in the United States, that means, will remain an ad-packed, homogenized wasteland that shines at nothing other than creating vast fortunes for the fortunate who buy and sell radio stations.

But that’s alright, the disciples of Milton Friedman assure us. The market has spoken

As Clear Channel's Mark Mays told Fortune three years ago: “Let the free markets reign!”

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