Understanding the Telecommunications Act of 1996

Ownership of media outlets is a heavily debated issue because there are two distinct views on how ownership should be regulated or unregulated. One side argues that the market should determine who survives and who doesn't, therefore arguing for deregulation. The other view says that for diversity of the media to exist, there needs to be regulation to control the number of stations one company or individual can own. I agree with the former viewpoint rather than the latter. There needs to be some regulation to prevent complete monopolies by one or two owners, but the market should ultimately have a say in which owners thrive and which owners fail.

In 1954, the Rule of 7-7-7 stated that one owner couldn't own more than 7AM, 7FM, and 7TV stations. The three major networks, ABC, CBS, and NBC, bought TV stations in the top 10 markets, so they could reach as large an audience as possible. As television grew, the FCC was forced to change their ownership policy in 1985. The new rule changed ownership to 12AM, 12FM, and 12TV. The major change in the rule put a 25% national cap on ownership. In other words, the 12 television stations couldn't reach more than 25% of households in the United States. This helped open up the market to smaller owners, since the cap prevented the major owners from growing much since their seven major market stations reached almost the 25% cap alone. This caused for a change in ownership in the major three stations. Capital Cities bought ABC in 1985, and owned ABC until Disney bought Capital Cities in 1996. One year after Capital Cities' acquisition of ABC, General Electric bought RCA, the founder of NBC (Class Notes).

The Telecommunications Act of 1996 changed the ownership structure of radio from a national cap to a market cap. This greatly increased the number of stations a single owner could buy. The national cap for television increased from 25% to 35%, but six years later the FCC proposed a 50% national cap. However, the public spoke up and the proposal never went through. Today, the national cap for television ownership sits at 39%. In 1975, a One-to-a-Market Rule was created that said an owner couldn't have both a radio and a television station in the same market or have two television stations in the same market. The Telecommunications Act of 1996 altered that rule by allowing an owner to have both a radio and television station in the same market if that market was one of the top fifty markets. In 1999, the FCC changed the One-to-a-Market Rule again by allowing an owner to have two television stations in a market if there are seven other stations and all of the other stations have different owners. One more important rule is the Cross-Ownership Rule that doesn't allow for an owner to hold both a newspaper and media properties in the same market, but the FCC will look at waiver requests usually only in the large markets (Class Notes).

One of the major goals of the Telecommunications Act of 1996 was to reduce entry and competition barriers. However, by allowing individual owners to have more and more stations contradicts that goal of reducing entry barriers. Smaller owners have a tough time competing with the already established and powerful owners. Clear Channel Communications is an example of a company that has taken advantage of the deregulation of ownership. In the mid 1990's, Clear Channel owned forty radio stations in the United States. With the elimination of the national cap in favor of a market cap for radio ownership, Clear Channel, as of 2003, owns approximately 1225 radio stations. Clear Channel also dominates the audience share in 100 of 112 major markets (Perlstein).

However, even with this huge increase in ownership, Clear Channel and other owners who make up the top ten radio companies in the United States own only 44% of the total market. That number is far from monopolistic in comparison to the film industry where the top ten film studios control 99% of the market (Dotinga). Clear Channel has become a very dominating and influence force in the world of communications since the Telecommunications Act of 1996, but not in a negative way. Clear Channel's 11% ownership of all the radio stations in the United States is far from a monopoly (Dotinga).

Most consumer productions are dominated by a few major companies, and many of them own much more than 11% of the total market. I think it is safe to say that Nike controls more than 11% of the shoe sales in the United States, but the shoe market is far from being a monopoly controlled only by Nike. Clear Channel's increased ownership is far from destroying radio. If this were the case, the nine other companies that control about 33% of the market could join forces and essentially eliminate Clear Channel's dominance. The lobbying efforts of these other owners could outweigh the strength of Clear Channel. However, these companies obviously aren't that concerned with Clear Channel's ownership dominance. When a single company like Clear Channel owns a majority of the radio or television stations in the United States, there should then be cause for concern about public interest.

Since radio has a market cap, this helps prevent a single company from buying up all the radio stations in the biggest markets. A national cap could allow someone like Clear Channel to purchase a majority of the stations in the largest market and forget completely about the smaller market stations. However, with the market cap in place, there is still ample opportunity for other companies to compete with Clear Channel at the local level. Clear Channel cannot buy up a vast majority of the stations in a single market and bleed out the competition, thus creating a monopoly. There are still regulations in place that prevent Clear Channel or any other owner from having that much control over a single market.

There is little doubt that Clear Channel is very influential nation-wide. That is an obvious result of owning over 1200 radio stations. Clear Channel's viewpoint can be heard by people in almost any region of the United States. In comparison, any of the three major television networks; ABC, CBS, NBC, can be seen in virtually every television set in the country. Does this mean that one of these companies has a monopoly? Of course not. There is healthy competition between these three companies as well as the newest member to the major networks, FOX.

It is virtually impossible for a small company to rise up and compete with any of the big four television networks, and the public wouldn't allow a company to even try if they wanted to. These four companies have the huge bankrolls that are required to produce and distribute the television programs that our country enjoys. A new smaller company that tried to break into that elite group would never garner any viewers because their funds would severely limit the production value of their programs. This is all best for public interest. It gives the public the highest quality product every time. These four companies are forever competing with each other for ratings, and the public is usually the recipient of the highest quality programming that these companies can produce. The public majority usually plays a huge role in the types of programs that are produced by these four companies. Fearing a major drop in ratings, the big four almost always listen and comply with what the people want to see on television. The same goes for radio. Clear Channel and the other major players in radio continue to give the people what they want to hear. Otherwise, no one would listen to their stations. I think that Clear Channel's huge ownership of radio stations is a testament to their ability to give the people what they ask for and what they like.

Public interest has to be looked at as what a majority of the people want. The minority is extremely hard to please because the minority is much more diverse than the majority. The majority of radio listeners prefer a very small amount of genres. On the other hand, there are many more types of music that a minority of people prefer. It would be impossible to think that all these types of music can be available on the radio in every market because you would be able to find someone in just about every market, big or small, that would want to listen to every one of the minority genres of music. Public interest still has to give consideration to the minority, but ultimately it is the majority that rules. What Clear Channel and other companies like that do is provide the majority of people with what they want to hear. I would consider that serving the public interest. Will there be people and groups that oppose this? Of course, but there are millions more that support it. What would happen if we eliminated half of the pop music stations and replaced them with classical, folk, and jazz stations? This would enrage thousands if not millions of views all over the country. However, the number of people who preferred the new stations would be much smaller.

Small owners still have the ability to break into the market, but may not have a chance to dominate like companies like Clear Channel does. That is the way our economic system works in America. Most products and goods in this country are dominated by a small minority of owners, but the market can still support a number of minority owners. It would be very difficult for a shoe company to break into the market and compete with Nike, Reebok, or Adidas, but smaller companies such as K-Swiss and New Balance have been able to play a significant role in shoe sales recently. Longevity is always a struggle for the smaller companies. Usually if they last for a long time, they move themselves into the elite status. It is hard for the smaller companies to remain competitive with the larger ones for a long period of time. Another shoe example would be companies like Fila and Puma were two of the larger minority shoe companies in the 1990's, but since they are unable to continue to produce new and innovative shoes like the big three do, they have since fallen farther out of the picture and companies such as K-Swiss and New Balance have jumped in to make a run at staying with the big guys.

Radio stations and television stations work in the same manner. There will always be a never-ending cycle of minority owners who try their best to join the major companies. More than likely, most of the small companies will lose out within a short period of time because of lack of funding and lack of listenership/viewership. However, the smaller companies that are able to sustain themselves in this highly competitive and cut-throat market will be supported by a loyal fan base.

This deregulation has been a cause for concern as Clear Channel has become huge in promotion of music tours. This brings into question the idea of payola. Clear Channel has been accused of threatening to stop giving airtime to bands that don't play on tours that are Clear Channel controlled. Clear Channel claims these accusations are not true, but big name performers such as Neil Young, Steve Miller, and Don Henley have spoken out against Clear Channel's control over concerts and tours.

In the end deregulation is good for the market and for competition. It causes companies to get out and be active. With increased regulations comes stagnation in the market. There would be small acquisitions and transactions, but public interest would lose out because regulation would prevent action by the major companies once they bought all the stations they could legally hold. This competition forces companies to review format and sound. Since the market is so active, companies are ever changing and improving to meet the public's demands.