Soft-spoken but with a rapid delivery, the president of media buying agency Harmelin & Associates sat in her office in suburban Bala Cynwyd, Pa., recently, describing her vision of the problems likely to plague the merger-happy radio industry.
"Twenty-five percent of [advertisers] might not be able to afford radio" if prices go up, she said, and "stand-alone [stations] with no resources will fail" against super groups.
MOST CONSOLIDATED MARKET
Her concerns mirror those of many agency media buyers nationwide, but they're perhaps more urgent since the City of Brotherly Love also happens to be one of the first markets to be slammed by the wave. In fact, until the next acquisition, Philadelphia will be the nation's most consolidated radio market.
Once the formalities of Infinity Broadcasting Corp.'s $3.9 billion acquisition by Westinghouse Electric Corp. and its CBS radio network are complete, up to 47% of Philadelphia's radio ad revenues will be controlled by the new entity-adding Infinity's WIP-AM and WYSP-FM to CBS' KYW-AM, WGMP-AM, WMMR-FM and WOGL-FM. Nationwide, the combination will control $1 billion in annual revenue on 83 stations nationwide.
"Why is Congress doing this?" Ms. Harmelin asked. "I don't believe many think this is good except for those involved. Ten years from now, the FCC is going to have to undo this."
During the 1980s, the Federal Communications Commission approved thousands of new radio licenses in the interest of diversity, but flooded the market. So in 1992 and last February, ownership limits were increased (to four AMs/four FMs per market with no national cap), encouraging consolidation.
Yet the Justice Department is now investigating both the Infinity deal and a proposed merger of Jacor Communications with Citicasters, both Cincinnati-based. Justice is already interviewing advertising executives about potential ramifications (AA, July 29).
Justice's approval of media deals was a perfunctory step under the old FCC rules. Because of the new regulations, the department is now listening to concerns about monopolistic-like control of radio ad revenues in single markets.
BROADCASTERS FIGHT BACK
Broadcasters argue that radio should not be looked at as a market unto itself, but part of a whole media pie. They add that fewer operators of newspapers and TV stations limit choices more than radio does, even after consolidation, and that ad buyers can always opt for other media if they don't like radio's rate structure.
Ms. Harmelin doesn't buy that.
"Radio is unique; it is a retail, stand-alone medium," she argued. "Many advertisers cannot afford, nor have a need to be on, TV" in her marketing region, a region that includes extraneous towns in the area, such as Allentown and Reading, Pa., as well as Wilmington, Del.
She also points out that nearly 80% of the key male 25-to-54 demographic will be sewn up in Philadelphia by the merged entity.
The new group, which may be named CBS/Infinity, also will control radio broadcasting rights to the city's pro sports franchises-the Philadelphia Eagles, Flyers, 76ers and Phillies.
Known among the listening public for its caustic on-air personalities (Howard Stern, Don Imus), Infinity is defined in the industry by its low-key boss, Mel Karmazin, respected for his Wall Street savvy.
"Mel is a tough cookie. He wants all the marbles. If he gets them, is he going to lower our rates? I don't think so," said Ms. Harmelin. "When a group controls a demo, you'd better believe the rates are going to go up."
Mr. Karmazin, who rarely grants interviews, spoke to Ad Age in an attempt to allay ad industry concerns about the merger.
"I'm not going to do anything that is not in the agencies' or clients' best interest," he said. "I already have a pretty strong position with males in New York and Philadelphia, and I don't [sell that way]."
Ad buyers concerned about outrageous rate hikes or efforts to sell undesirable stations in combination should look at Infinity's record, Mr. Karmazin added.
He did concede that prices on his stations rose 4% in the first half of this year, chalking that up to "supply and demand" and newfound strength of the medium. But, he added: "Radio is so inexpensive. With all the increases in television and newspaper rates, to be concerned about radio prices is incredible. We're the Wal-Mart of advertising."
Like other broadcasters, he expressed disbelief at media buyers' opposition.
"Agencies say how time-consuming and unprofitable it is to buy radio; that it is too fragmented," noted Mr. Karmazin. "Conversely, when there's an opportunity for consolidation, they com- plain about that."
Radio needs consolidation, he said, "for survival" and to grow beyond the 7% of the ad pie it gets.
Mr. Karmazin is frustrated by the apparent contradiction between approval of consolidation from one governmental arm and investigation from another.
"It's bizarre but you've got to play by their rules," he said. "It approves the Turner/Time Warner merger but then begins looking at small radio deals."
Lonny Strum is a lone voice among ad buyers. The CEO of ad agency RBT/Strum, Cherry Hill, N.J., actually embraces radio consolidation.
"It pains me to be on the opposite side of an issue-but they're wrong," Mr. Strum said of critics of consolidation.
Those critics are led by the American Association of Advertising Agencies. Four A's Exec VP Hal Shoup, in a recent letter to FCC Chairman Reed Hundt, wrote, "Increased local concentration of ownership and control may allow market distortion in the price of advertising, thereby undermining the diversity of programming available to the public."
Mr. Strum, chairman of the Philadelphia council of the Four A's from 1992 through last April, thinks that's a hypocritical stance.
SHOE ON OTHER FOOT
"Buying services and ad agencies are quick to claim that through collective clout they can achieve favorable rates" for clients, he said, but complain when the shoe is on the other foot.
Ray Mayo, VP-media director at Earle Palmer Brown, has a more balanced view.
"It's a little scary someone could have 47% of the market share," he said.
Yet even though "there is concern about cost, choices and flexibility, I don't think it will be a long-term issue."
The reason? "Philly is a remarkably competitive media market," Mr. Mayo said. "It's the fifth largest but priced more like a No. 20 market."
Mr. Karmazin offers a positive view of Infinity's growing clout.
In the Dallas market, he said, Infinity spent more than $150,000 to hire new-business people just to pursue local advertisers that don't use radio. The company plans to do the same in Boston and other markets.
"Up until recently, we haven't had the critical mass to do this, and it's a cost shared by multiple stations," Mr. Karmazin said.
Asked if he foresees a day when radio, like TV, is controlled by a handful of groups, he said, "I don't believe that will happen, but 20 different owners in a city might consolidate to six or seven. It wouldn't be that negative and diversity would continue."