CHANCELLOR MEMO RAISES COMPETITION QUESTIONS: AGENCY FEARS RENEWED ABOUT ADVERSE IMPACT OF RADIO STATION CONSOLIDATION

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Account execs at Chancellor Media Co. radio stations "must call" their counterparts at other company-owned stations in a market "every time they get a new avail or when specs are changed by the buyer," according to an internal memo circulated at the radio giant.

The memo, obtained by Advertising Age, reveals the extent of information sharing about ad buys or potential buys within a single market and could reignite questions by advertisers and agencies about the anti-competitive effect of consolidation in the radio industry.

The memo further states: "If Sally calls with a Brita water avail, your [ Y&R Advertising account exec] will then call each of the other Chancellor Y&R [account execs in the market] to alert them and to compare buying parameters."

BY-PHONE COMPARISONS

The account execs "by phone should compare: demo, qualitative criteria, Arbitron books being used, CPP [cost-per-point] goals, daypart restrictions, fringe dayparts they can use, the CPP they're going in at and any other relevant information."

Reacting to word of the memo, Page Thompson, president of DDB Needham Worldwide's Optimum Media, New York, said: "This is a classic example of what we all feared. It proves that they aren't client focused. When consolidation of radio stations was first discussed, the owners said consolidation would give us better service and better ideas. This clearly shows their colors -- that for them it's all about price."

It also indicates the effect of consolidation on competition in radio markets, as it may have lessened the ability of media buyers to play one station off another as they look for the best deals for their clients.

"This is exactly why the agencies opposed radio consolidation," said Laura Silton, senior VP-director of local broadcast for McCann-Erickson Worldwide, adding that the stations "aren't willing to negotiate based on their own individual merits."

MARKET, AUTHOR BLACKED OUT

The Chancellor memo is dated Sept. 11, 1998, and is to all the general sales managers in a particular market. In the copy obtained by Ad Age, the name of the market was blacked out, as was the executive's name who authored the memo.

"We have verified the authenticity of the memo," said an executive at the agency that forwarded the memo to Ad Age on the condition of anonymity.

Chancellor is the nation's No. 1 owner of radio stations. After a pending deal with Capstar Broadcasting Corp. is closed, the company will have 463 stations in 114 markets, according to consultant BIA Consulting.

When a radio consolidation will result in one company getting more than 40% of the ad revenue in a market, the U.S. Department of Justice's antitrust division scrutinizes the deal very closely. After the Capstar deal closes, Chancellor would exceed that number in several markets, including Houston and Wichita, Kan.

In those cases, the Justice Department often demands that stations be sold so the 40% number isn't exceeded.

Chancellor did not respond to calls by press time.

MEMO SENT TO JUSTICE DEPARTMENT

The agency that provided the copy of the memo also said it had forwarded a copy to the Justice Department. The Justice Department declined comment.

There is nothing illegal, however, with radio stations owned by a particular owner sharing information among themselves.

Mel Karmazin, president-CEO of CBS Corp., has previously stated that CBS radio executives in any particular market have telephone conference calls about once a week to compare ad sales information. But Mr. Karmazin hasn't said exactly what's discussed in those meetings.

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