After its merger last year with Infinity Broadcasting, CBS Radio now owns 10 stations in Chicago, controlling about 32% of radio ad revenue in the market.
"We're concerned that pricing between the CBS stations in Chicago, which used to be 10% to 20% apart as you went from the No. 1 station to the No. 2 station and so forth, is now only 2% or 3% apart," said an executive at the ad agency contacted by the Justice Department. The executive requested that the agency's name not be revealed.
"The Justice Department asked us if we had any concerns about ad policies in radio, and we told them" about the change in pricing, the executive added. "They said they want to come in and talk about it with us."
The Justice Department originally approved the CBS-Infinity merger.
Mel Karmazin, chairman-CEO of the CBS TV & Radio Station Group, did not return phone calls from Advertising Age last week.
TALKING TO JUSTICE OFFICIAL
A media executive at another ad agency said he's been exchanging phone messages with Dando Cellini, a Justice Department official, for a week.
"Cellini's the guy who looks at these radio mergers," said the executive, who is concerned about the high ad rates being asked by CBS stations in New York and Los Angeles since the merger.
This executive said the costs per thousand now being asked by the top three or four CBS stations in those markets have made buys prohibitively expensive.
"Then we quietly got a call by someone at one of the stations saying that . . . if we buy all the CBS radio stations in the market, we'll get a great deal," the executive said. "The problem is that increases my overall costs, and I don't want all the stations."
`DOUBT THAT IT'S ILLEGAL'
But another media buyer, told of that scenario, said: "As buyers we might not like it, but I doubt that it's illegal. Being offered a group deal at a discount isn't illegal. Nor is it illegal to ask high prices for stations that perform well."
Mr. Cellini could not be reached for comment.
Agency radio executives are unhappy that Mr. Karmazin seems intent on raising prices in the CBS radio markets.
In an interview with Advertising Age in December, Mr. Karmazin said: "I'm not going to do anything that's not in the agencies' or clients' best interests."
But he told Barron's in March: "It used to be that [stations] competed, that media buyers would play off against each other. Now we have the ad sales managers talk to each other every morning. That adds up to higher prices and better margins."
Contributing: Michael Wilke.