Media Consolidation: FCC study to explore effect on ad prices

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The Federal Communications Commission, moving to examine whether its existing rules on media concentration should be eased, has launched one of its most intensive looks ever at how that concentration effects advertising costs.

FCC officials said last week that one of the critical studies the agency will unveil this fall will examine how ad costs are altered by concentration and whether high rates in radio, for instance, merely cause advertisers to switch media buys to other forms of media. The study is part of the agency's review of six media-ownership rules as part of an ongoing examination of whether those rules should be altered to allow media companies to further consolidate in local markets.

Ad agency media executives expressed some concern that an FCC review of whether broadcast, cable, Internet, newspaper and radio are interchangeable for advertisers in local markets could lead to further media consolidation. They remained hopeful, however, the study will give the FCC a better understanding of consolidation's effects and perhaps slow broadcasters' push for deregulation.

Local Prices higher

"It is good for the FCC to review practices," said Renetta McCann, CEO of Bcom3 Group's Starcom North America and chair of the American Association of Advertising Agencies' media policy committee. She noted "a lack of competition has driven prices up locally, but at the same time consolidation of media deals has been good for advertisers."

Top ad agency media executives will meet with the FCC this week. The rules under study limit how much one media company can own (see chart, right). Broadcasters have repeatedly said the rules, drawn before the dawn of the Internet, cable and satellite emerged as viable competitors, are too stringent.

In several recent court cases the U.S. Court of Appeals for the District of Columbia has ripped the FCC for having few consolidation studies to back up its contention that media ownership limits are needed. The court overturned one rule and ordered the FCC to reconsider several others. All the cases are expected to be appealed.

Ken Ferree, chief of the FCC's Media Bureau, said last week that as the FCC looked to justify the rules, it became convinced that the need for consistency and a more analytical approach required they be examined all together. In addition to the ad study, other studies will look at historical patterns of station ownership; how easy it is for consumers to substitute media; and the relationship between ownership and local programming, diversity and local news. All the studies will be released this fall with the FCC planning to release new media rules next spring.

substitution difficulties

The ad agency media executives said they hope to explain the difficulties of substitution and some other effects of consolidation.

"FCC chairman Michael Powell has given every indication that he is going to [ease the regulations] because the ad industry has other alternatives," said Allen Banks, exec VP and executive media director-North America for Publicis Groupe's Saatchi & Saatchi. "The reality is that the fox has gotten into all those other chicken houses as well. It's not like if you don't like the ownership you can go someplace else. It is quite na‹ve to believe that advertisers after months of planning can move from one media to another with ease."

Ms. McCann said while consolidation drove up media prices locally, its effect on national advertising is less clear. But she added later, "If you get one owner of several forms of media, I would find it hard to believe that the owner wouldn't want to get some economic gain from consolidation."

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