The cost of consolidation is "much more than anyone anticipated," said Jon Mandel, CEO of Grey Global Group's MediaCom, which conducted the study as the FCC considers relaxation of its media ownership rules.
Consolidation and lower production costs for cheap reality programs produce extraordinary profits for stations and their owners, Mr. Mandel claimed. "The only business that is doing better is selling crack," he said.
Mr. Mandel`s agency is a member of a group-Coalition for Program Diversity-lobbying the FCC to carve out a percentage of prime-time programming for independent producers, but he will not be representing any group at the forum, to be held at the University of Southern California Feb. 18.
MediaCom began price research last year in response to one of the FCC's own studies. The study, conducted by the FCC's media bureau, suggested radio concentration may have only increased local prices 3% to 4%. Consumer groups questioned some of that study's assumptions.
The MediaCom study compares dollars in the market before and after consolidation, beginning in 1994 for most markets, and later for some TV markets starting in 1997. These numbers were then compared to gross rating points to determine the cost-per-thousand increase.
MediaCom compared numbers with data from Sqad, which records spot price quotations and data for TV markets, and Sparc, which records the same data in radio. "If prices should have gone up by 50% but actually went up by 110%, then 60% is due to the fact of consolidation and you can't negotiate," Mr. Mandel said.
MediaCom created two sets of numbers: one that factors in inflation, using the consumer price index as a guide, and another set that does not. "In one of the FCC reports, the economists make the argument that any increased spending over and above the consumer price index should be allocated to the costs of consolidation," Mr. Mandel said. He added that the FCC's consumer price index number has risen 21% since 1994, a figure he subtracts from the dollar increase. MediaCom's numbers were sampled from the late news daypart across cable, broadcast and radio (see chart).
"Comparing numbers to the CPI is a very unscientific way to determine the impact of consolidation," said Andy Levin, senior VP-government relations at Clear Channel Communications. "Many industries had prices that went up at a rate higher than the consumer price index even when there were no regulatory changes," he said.
Mr. Levin said that the booming economy several years ago led to an increase in ad rates across all media, not just radio and TV. "It's inaccurate to attribute radio advertising increases to deregulation," he said. "It's a matter of supply and demand."
Dennis Wharton, senior VP of the National Association of Broadcasters, said "Mr. Mandel ought to look in the mirror. There is far less consolidation in radio than there is in the ad business."