Clear Channel May Have to Sell More Stations For FCC Deal Approval

There were 19 stations above FCC limits owned by Clear Channel in the 100 largest radio markets at the end of last year, according to our analysis of data from media activist Peter DiCola. The markets are: Albuquerque, Austin, Charleston, Cleveland, Columbus, Dayton, Grand Rapids, Jacksonville, L.A., Louisville, New Orleans, Orlando, San Diego, Syracuse and W. Palm Beach-Boca Raton.

Clear Channel didn’t have to sell the noncompliant stations because they were exempted from FCC rules that changed how radio markets were defined in 2003. The Commission stopped using the range of radio signals, or contours, in favor of using Arbitron definitions to calculate whether a company was in breach of ownership limits. Some stations not considered to be located in the same market as neighboring broadcasters before 2003 are now considered so. Companies lose their grandfather exemption when they sell noncompliant stations. Clear Channel must divest the stations, seek an ownership waiver or convince the FCC the deal wouldn’t trigger a change in control to win its approval, said brokers and industry officials.

The likeliest approach Clear Channel is believed to be considering is telling the FCC its leveraged buyout (LBO) won’t be a substantial change in control, said brokers and broadcast attorney Lew Paper. Since the founding Mays family would keep control of Clear Channel operations, and because the company’s shares are owned publicly, Clear Channel may argue that de facto control of the company won’t change, he said. “I think that’s the main argument” the broadcaster will make to the Commission, said Bear Stearns analyst Victor Miller: “They've got the same management team.” Bear Stearns has done non-investment banking work for Clear Channel.

Broadcasters in other multibillion-dollar deals have made similar arguments to the FCC, including Univision and Citadel, said an analyst. The latter company has said it doesn’t need waivers to keep its noncompliant radio clusters after its proposed merger with ABC Radio because Theodore Forstmann, with a 67% stake, will remain the merged entity’s largest individual shareholder. Citadel may have history on its side. The Commission approved John Kluge’s buyout of Metromedia without a waiver, Citadel’s license transfer application said: “The Commission’s analysis focused on the fact that Mr. Kluge had control of Metromedia both before and after the transaction, and not whether Mr. Kluge’s control was strengthening or weakening.”

FCC action on Citadel and Univision’s license transfer applications may foreshadow the stance it will take on the Clear Channel deal, said Miller. “Clear Channel may try to make the same argument which has been advanced by Citadel,” Paper said: “If they can demonstrate there has been no substantial change in control, they will be allowed to retain their clusters.” There is skepticism such an argument would find a receptive audience on the 8th floor. “Just because something nominally comports with an FCC rule, and I'm not saying this would, doesn’t mean that the FCC can’t look behind it to see if the Wizard of Oz is pulling the strings,” said Media Access Project Pres. Andrew Schwartzman.

If Clear Channel can’t avoid seeking waivers, it may be able to convince commissioners to let it hang onto stations in violation of ownership limits because the 448 stations the company plans to sell to other firms would increase ownership diversity, said 2 brokers. “The argument I think you would attempt to make is the overriding public interest is so vastly helped by approving this LBO,” said station appraiser David Schutz, “that it eclipses the potential small negative elements of perpetuating our non-conforming ownership.” Clear Channel invested loads of money to buy failing stations in markets where it now violates FCC rules and turned them into good businesses, broker Frank Kalil said: “They should be able to make a compelling argument that they bought them under the rules that were current and fair at the time and why should they be forced to break them up?… You buy them, you grow them, but you can’t sell them because they've changed the rules on you? That’s not fair.”

If such arguments fail, Clear Channel may have to put more stations on the market. That would be a boon to minority broadcasters, not exactly jubilant at the short shopping list of small-market stations Clear Channel already offered. “They're still good stations,” said Francisco Montero, Independent Spanish Bcstrs. Assn. dir.: “You have a lot of stations in small markets, with less power and they're not going to command some of the same value stations in the earlier [AMFM] spinoff commanded.” After Clear Channel bought AMFM in 2001, it sold many stations to minorities.

Clear Channel’s buyers will have an easier time getting any FCC waivers they might need to keep its TV stations and smaller market radio stations until it can find buyers for them, said BIA Vp Mark Fratrik: “If they're over the cap, with the new way that the markets are defined, they'll just tell the Commission: ‘We'll dispose of them as we announced.'”

There’s been little opposition to Clear Channel’s deal so far. That may presage a smoother ride toward FCC approval. Minority groups have said they'll support the transaction if their members can buy a sizable amount of stations. Media activists said the deal has some positive aspects because it won’t increase consolidation, unlike most media transactions. Some potential critics said they won’t decide whether to oppose the deal until after the company files its license transfer application to the FCC. “It could be a really beneficial thing in these markets outside the top 100,” said activist DiCola, Future of Music Coalition research dir.: “It really depends on who they sell them to.”