Due to its presence in radio, TV, and outdoor advertising, CC was able to offer its...

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Due to its presence in radio, TV, and outdoor advertising, CC was able to offer its clients complete media campaigns including radio and TV ads. While this was convenient, critics feared that CC might misuse its clout in radio to get favorable promotion deals. For example, a manager of a top 40 group complained to Rolling Stone magazine that his client's songs were pulled from a station in a large market after the band refused to play a free promotional concert in 2000. CC consistently refuted such claims with statistics from airplay-monitoring services. Nevertheless, to make a stand, artists like Dave Matthews publicly announced they would try to avoid CC-operated venues. In 2003, Senator Russ Feingold introduced the Competition in Radio and Concert Industries Act in the U.S. Senate. Section 3 of the act directed the FCC to revoke the license of any radio station that used its cross-ownership of promotion services or venues to "discriminate against musicians, concert promoters, or other radio stations." Randall Mays explained why it did not make sense for CC to punish artists who did not use its concert-promotion services: There is no connection between what gets played on the radio and what concert tours or venues are chosen by artists. It is crucial for us to have good relationships with artists, but even more importantly, we must have outstanding relationships with our audiences. There isn't an artist or a tour or a concert out there that is valuable enough to disrupt the relationship we have with our radio listeners and ticket buyers. More generally, industry observers wondered if there was a link between increases in concentration in the radio and concert-promotion businesses and the quick rise of ticket prices. From 1981 to 1996, concert prices had grown only slightly faster than general inflation (4.6% vs. 3.7% per year). Beginning in 1997, one year after the passage of the Telecommunications Act, the price of tickets started to take off. From 1996 to 2003, concert prices grew 8.9% a year, while the rate of inflation was only 2.3%. In this period, concert prices increased twice as fast as a Consumer Price subindex for movies, sporting events, and theater. The reasons for this divergence were a matter of dispute. Some pointed to the artists, who kept 85% of concert revenues and were demanding larger advances as sales of CDs plummeted. Others blamed consolidation in radio and promotion. Some economists pointed out that rising prices were consistent with the idea of the arts suffering from Baumol's cost disease.5 Profit Matrix for Clear Channel and Local Outdoor Advertising Competitor in the Andaman and Nicobar Islands 0 0 0 0 0 0 138 413 688 963 10 1250 1725 2100 2375 2550 2625 2600 2475 2250 192 0 0 0 0 250 500 750 1000 1250 1500 9 1200 1650 2000 2250 2400 2450 2400 2250 2000 165 0 13 113 338 563 788 1013 1238 1463 1688 1913 8 1150 1575 1900 2125 2250 2275 2200 2025 1750 137 400 600 800 1000 1200 1400 1600 1800 2000 2200 7 1100 1500 1800 2000 2100 2100 2000 1800 1500 110 Local 788 963 1138 1313 1488 1663 1838 2013 2188 2363 Competitor 6 1050 1425 1700 1875 1950 1925 1800 1575 1250 82 Pricing Level 1050 1200 1350 1500 1650 1800 1950 2100 2250 2400 5 1000 1350 1600 1750 1800 1750 1600 1350 1000 55 1188 1313 1438 1563 1688 1813 1938 2063 2188 2313 4 950 1275 1500 1625 1650 1575 1400 1125 750 27 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 3 900 1200 1400 1500 1500 1400 1200 900 500 1088 1163 1238 1313 1388 1463 1538 1613 1688 1763 2 850 1125 1300 1375 1350 1225 1000 675 250 850 900 950 1000 1050 1100 1150 1200 1250 1300 1 800 1050 1200 1250 1200 1050 800 450 0 1 2 3 4 5 6 7 8 9 10 Clear Channel Pricing Level Note: in each box, the upper left figure is the local competitor's profit, and the lower right figure is Clear Channel's profit. Because outdoor advertising can assume various forms (Exhibit 4), the pricing data are normalized to a scale running from 1 (low) to high (10). Due to its presence in radio, TV, and outdoor advertising, CC was able to offer its clients complete media campaigns including radio and TV ads. While this was convenient, critics feared that CC might misuse its clout in radio to get favorable promotion deals. For example, a manager of a top 40 group complained to Rolling Stone magazine that his client's songs were pulled from a station in a large market after the band refused to play a free promotional concert in 2000. CC consistently refuted such claims with statistics from airplay-monitoring services. Nevertheless, to make a stand, artists like Dave Matthews publicly announced they would try to avoid CC-operated venues. In 2003, Senator Russ Feingold introduced the Competition in Radio and Concert Industries Act in the U.S. Senate. Section 3 of the act directed the FCC to revoke the license of any radio station that used its cross-ownership of promotion services or venues to "discriminate against musicians, concert promoters, or other radio stations." Randall Mays explained why it did not make sense for CC to punish artists who did not use its concert-promotion services: There is no connection between what gets played on the radio and what concert tours or venues are chosen by artists. It is crucial for us to have good relationships with artists, but even more importantly, we must have outstanding relationships with our audiences. There isn't an artist or a tour or a concert out there that is valuable enough to disrupt the relationship we have with our radio listeners and ticket buyers. More generally, industry observers wondered if there was a link between increases in concentration in the radio and concert-promotion businesses and the quick rise of ticket prices. From 1981 to 1996, concert prices had grown only slightly faster than general inflation (4.6% vs. 3.7% per year). Beginning in 1997, one year after the passage of the Telecommunications Act, the price of tickets started to take off. From 1996 to 2003, concert prices grew 8.9% a year, while the rate of inflation was only 2.3%. In this period, concert prices increased twice as fast as a Consumer Price subindex for movies, sporting events, and theater. The reasons for this divergence were a matter of dispute. Some pointed to the artists, who kept 85% of concert revenues and were demanding larger advances as sales of CDs plummeted. Others blamed consolidation in radio and promotion. Some economists pointed out that rising prices were consistent with the idea of the arts suffering from Baumol's cost disease.5 Profit Matrix for Clear Channel and Local Outdoor Advertising Competitor in the Andaman and Nicobar Islands 0 0 0 0 0 0 138 413 688 963 10 1250 1725 2100 2375 2550 2625 2600 2475 2250 192 0 0 0 0 250 500 750 1000 1250 1500 9 1200 1650 2000 2250 2400 2450 2400 2250 2000 165 0 13 113 338 563 788 1013 1238 1463 1688 1913 8 1150 1575 1900 2125 2250 2275 2200 2025 1750 137 400 600 800 1000 1200 1400 1600 1800 2000 2200 7 1100 1500 1800 2000 2100 2100 2000 1800 1500 110 Local 788 963 1138 1313 1488 1663 1838 2013 2188 2363 Competitor 6 1050 1425 1700 1875 1950 1925 1800 1575 1250 82 Pricing Level 1050 1200 1350 1500 1650 1800 1950 2100 2250 2400 5 1000 1350 1600 1750 1800 1750 1600 1350 1000 55 1188 1313 1438 1563 1688 1813 1938 2063 2188 2313 4 950 1275 1500 1625 1650 1575 1400 1125 750 27 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 3 900 1200 1400 1500 1500 1400 1200 900 500 1088 1163 1238 1313 1388 1463 1538 1613 1688 1763 2 850 1125 1300 1375 1350 1225 1000 675 250 850 900 950 1000 1050 1100 1150 1200 1250 1300 1 800 1050 1200 1250 1200 1050 800 450 0 1 2 3 4 5 6 7 8 9 10 Clear Channel Pricing Level Note: in each box, the upper left figure is the local competitor's profit, and the lower right figure is Clear Channel's profit. Because outdoor advertising can assume various forms (Exhibit 4), the pricing data are normalized to a scale running from 1 (low) to high (10).