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Justice Dept. staying tuned to radio mergers

WASHINGTON — With radio riding the biggest wave of consolidation in its history, the Clinton Administration’s top antitrust lawyer told a group of industry execs Wednesday that the Justice Dept. will continue to look at deals closely to ensure that they do not create anticompetitive forces in the marketplace.

Acting Assistant Attorney General Joel Klein refused to discuss pending deals, but his remarks are sure to echo in the halls of major media companies with large radio holdings such as Disney and CBS. As recently as Tuesday, Viacom announced it was selling its stations to Evergreen Media for $1 billion. Evergreen, in turn, is merging with Chancellor Broadcasting in a separate $1.5 billion deal which will create the second-largest radio group in the country, with 103 stations. In 1996 alone, $15 billion worth of radio deals were announced.

Until Wednesday the conventional wisdom had been that any deal resulting in 40% or less control of an individual market would pass muster with the Justice Dept., but Klein warned execs gathered in Washington that his agency’s threshold could drop lower, especially in deals that result in dominance of a specific format. “When you’re doing a deal that’s in the 35% and above range — or that consolidates a large part of a particular format, you should bring in antitrust counsel early on,” Klein warned.

Radio execs have complained bitterly during the last year that the Justice Dept. has blocked transactions that fall well within liberalized ownership rules written into the Telecommunications Act of 1996. The Act eliminated the national ownership cap and revised the local limit to allow a single entity to own up to eight stations in the largest markets.

Klein explained that previous ownership caps had kept concentration at relatively low levels and that enactment of ownership reform last year allowed radio groups to consolidate to a degree that demands antitrust scrutiny. Out of the more than 1,000 radio deals proposed last year, the Justice Dept. has looked at 143. The government has forced companies to restructure deals in only three cases, Klein said.

In an effort to prove that some radio owners planned to take advantage of their market power to drive up advertising rates — a charge which the industry says is untrue — Klein quoted from two confidential documents which he said Justice Dept. officials had uncovered in their investigations during the past year.

In the first case, a buyer said he had used his market power to raise rates by 20%. “I will use our combined stations’ cooperation to get some of our long-term, low-dollar contracts raised to a higher rate,” the manager wrote.

In a second case, Klein quoted a document that demonstrated why the Justice Dept. will be looking closely at deals which allow one broadcast group to control a single format, even it falls well below ownership limits set by the Telecommunications Act. In the document, which Klein said was distributed to investors, the radio group owner explained that he wanted to raise rates by taking over a competitor in the same format. “Simply raising our rates by 50%, which I think is possible, will accomplish our goal,” said the radio exec, according to Klein.

Klein said he would be glad to test his anticompetitive theories in court. He promised to take any challenge to court on an “expedited” schedule with the hope of a speedy resolution. Klein said he would not allow deals to close pending the judicial review.

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