Clear Channel Communications, Inc.

Huge fines, more bad publicity and illness have rocked radio giant Clear Channel Communications Inc. over the past year, but despite all the bad news, the company’s bankers are still smiling.

Clear Channel founder and chief executive officer Lowry Mays, 68, checked into a hospital in May to remove a blood clot from his brain and has yet to fully recover. In June, the company agreed to pay a record $1.75 million to settle broadcast indecency complaints. And most recently, the company was sued for refusing to place an anti-war advertisement on one of its Times Square billboards in New York City.

Despite all that, the company posted a slight increase it in its second-quarter 2004 net income. Clear Channel’s second quarter profit was $254 million. And it continues to be a cash machine, bringing in nearly $4.5 billion in revenue in the first half of the year.

Those profits can be traced directly to Lowry Mays’s hardnosed approach to the radio business.

“If anyone said we were in the radio business, it wouldn’t be someone from our company,” Mays told Fortune magazine in a now-notorious interview. “We’re not in the business of providing news and information. We’re not in the business of providing well-researched music. We’re simply in the business of selling our customers’ products.”

Mays’ matter-of-fact business philosophy makes clear what many critics of the company allege: that the radio giant is interested in the bottom line, not its responsibility to the public in its stewardship of publicly owned airwaves. Even pro-deregulation FCC Chairman Michael Powell has expressed concern about consolidation in the radio industry.

Clear Channel is a regulatory phenomenon—or more accurately, a deregulatory phenomenon. It was born in 1972 when Mays and Red McCombs formed San Antonio Broadcasting Company to acquire an FM radio station in Texas. Three years later, they acquired their first “clear channel” station, meaning it was on a frequency reserved exclusively for its own use and broadcast nationwide. The company grew steadily through the 1980s and 1990s, but the expansion was nothing compared to what happened after the Telecommunications Act of 1996. The act eliminated national ownership limits on radio stations, and drastically reduced them in individual markets. Clear Channel acquired the bulk of its empire in two huge transactions. In 1998, it paid $4.4 billion for Jacor Communications and two years later, its $15.9 billion acquisition of AMFM Inc. made it the No. 1 radio broadcaster. As of 2005, the company reported 1194 radio stations and $3.5 billion in revenue from radio operations. It broadcasts in all 50 states and claims 110 million listeners every week.

The company is also one of the nation’s largest outdoor advertising company and has been expanding overseas.

Some critics have called Clear Channel the poster child for why consolidation of media is a bad idea, mostly from a diversity standpoint. Critics also allege that Clear Channel cuts cost at every opportunity, often hurting news divisions in the process. The company received a black eye in Minot, North Dakota, where it owns six of seven local radio stations. Clear Channel often centralizes programming, far from where it is being broadcast. None of the stations picked up the phone when authorities sought to warn residents of a dangerous ammonia spill, according to police. The company disputes the allegations.

Clear Channel has also been criticized for its music promotion practices where independent music promoters pay to receive airplay for songs. (The company has said it would halt the practice.) Finally, Clear Channel has raised concerns for using its radio stations as bullhorns promoting the war in Iraq.

—John Dunbar

August 19, 2004

Sources: Fortune Magazine, Clear Channel Communications Inc. Web site, Form 10-K.