Well Connected
Clear Channel Communications Inc.

Clear Channel is the most prominent example of a consolidated media company that has been compelled — by its own enormous size rather than by regulatory demands — to shed some of its previously acquired assets through spinoffs and divestitures.

Clear Channel was born in 1972 when Lowry Mays and Red McCombs formed San Antonio Broadcasting Co. to acquire an FM radio station in Texas. Three years later, they acquired their first "clear channel" station — one broadcast nationwide on a frequency reserved exclusively for its use.

The company grew steadily through the 1980s and 1990s, but the expansion was nothing compared to what happened after passage of the Telecommunications Act of 1996, which eliminated national ownership limits on radio stations, and nearly eliminated them in individual markets. As of 2005, the Clear Channel reported that it owned 1,177 radio stations and had $3.5 billion in revenue from radio operations. It broadcasts in all 50 states and claims 110 million listeners every week.

Clear Channel's sheer size — it's the nation's largest radio corporation whether measuring by revenue or station count — also demands that the company take on something of the role of good corporate citizen, whether it likes it or not. In this regard, federal, congressional and citizen groups have exerted their own influence on Clear Channel's actions.

The Federal Communications Commission is chief among the government offices that have compelled Clear Channel to play nice. One big turnabout in corporate culture has been over indecency: In 2004, the company paid a then-record $1.75 million to the FCC to settle broadcast indecency complaints. (Later that same year, Viacom exceeded that with a $3.5 million settlement.) In a nod to congressional and FCC pressure, Clear Channel barred premier fine-earner Howard Stern's show from its stations.

Although Clear Channel didn't oppose a law, passed in June, raising the maximum fine for broadcast indecency from $32,500 to $325,000, it did lead the charge to ensure that broadcast stations couldn't lose their licenses over three swear words.

The company also is one of the subjects of an ongoing investigation by New York State Attorney General Eliot Spitzer into alleged "payola" — the practice of trading cash and gifts for radio airplay.

In March 2006, Spitzer's office filed suit against Entercom in state court in Manhattan, alleging that the radio group had "traded air time for gifts and other payments" and "sold air time to record labels in order to manipulate the music charts." Entercom has denied the charges and a decision on its motion to dismiss the suit was still pending in October.

CBS Radio and Citadel also are under investigation, but no other suits have been filed.

Following Spitzer's lead, the Federal Communications Commission has launched formal payola investigations targeting the four companies. The last payola-related FCC probe was in 2000, when two Clear Channel stations each were fined $4,000. Clear Channel said in its 2006 Securities and Exchange Commission filing that the company was cooperating in the current investigation.

The Department of Justice also launched two separate investigations of the company in 2003, both of which were closed in early 2006. One concerned market-specific antitrust violations, the other allegations of tying radio airplay or the use of certain concert venues "to the use of concert promotion services" in the company's former live entertainment business.

Clear Channel has tried to demonstrate its willingness to provide more than the basic communications service citizens need during disasters such as Hurricane Katrina. When the storm struck, the company formed a unique alliance with other broadcast groups that also owned stations in the Gulf Coast states to create an ad-hoc radio network to deliver as much news and information as possible to as many people as possible.

In 2005, Clear Channel spun off Clear Channel Entertainment, its former live entertainment, music venue and sports representation division. That company now operates as Live Nation. That same year, Clear Channel offered about 10 percent of the stock of its outdoor billboard business, Clear Channel Outdoor Holdings, in a public offering.

The complexity of Clear Channel's public identity and its corporate culture comes down to delivering profits for its shareholders. And that attitude can be traced directly back to company founder and chairman Mays' hard-nosed approach to the broadcasting 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."

But as Mays' sons Randall and Mark have grown into their respective positions as president/chief financial officer and chief executive officer, the company has been showing a friendlier face. A business initiative called "Less is More" trimmed the number of advertising minutes broadcast during any given hour, a move seen as an effort to eliminate clutter on the airwaves in the face of increased consumer listening options, such as satellite radio and digital music players.

— Tony Sanders

October 2006

Sources: Billboard Radio Monitor, Company Web site, Fortune Magazine, Los Angeles Times, Mediaweek, New York State Attorney General's Office Web site, Securities and Exchange Commission filings

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