In every issue of Radio Ink in 2016, we’re taking a look back at the 1996 legislation that changed the radio industry. The 1996 Telecommunications Act spawned deregulation, and to this day the debate rages on about whether radio is better off as a result.
Steve Hicks will go down in history as the person who created radio’s first ever duopoly. It was back in 1990, in Jackson, Mississippi. He was also right in the middle of the action when radio’s ownership rules changed: At the helm of Capstar Broadcasting, he took full advantage of those new rules. Hicks founded and served as CEO of Capstar, which became a leading consolidator of middlemarket stations across the country. Ultimately Capstar owned 350 stations, the most of any company at the time.
Hicks led Capstar to an IPO in 1998, and in 1999, Capstar merged with Chancellor Media in a stock swap valued at $4.1 billion. The new company was renamed AM/FM, with Hicks as vice-chairman and CEO. AM/FM was purchased by Clear Channel for $23 billion in 2000.
RI: What was your involvement when the Telecom Act was taking shape?
Hicks: We were lobbying and had discussions with most of the lawmakers involved at the time. I was able to put together the first LMA, in Mississippi, back in early 1990, and that led to kind of the first duopoly, which changed things. I was certainly experienced in that part of it and was asked for my advice about it. I think where we ended up was a very good place at the time.
RI: Why did you think it was important for radio to have something like that back then?
Hicks: It hasn’t turned out exactly how I envisioned. At the time, I thought it would be a chance to get better quality — what we were looking at was, in the medium markets, to be able to get better talent and to be able to make them more successful. At the time, I think about half the radio stations in America were not profitable. There was certainly a lot of work that could be done to improve what we had.
RI: A lot of people who are critical of the Telecom Act may not know about those failing stations.
Hicks: Absolutely. About half of them were; it was a very inefficient marketplace. There were too many stations in a lot of the markets. It just made a lot of sense to be able to consolidate some of the operations. There was no need to have 12 different stations in a market — and that meant 12 different receptionists, 12 different accountants, 12 different everything.
In other industries, where [radio had] an imposed legal restriction, those marketplaces tend to sort themselves out in a better way than that. We looked at what happened in other industries, and we concentrated on the middle markets and went on a buying spree that I think would’ve passed the Oklahoma Land Rush. It was so much activity.
RI: What was it like doing deals back then?
Hicks: It was exhilarating. It was, in some ways, the highlight of my career. We were able to go from zero to 350 radio stations in about 18 months. At the time, we were the largest broadcaster in the country, in terms of number of stations. To be able to create something like that starting from zero is something we were very proud of.
RI: What was the best deal you made?
Hicks: There were so many of them. We were able to buy some smaller groups because we would not have been able to do 350 separate transactions. We were able to roll up some smaller groups. We were able to keep the management engaged. I found it an opportunity to invest in good people. We were able to have great programmers, great managers, regional vice presidents, and kind of spread the wealth around in terms of those that were involved in the ownership of the company.
RI: You created the first LMA. How did that come about?
Hicks: The economics of 1990 were even worse than 1996. In some markets there was only one station that would be profitable. I had seen a deal my brother had done between Dr. Pepper and 7-Up where they couldn’t merge the legal structures for shareholder reasons, but they were able to come to an operational agreement, to where they were able to drive economies of scale without changing the ownership structure.
It stuck in my mind, and I was able to work with attorneys in Washington to be able to figure out a way to do that. It’s the same legal principle that satellite music networks and other content companies were doing, where they would come into the market and provide programming in exchange for having the commercial inventory on the stations. It was just that the programming, instead of it coming from Dallas or Chicago, was coming from across the town. When we did the first one, in Jackson, Mississippi, there were lawsuits filed immediately. It was not without its consequences.
RI: Your competitors didn’t like the idea?
Hicks: Yes — our competitors in that market and other markets. There was no way to patent the idea. It proliferated so quickly that within a year, there were hundreds of them. That’s when the FCC kind of changed it to the duopoly rule, of two and two, which helped a lot of the markets at least, the ones that we were in.
RI: Looking back 20 years, do you believe the Telecom Act was more beneficial or detrimental to radio?
Hicks: That’s hard to answer because the industry has changed so much in 20 years. There would be fewer radio stations than we have today, because many of them would go bankrupt in this environment. As far as listening choices, it has probably given us more choices. Whether they’re better choices is another question entirely. Individuals who could bring talent on both the programming and sales sides were somehow lost in the transition. So in terms of people and talent, it’s had a very negative effect.
RI: Do you think it’s contributed to having the two biggest radio companies in debt that they can’t seem to get out of?
Hicks: Yes. It’s almost over-consolidated at this point. And the industry itself has changed. That’s what I was getting at, what my fear was. What I started noticing is around that same time period, in 2000, “radio” became portable devices. For me, that was a pretty bad element of where things [were going] — to what we have today, which is a whole bunch of different choices than just radio.
RI: Do you think radio is in a good place?
Hicks: Yes. It used to be one of the real dominant mediums. We had the ability to make cultural changes. To me, today, the thing that’s saving radio is the localism of great radio stations. They relate to local markets in a way those local markets need. If all they’re going to do is play music, to a large degree, people, especially young people, will listen to their music on their iPhones, because they can get what they want. Local news and content, and keep it relevant. That’s still the game-changer for radio.
RI: Do you miss being in the business at all? What are you doing today?
Hicks: I don’t miss the business. What I really miss is the people. I was surrounded with some of the greatest people that you’ve ever been around. We had a culture in Capstar of really treating people well, and people responded to that. The real sad news I have is that we had a lot of employees, and a lot of them were friends. To lose that was a big loss.
I do other things in the investment world. I’ve done a lot in health care. I’ve done a rollup of home healthcare companies, and it has some similarities to radio, where you had a lot of operators and we created a larger company. I’ve done a lot of real estate and some Internet deals, and travel, and private equity stuff. I find it all very interesting. In my heart of hearts, I will always be a radio broadcaster, and the highlight of my career, when I go to the next place, will be the CEO of Capstar Broadcasting.