Progress on Point

Release 12.27 December 2005 Periodic Commentaries on the Policy Debate

The Future of Radio Regulation:

The Need for a Level Playing Field
By Adam Thierer *

Introduction
Though it has long been considered a mature industry, radio is currently in the
midst of major structural and technological changes. 1 For the past seven decades, the
industry has been relatively stable in a technological sense. In simple terms, the
business model for radio—first established in the 1920s and 30s—was premised upon
(a) transmitting a big signal from big towers across a big swath of territory, and (b)
paying for it all through advertiser support. Thanks to a combination of geographic
considerations, technological limitations, and regulatory decisions about how to allocate
spectrum, radio was conceived primarily as a local, not national, media resource.

Local citizens have long realized that with a minimal investment in radio
receivers—many of which were already bundled into all the cars they bought—they
could flip around the dial and find a wide variety of audible information and
entertainment. Best of all, they didn’t have to pay a penny for any of that content. This
was, and remains, the undeniable appeal of “free, over-the-air” (OTA) radio. 2

This model has served as the foundation of the terrestrial radio industry for over
seventy years. And it has worked very well. Of course, one of the reasons it has worked
so well (for the industry in particular) is because radio had few direct substitutes. In the
broadest sense, radio listening competes for the attention of our ears. In the past, there
*
Adam Thierer is a senior fellow with The Progress & Freedom Foundation and the
director of its Center for Digital Media Freedom. The views expressed are his own.
1
See, generally Martin Miller, “Does Radio Have a Future?” The Los Angeles Times,
July 30, 2005, http://www.calendarlive.com/tv/radio/cl-et-
payola30jul30,0,3522761.story ; Michele Hilmes, “Radio’s New Wave: An Old Medium
is Reinvented,” The Boston Globe, May 22, 2005.
2
Industry historian Douglas Gomery has summarized radio’s appeal as follows: “The
radio is easy to use, everywhere, cheap to procure, portable and filled with choices.
And unlike books, magazines, television and film, radio does not demand full attention
while in use.” Douglas Gomery, “Radio Broadcasting and the Music Industry,” in
Benjamin M. Compaine and Douglas Gomery, eds., Who Owns the Media?
Competition and Concentration in the Mass Media Industry (Mahwah, N.J.: Lawrence
Erlbaum Associates, 3rd Edition, 2000), p. 287.
Page 2 Progress on Point 12.27

were fewer things competing with radio for that attention. Television broadcasts
indirectly competed for that “attention share,” as did recorded albums and live concerts
or other public performances or events. But these were not serious threats to radio’s
livelihood. In fact, in many ways, they were complementary services.

This situation started to slowly change in the 1970s and 80s. New technologies
appeared on the scene that transformed the way people listen to music, news, and
other information. The Sony Walkman, “boom-boxes” (portable stereos), and cassette
tapes suddenly made your personal music collection portable. CB radios, although
short-lived, introduced us to vehicle-to-vehicle personal communication. And video-
cassette recorders and cable television captured consumer interest on the video front.
The 1990s ushered in still more important changes that transformed the way people
“consume” audible information and entertainment. Compact discs introduced the world
to digitized music. The subsequent rise of the Internet, MP3 players, and file sharing
transformed the music industry’s relationship with its customers. For radio, these
changes further eroded audience attention. Time spent listening to anything else, via
any other device or medium, was time not spent listening to the radio. Yet, through all of
this, radio remained viable. There was still something very central about radio in the
daily lives of Americans.

Today the threats to traditional radio have grown far more serious. Radio
broadcasters face an increasingly crowded media marketplace filled with an amazing
variety of gadgets and services that they previously had not faced (Internet radio; online
music sites; iPods and podcasts; smartphones, portable media players, laptop
computers, the “Music Choice” cable radio service, and so on). The competition for our
ears has never been more intense. Meanwhile, the competition for our eyes has
intensified (broadcast TV, cable TV, satellite TV, DVDs, video-on-demand, online
newspapers, the endless array of magazines, Internet websites, search engines,
computer software, video games, etc.) and this also eats away at radio’s overall share
of our collective attention. 3 Taken together, these new services and technologies have
facilitated a move away from a world of limited broadcasting options and toward a
universe of myriad narrowcasting alternatives. Consumers are now firmly in control of
their own viewing and listening destinies in this new “anything-you-want, anytime-you-
want-it” media world.

In this vigorously competitive new universe of information and entertainment

abundance, it is the emergence of satellite radio that has traditional radio broadcasters
the most nervous. Although terrestrial radio broadcasters remain the leading providers
of radio service in every community in America, subscription-based satellite radio

3
See Adam Thierer, Media Myths: Making Sense of the Debate over Media Ownership
(Washington, D.C.: Progress & Freedom Foundation, 2005), http://www.pff.org/issues-
pubs/books/050610mediamyths.pdf; Benjamin M. Compaine, The Media Monopoly
Myth: How New Competition Is Expanding Our Sources of Information and
Entertainment (Washington, D.C.: New Millennium Research Council, 2005),
http://www.thenmrc.org/archive/Final_Compaine_Paper_050205.pdf.
Progress on Point 12.27 Page 3

providers XM and Sirius have made impressive strides since their birth in late 2001. 4 As
of the third quarter of 2005, over 7 million Americans already subscribed to one of the
two networks according to company reports. 5 While that represents a small fraction of
the current 193 million radio listening audience, satellite subscriber growth continues to
regularly beat most growth projections each financial quarter. “In just three years since
service launch,” note Craig Moffett and Amelia Wong of Bernstein Research, “satellite
radio is being adopted faster than almost any other consumer product in history,
including color TVs, cellphones and DVDs.” 6 Due to this explosive growth, they forecast
that there will be 44 million satellite radio subscribers by 2010. 7

Thus, satellite radio poses a very serious threat to the long-term viability of many
terrestrial radio broadcasters. While the other media technologies and services
mentioned above have had an impact on the overall health of traditional radio providers,
none come as close to being such a direct substitute for terrestrial radio as does
satellite radio. The recent addition of some types of local content (weather and traffic, in
particular) to satellite radio’s already diverse national mix of genres and programs
significantly ups the ante in the battle against terrestrial broadcasters because it
threatens terrestrial radio’s core market and means of financial viability: local radio
listeners and advertisers.

The threat posed by satellite radio is even more acute since, like traditional radio,
it is primarily used in automobiles. With auto manufacturers now embedding satellite
receivers in new cars, and millions of other consumers retrofitting older vehicles with
satellite systems, local broadcasters will no longer have the lock on our ears that they
once did when we were in our cars. Bernstein Research estimates that the percentage
of new cars factory-installed with satellite radio will increase from about 12 percent this
year to over 30 percent in 2007, and penetration is likely to continue to grow rapidly
after 2007. 8 Because of the rise of factory installed satellite radios, a February 2005
report by Lehman Brothers projected that satellite radio in-car usage will reduce
terrestrial radio’s total audience by approximately 0.5 percent per year through 2013. 9
The Lehman study subsequently lowered its forecast for terrestrial radio’s long-term
revenue growth rate from 4.0 percent to just 2.5 percent through 2013. 10

4
See Annys Shin, “XM, Still One Step Ahead of Sirius,” The Washington Post, July 29,
2005, p. D1.
5
http://www.xmradio.com/newsroom/screen/pr_2005_10_03.html;
http://www.shareholder.com/sirius/ReleaseDetail.cfm?ReleaseID=178292&cat=&newsroom=
6
Craig Moffett and Amelia Wong, “Satellite Radio: How High is Up?” Bernstein
Research, October 2005, p. 11.
7
Ibid.
8
Craig Moffett and Amelia Wong, “Satellite Radio: OEM Trends Point to Strong Growth;
Shifting our Preference to XMSR,” Bernstein Research, November 18, 2005, p. 1.
9
William M. Meyers, Scott J. Cohen, and David A. Shapiro, “How Much Will Satellite
Radio Affect Terrestrial Radio?” Lehman Brothers, February 7, 2005, p. 4.
10
Ibid.
Page 4 Progress on Point 12.27

In sum, each new satellite subscriber is potentially one less listener that
traditional broadcasters can offer to advertisers. That means lower revenues for radio
broadcasters and, potentially, even the death of some struggling stations if revenues
continue to shrink.

It was hardly surprisingly, therefore, that this marketplace skirmish would

eventually spill over into the legislative / regulatory arena. Indeed, in recent years, the
National Association of Broadcasters (NAB), which represents America’s terrestrial
radio broadcasters, and the satellite radio industry have been at war both in Congress
and before the Federal Communications Commission (FCC). The primary issue being
debated is the extent to which satellite radio providers should be allowed to eat into
terrestrial radio’s local market.

This paper will take a close look at the “localism” concerns raised by the NAB
and many members of Congress who are supporting legislation that would restrict
further efforts by satellite radio operators to provide local content. 11 But this study will
also tee up the broader issue that many participants in this debate are avoiding:
whether “free, over-the-air” radio broadcasting is sustainable in this intensely
competitive environment while having one arm tied behind its back. That is, while other
unregulated competitors continue to steal away market share and advertising dollars,
terrestrial radio broadcasting remains one of America’s most heavily regulated media
sectors. Volumes of FCC regulations apply to them that do not apply to any of the other
new competitors or technologies mentioned above.

This study will argue that the best way to solve this parity problem is not through
line-of-business restrictions on new players or technologies, but rather though the
comprehensive liberalization of the traditional terrestrial radio broadcast sector. Critics
will claim that such a move is unwise for a variety of reasons, and yet it is many of those
same critics who play up the importance of a preserving “free, over-the-air” radio in the
future. If nothing else, the “lifeline” or “carrier of last resort” aspects of radio
broadcasting will weigh heavily on the minds of public officials. But more regulation is
not the solution.

Free, over-the-air radio can have a future if it is freed of its regulatory chains.
This will require the elimination of the various “public interest” mandates, content
controls, ownership regulations, and other rules that make it difficult for traditional
broadcasters to meet the new challenges posed by satellite radio operators and other
new media competitors.

11
See Sarah McBride, “Satellite Radio’s New Local Content Riles Broadcasters,” The
Wall Street Journal, July 25, 2005, p. B1.
Progress on Point 12.27 Page 5

The Legislative Response to the Market Threat: H.R. 998

The NAB has been pushing legislation in Congress that would restrict satellite
radio efforts to provide local content to their customers. The objective of H.R 998, the
“Local Emergency Radio Service Preservation Act of 2005,” is to ensure the continued
viability of terrestrial OTA radio broadcasting in every community. 12 The bill states that
“there is a substantial government interest in ensuring [the] continuation [of OTA radio
broadcasting]” because it is “an important source of local news and weather
programming and other local broadcast services critical to the public.” 13 The importance
of local radio during times of emergencies or disasters is also stressed in the bill,
especially because “[r]adio is the most ubiquitous of all mass media, with receivers
located in almost every home and automobile in the country.” 14

In enumerating the benefits associated with terrestrial radio, the measure goes
on to note the OTA radio has been offered free to the public thanks to the support of
advertisers. “There is a substantial governmental interest in promoting the continued
availability of free radio programming,” the bill argues, and, therefore, government
action is necessary since free, OTA radio “could be jeopardized by a diversion of the
listening audience away from local radio programming.” 15

Satellite radio, of course, is the “diversion” with which the bill is concerned. To
ensure it cannot jeopardize the future of OTA radio, the measure would impose
restrictions on “localized” satellite radio programming. Specifically, the measure would
forbid satellite radio operators from “using any capability either on a satellite or in a
radio receiver, [to] provide services that are locally differentiated or that result in
programming being delivered to consumers in one geographic market that is different
from the programming that is delivered to consumers in any other geographic market.” 16
Second, the measure stipulates that the ground-based repeaters that satellite radio
operators use to boost their satellite signals, “shall be restricted to simultaneously
retransmitting the programming transmitted by satellite directly to digital audio radio
satellite service subscribers’ receivers, and may not be used to distribute any
information not also transmitted to all subscribers’ receivers.” 17 The measure also
requests a Federal Communications Commission (FCC) rulemaking to determine the
impact of satellite radio services on the local OTA radio marketplace.

In sum, H.R. 998, which already has 90 cosponsors in the House of

Representatives, would establish a clear division of labor for the future radio
marketplace: Terrestrial radio broadcasters would get to serve the local market while
satellite operators would be forced to remain largely focused on serving the national
market.

12
H.R 998, “Local Emergency Radio Service Preservation Act of 2005,” March 1, 2005.
13
Ibid.
14
Ibid.
15
Ibid.
16
Ibid.
17
Ibid.
Page 6 Progress on Point 12.27

A Broken Contract?
What led the NAB to ratchet up the heat and push for legislative and regulatory
action to restrict satellite broadcasting efforts in this fashion? It is a response to the
moves by both XM and Sirius to offer local traffic and weather reports for over 20 major
metropolitan areas. 18 Also, this summer XM made a deal for WCS Wireless, a Nevada-
based wireless company that holds spectrum adjoining that already owned by XM. 19
Analysts expect XM to use that spectrum to expand its local content offerings or even
begin offering data and video services. 20 XM’s acquisition of this spectrum troubles the
NAB because the organization claims it “is part of a longstanding pattern of deception
by the satellite radio industry” to offer more local content, supposedly in direct violation
of earlier promises not to do so. 21

Even before the NAB launched its legislative strategy as embodied in H.R. 998, it
was pushing the FCC to investigate whether, by offering local content over their Earth-
based repeaters, the satellite radio industry was in breach of an agency-brokered
agreement. By way of background, satellite radio providers use terrestrial repeaters in
many markets to ensure it a strong signal is available. In the late 1990s, before satellite
radio was launched, the NAB sought FCC restrictions on the delivery of local content by
this new, competing service. The agency rejected such a flat prohibition and instead
brokered a compromise to assuage the NAB and also let satellite radio get out of the
incubator stage. Released in September 2001, the FCC’s order authorizing satellite
radio service included the following provision: “We find it is in the public interest to…
permit XM Radio to operate its complementary repeater network on a commercial basis
subject to certain conditions. … Under this [agreement], the use of repeaters is
restricted to the simultaneously retransmission of programming, in its entirety,
transmitted by the satellite directly to [satellite] subscriber’s receivers.” 22

This provision of the agreement continues to be the source of controversy

between the NAB and satellite radio operators who, not surprisingly, disagree about the
scope of the prohibition it places on the provision of local content by satellite operators.

18
See Sarah McBride, “Satellite Radio’s New Local Content Riles Broadcasters,” The
Wall Street Journal, July 25, 2005, p. B1.
19
Susan Rush, “XM Buys WCS Wireless,” Wireless Week, July 14, 2005,
http://www.wirelessweek.com/article/CA625831.html
20
Paul Gallant, “Broadcasters Raise Noise Level on Satellite Radio’s Local Content,”
Stanford Washington Research Group Media Policy Bulletin, July 29, 2005.
21
See Letter from Edward O. Fritts, President & CEO of the National Association of
Broadcasters to U.S. House of Representatives, July 14, 2005,
http://www.nab.org/newsroom/pressrel/statements/071405_XM_WCS_House_Letter.h
tm
22
In the Matter of XM Radio Inc. Application for Special Temporary Authority to Operate
Satellite Digital Audio Radio Service Complementary Terrestrial Repeaters, Federal
Communications Commission, File No. SAT-STA-20010712-00063, September 17,
2001, p. 4.
Progress on Point 12.27 Page 7

But if the NAB is really serious about the claim that there has been a contractual
violation here it raises an obvious question: Why hasn’t the organization litigated the
matter? Breach of contract disputes are litigated frequently in other industries, so why
not in this case?

Regardless, the NAB’s legislative strategy—as embodied in H.R. 998—hinges

upon two arguments:

(1) A serious “level playing field” problem exists for terrestrial broadcasters in that
they are forced to live with regulations that competitors (especially satellite radio
operators) do not face.

(2) Because satellite radio presents a direct and an immediate threat to viability of
free OTA broadcasting, its expansion into local programming must be limited to
ensure the continued provision of free radio services to each local community.

Each argument will be addressed in turn.

The Legitimacy of the Level Playing Field Argument

Communications and media law debates today are dominated by “level playing
field” arguments. This isn’t surprising since technological convergence has put formerly
distinct sectors and their regulatory regimes on a public policy collusion course. For
example, a very sticky level playing field problem has been created by the rise of
broadband networks and the fact that cable and telephone companies—formerly distinct
industries and technologies—are now engaged in direct competition in this arena. 23 The
level playing field problem in this case was brought on by technological convergence.

A second type of level playing field problem can arise due to technological
innovation and new market entry. This is the level playing field issue that the radio
industry faces today. For over seven decades, terrestrial OTA radio broadcasters have
faced a regulatory regime that imposes significant “public interest” burdens on them.
These regulatory obligations include:

• unique content controls regarding “indecent” speech;

• caps on the number of local stations a company can own;
• the obligation to air public service announcements;
• political broadcasting and election access rules (such as special advertising rates
for candidates for office);
• requirements to broadcast information about their local community;
• restrictions on “payola”;
• emergency broadcast announcement requirements.

23
See Raymond L. Gifford and Kyle D. Dixon, “Progress, Freedom and Regulatory
Transcendence: Video Service Debate Illustrates Importance of Core Regulatory
Principles,” The Progress & Freedom Foundation Progress on Point 12.7, May 2005,
http://www.pff.org/issues-pubs/pops/pop12.7videoservices.pdf
Page 8 Progress on Point 12.27

And many other obligations exist beyond those enumerated here. If radio
broadcasters fail to satisfy these requirements, the FCC has the authority to fine them
or even revoke their operating license.

Meanwhile, satellite radio providers have stormed into this market and offered an
innovative new service—with hundreds of new channels—to compete against traditional
radio broadcasters without having to face any of the public interest obligations imposed
on terrestrial radio broadcasters. For example, at least so far, satellite providers have
avoided speech restrictions or fines for the airing of “indecent” programming. Likewise,
they face none of the affirmative programming obligations that cover their terrestrial
OTA radio competitors. And while satellite radio operators can provide over 120 stations
of unique content to every community in America, traditional OTA broadcasters are
forbidden from owning more than 8 stations in any given radio market.

It goes without saying that there is something fundamentally unfair about this
situation. No good arguments exist in favor of such regulatory asymmetries. More
importantly, the retention of this policy will almost certainly begin to have a deleterious
impact on terrestrial radio operators as they lose on-air talent and listeners to satellite
radio operators and other new media outlets. Indeed, if something is not done to rectify
this situation soon, the government’s current industrial policy for radio will gradually
become a death warrant for many traditional radio stations. If lawmakers really care
about ensuring the continued viability of free, over-the-air radio as a sort of “lifeline”
local media service, something must be done about this situation soon.

That being said, while regulatory symmetry is a proper goal of public policy,
there are two very different ways to achieve it. Lawmakers can level the playing field by
regulating up or deregulating down. The “deregulate down” option is relatively straight-
forward and simply requires a relaxation and eventual elimination of the unique burdens
faced by traditional radio broadcasters. The “regulate up” solution, which is favored by
the NAB in this case, is more complicated for reasons discussed next.

A Formidable Enforcement Challenge

Regardless of what type of media regulations are being discussed today,
policymakers face formidable enforcement challenges. Consider federal indecency
rules. Most lawmakers believe that traditional terrestrial broadcasters should not be
afforded the full panoply of First Amendment freedoms. Broadcasters are held to a
different standard than all the rest of the new media competitors they face. 24 This has

24
See Adam Thierer, “Thinking Seriously about Cable & Satellite Censorship: An
Informal Analysis of S-616, The Rockefeller-Hutchison Bill,” Progress & Freedom
Foundation, Progress on Point Release 12.6, April 2005, http://www.pff.org/issues-
pubs/pops/pop12.6cablecensorship.pdf;
Progress on Point 12.27 Page 9

been cited as a factor recently when many radio personalities and television producers
have migrated to other media outlets. 25

While this situation is blatantly unfair, the more interesting question may be
exactly how much longer such a scheme will even be enforceable. As the lines continue
to blur between formerly distinct media sectors and media technologies continue to
converge, it will become increasingly difficult for policymakers to enforce the old
regulatory regime. 26 If the same radio program can be heard over a broadcast station,
via an Internet webcast or download, on an iPod or a cell phone, or on a multitude of
other devices, exactly how long can the old sector-specific regulations stand? And, as
noted above, attempts to level the playing field in the direction of more regulation
instead of less for all these players will only make the enforcement challenge more
difficult and raise a variety of constitutional issues in the process. 27

The same will be true for the local content spat at issue in the fight between NAB
and satellite radio. On the surface, it may seem like this is merely a question of whether
satellite radio operators should be forced to limit their local programming to ensure they
cannot adversely impact the viability of terrestrial broadcasters. But will this really solve
the problem terrestrial broadcaster face?

Even if satellite providers are forbidden from offering local programming, others
will certainly step in to fill the void left by satellite radio and compete directly against
terrestrial broadcasters. Indeed, that is already the case today. If it is the transmission of
local traffic and weather reports that has the NAB worried, what does the organization
plan to do to stop the on-board navigation devices built into most cars today? Those
devices are already capable of providing real-time weather and traffic bulletins. 28 And
Internet giants like Microsoft and Yahoo are now “offering e-mail alerts or interactive
maps that detail traffic snarls.” 29 Handheld media devices and smartphones can receive

25
See Sarah McBride and Joe Flint, “Radio’s Stern Leaps to Satellite in $500 Million
Deal,” The Wall Street Journal, October 7, 2004, p. A1; Bill Carter and Jeff Leeds,
“Howard Stern Signs Rich Deal in Jump to Satellite Radio,” The New York Times,
October 7, 2004, p. A1; Howard Kurtz and Frank Aherns, “Sirius Lands a Big Dog:
Howard Stern,” The Washington Post, October 7, 2004, p. A1; Sabrina Tavernise,
“The Broad Reach of Satellite Radio,” The New York Times, October 4, 2004, p. C8;
Peter Johnson, “Sacked, and Now They’re Back,” USA Today, October 4, 2004, p. 5D.
26
See Robert Corn-Revere, “Can Broadcast Indecency Regulations Be Extended to
Cable Television and Satellite Radio?” Progress & Freedom Foundation Progress on
Point 12.8, May 2005, http://www.pff.org/issues-pubs/pops/pop12.8indecency.pdf
27
These issues will be discussed in much greater detail in a forthcoming Progress &
Freedom Foundation book: Adam Thierer, Content Controls in a World of Media
Convergence (Washington, D.C.: The Progress & Freedom Foundation, forthcoming,
2006).
28
See Mike Musgrove, “Redirecting Traffic: Competing Technologies Put Real-Time
Reports in Hands of Commuters,” The Washington Post, July 28, 2005, p. D1.
29
Ibid.
Page 10 Progress on Point 12.27

those reports. Many websites already offer localized traffic and weather reports for
consumers. The Weather Channel, for example, currently offers a free computer
desktop weather update service 30 and an application for mobile devices to view updated
weather reports on-the-go for a small fee. 31

Meanwhile, several major companies—including major cellular providers like

Sprint, Verizon and Cingular—are spending billions in an effort to offer consumers the
ultimate “all-in-one” multimedia / communications gadget and network that combines the
best of what cell phones, PDAs and iPods currently offer. 32 In sum, wireless devices are
already ubiquitously available and future wireless innovations will lead to expanded
local news and information offerings by a variety of other media and communications
industry players. 33

NAB members may not like what is happening in the marketplace today, but
deep down inside they must realize that there is simply no way to slow the relentless
pace of technological change that is sweeping through today’s media world. The
plummeting cost of computing power and consumer electronics has dramatically
lowered the cost of disseminating information. In our new broadband, mobile,
multimedia world, everyone is a media provider. No one wants to be just a cable
company, or just a wireline telephone company, or just a cellular company, or even just
a TV or radio broadcaster anymore. Instead, these old industry distinctions are quickly
giving way to a new universe of networks, services and applications that offer
consumers to ability to access just about any type of information from across the globe
with the click of a button.

In such an environment, what satellite radio providers have started, others could
easily finish. Indeed, it is not at all unthinkable that the entire satellite radio industry
could be incorporated into some other line of business or taken over by other types of
carriers. For example, although the consulting firm Kagan Research predicts that
satellite radio subscriptions could rise to almost 50 million subscribers by 2014, Kagan
analyst Michael Buckley also notes that “As wireless technology expands and access to
free music Web sites and on-demand services increases, satellite radio will lose
potential customers to alternative sources in the battle for consumers’ attention.” 34 So

30
See
http://www.weather.com/services/desktop.html?from=homewxanywhere&refer=home
wxanywhere
31
See http://www.weather.com/mobile/?from=globalnav
32
Christopher Rhoads, “Cell Phones Become ‘Swiss Army Knives’ as Technology
Blurs,” The Wall Street Journal, January 4, 2005, p. B1; Stephanie N. Mehta, “It Even
Makes Calls!” Fortune, January 10, 2005, p. 55.
33
See Blair Levin, Rebecca Arbogast and David Kaut, “NAB Attacks XM-WCS Deal, But
Faces Uphill Fight to Stop Local Content,” Legg Mason Telecom / Media Regulation,
July 25, 2005.
34
“Kagan Forecasts 46.8 mil. Satellite Radio Subscribers by 2014,” Kagan Research, July 15, 2005,
http://www.kagan.com/ContentDetail.aspx?group=2&id=69
Progress on Point 12.27 Page 11

it’s not just terrestrial radio broadcasters that are at risk from the relentless pace of
technological change and market upheaval. Satellite radio providers could eventually be
threatened by it as well.

NAB’s Trump Card: Localism

Importantly, the NAB holds one major trump card in this debate—localism.
“Localism” in media can mean different things to different people, but in this case, the
localism concern espoused by traditional broadcasters goes something like this: “If we
were to suffer serious financial harm from the rise of new competition, it would mean a
curtailing of our free local news, information or other programming in the communities
they we have served for decades.”

This localism concern remains the NAB’s best hope in its effort to coax
lawmakers to implement legislation restricting further satellite radio entry into local radio
markets. More specifically, the NAB can stress the fact that terrestrial radio is a “free,”
over-the-air service available to everyone in a given community without regard to
income. To use legal jargon barrowed from telecom law, in essence, this is a “carrier of
last resort” or “universal service” argument. And, as the language of H.R. 998 makes
clear, it is extremely powerful in a political sense. But there are other issues to consider.

“Localism” in Perspective: First, while it is true the terrestrial OTA radio

broadcasting has possessed such “carrier of last resort” attributes, these unique
advantages have waned over the years as new providers and technologies have
popped up and begun offering local services in competition to radio.

Nonetheless, the assertion made in H.R. 998 that “[r]adio is the most ubiquitous
of all mass media, with receivers located in almost every home and automobile in the
country” remains largely valid. Indeed, according the Statistical Abstract of the United
States, 99 percent of all households own at least one radio receiver and there is an
average of 5.6 radios per household. 35 These numbers have held fairly steady for over
the last three decades.

But will it always be the case that OTA radio is this ubiquitous? And should new
technologies or providers be frozen out of the local market entirely simply on the theory
that they might displace some local radio broadcasters? The underlying assumption at
work here could be stated as follows: In order to save “localism” as we currently
understand it, government must prohibit others from offering new forms of local
programming. This is a dubious proposition. Indeed, the same argument could have
been used 70 years ago by local newspapers when radio broadcasters started offering
local content in direct competition to what was then the dominate provider of local news
and information. It seems obvious now, of course, that Americans have greatly
benefited from broadcasters entering the local market, even if some local papers or
periodicals were displaced. “Localism” didn’t disappear; it merely evolved into
something different thanks to the rise of terrestrial radio stations. And, importantly, while

35
Statistical Abstract of the United States: 2004-2005, Table No. 1120. “Utilization of Selected Media:
1970 to 2002,” U.S. Census Bureau, U.S. Department of Commerce, p. 717.
Page 12 Progress on Point 12.27

competition from radio probably did lead to the demise of some local papers, it did not
eliminate the local newspaper business entirely.

Could it not be the case that while some local broadcasters might be displaced
due to the rise of satellite radio and other new media technologies, most of them will
remain? Indeed, not only could that be the case, but the rise of satellite radio seems like
the ideal opportunity for traditional radio operators to strengthen and extend their local
programming advantages. As radio industry expert Alan Albarran argues, “In order to
attract and maintain audiences, radio must continue to embrace localism and provide
the information and entertainment local audiences need and want—otherwise there is
nothing to separate a local radio station from any other type of audio service that simply
delivers music.” 36

This job should be made easier for terrestrial broadcasters by nature of the fact
that it is unlikely that satellite radio operators will have the ability (or the interest) to
become full-fledged local broadcasters. At least thus far, satellite radio’s local
programming efforts have been limited to just traffic and weather reports in a handful of
major metropolitan markets. While future investments and innovation might allow them
to broaden the mix of local information transmitted to subscribers, it remains unclear
whether satellite operators are really interested in engaging in comprehensive coverage
of local community affairs. It takes a significant investment in human infrastructure
(reporters, editors, producers, etc.) to provide a true local media presence. At this time,
it is difficult to imagine satellite radio operators changing their business models and
making this plunge into full-time local affairs coverage. The satellite television industry
experience may be instructive in this regard. While satellite TV providers such as
DirecTV and EchoStar do retransmit local broadcast television stations, those satellite
providers generally do not offer any unique local content of their own. 37 In light of this,
terrestrial radio broadcasters have the opportunity and ability to clearly differentiate
themselves from not only satellite radio providers, but all other media providers.

Local emergency notification services present the most challenging issue here.
Undoubtedly, the current ubiquity of terrestrial radio transmitting and receiving devices
makes OTA radio the most effective way of reaching a significant portion of the local
population in a time of crisis. Of course, satellite operators could offer some of those
services, but it would be difficult for them to match what terrestrial radio stations offer
today. But this too could change over time. Although no reliable hard data exists on this
point, anecdotal evidence suggest that many younger Americans already rely on their
mobile devices and Internet connections for most of their information about what is
happening in the world and their local communities. During the terrorist attacks of
September 11, 2001, for example, many people first turned to their cell phones for
information. Cellular networks were quickly overrun with traffic as a result, but in the

36
Alan B. Albarran, “The Economics of the Contemporary Radio Industry,” in Alexander,
et. al., p. 217.
37
Of course, DirecTV is owned by News Corp., which broadcasts local content over
some of the local Fox television stations it owns.
Progress on Point 12.27 Page 13

future, wireless networks will be far more robust, ubiquitously available, and information-
intensive. In the near term, it is not at all inconceivable that mobile devices will be every
bit as ubiquitous as terrestrial radio receivers and be used to receive breaking news of
major significance, both local and global.

As this gradual migration continues, with many citizens flocking to alternative

media devices and networks as a primary source of news (including information about
their local communities), it will raise an interesting issue for public policy makers. That
is: Is the goal to ensure the continuation of local OTA radio stations or the content they
typically air? At this time, the answer is clearly both since they are generally considered
inseparable. As a result, H.R. 998 essentially argues that the stations themselves must
be insulated from the potential negative effects of new local competition to ensure that
current types of local radio content remain ubiquitously available.

But local OTA radio networks, and the content transmitted over those networks,
are two very different things. While it would have been impossible in the past for local
radio content to be delivered to local communities without local radio broadcasting
transmitters and receivers, the situation is changing. Today it is possible for local radio
content to be transmitted to listeners via multiple technologies. For example, many radio
stations already have websites that can be used to “broadcast” their content across the
Internet. 38 Using a mobile media device and a wireless connection, therefore, listeners
can access the same radio signal that others are receiving in the cars or homes with a
traditional radio receiver. And the continuing marriage of new mobile media
technologies and Internet-based sites, service and applications, will mean that even
more innovative ways of delivering and receiving local content will be available to the
public in the near future.

To summarize, the key points here are:

(a) the local content that traditional terrestrial radio operators transmit is
important to many communities and will likely continue to be widely
demanded in the future; but,
(b) local radio stations will likely have many ways to transmit their content to
listeners, not just through their own broadcast towers and facilities; and,
(c) even if (b) is not true, it is likely that local news and information will still be
accessible to communities through a variety of new outlets and distribution
devices. The benefits to consumers from more competition and convergence
outweigh the short-term dislocations because that very competition and

38
In early August, Clear Channel Communications announced that the Clear Channel Online Radio
Network, which consists of the Internet streams of 400 of its local radio stations, saw traffic grow an
amazing 177 percent (in terms of unique listeners) since the beginning of 2005. “We’re successfully
extending the intimate bond that our radio stations have with their listeners to the online world,” said
Evan Harrison, executive vice president of Clear Channel Radio and head of the company’s Online
Music & Radio unit. See “Listeners Flocking to Clear Channel Radio’s Online Broadcasts,” Clear
Channel Press Release, August 8, 2005,
http://www.clearchannel.com/Radio/PressReleases/2005/20050807-Ratings.pdf
Page 14 Progress on Point 12.27

convergence will create even more robust and effective public safety
mechanisms over time.

What this means for traditional radio broadcasters is that as new technologies
continue to displace terrestrial OTA station usage, local radio operators will need to tap
more of alternatives distribution paths for their content offerings if they hope to remain
relevant in their communities.

This raises an interesting scenario that, although admittedly far-fetched at this

time, could be in the cards in coming years: satellite carriage of local terrestrial radio
stations. Although neither party at this time would likely be interested in cutting such
deals, satellite retransmission of local radio signals could offer both sides a mutually
beneficial solution. Skeptics will argue that it will never happen voluntarily and that it will
take the equivalent of “must-carry” or retransmission mandates from Congress or the
FCC to make it work. While this is obviously not the place for an extended analysis of
such a scheme, it might become a more realistic option in the future. Hopefully,
Congress will resist the urge to impose such mandates and instead allow mutually
beneficial deals to be cut by private parties.

Admittedly, however, satellite carriage of terrestrial radio signals would not

dispense with the valid concern about individuals who currently remain dependent on
terrestrial OTA radio receivers. Unless they were all somehow transitioned over to
satellite networks and devices—perhaps with the aid of subsidies—satellite carriage of
terrestrial radio stations would not satisfy the “lifeline” concern that drives much of this
debate. In this way, the debate currently taking place in Congress over the digital
television spectrum transition potentially foreshadows the coming debate over the future
of radio.

The Other Edge of the Sword: There is a second major problem with “carrier of
last resort” or “universal service” arguments in this context and NAB certainly must
recognize it: It’s a two-edged sword that can help (somewhat) in short-term, but could
then hurt them politically in the long run. If terrestrial broadcasters successfully
convinced lawmakers to impose restrictions on new media operators to guard the local
market and ensure they remain viable providers, it will almost certainly mean that
Congress and the FCC will seek to impose even more stringent regulatory obligations
on terrestrial radio broadcasters in the future. H.R. 998 represents an attempt at
“market-carving” that would give terrestrial OTA radio operators a very unnatural
monopoly in terms of the provision of local content.

The NAB and traditional radio broadcasters need to consider if this is a deal they
want to make with Congress. They may think they are holding off a short-term tide of
competition that could doom their future existence, but that tide is really just a trickle
before a technological flood of new services that we can expect to see in coming years.
No matter how many laws or regulations Congress or the FCC passes, restricting media
innovation in the Internet Age is becoming a near-impossible task.
Progress on Point 12.27 Page 15

Ironically, therefore, the NAB and its members could be left with the worst of both
worlds should a measure like H.R. 998 pass. While it might slow the current pace of
entry into the local radio market by today’s hot technology—satellite radio—it is unlikely
it can stop all the other new entrants and technologies that will undoubtedly follow.
Meanwhile, Congress will come knocking eventually asking for something in return for
the favor of restricting satellite radio entry into the local market. It is very hard to believe
that Congress would foreclose entry into the radio market and then not expect
something in return from terrestrial radio operators in coming years.

What might lawmakers seek as payback? Perhaps free airtime for politicians
during campaign season? More controls and fines on “indecent” speech? More stringent
ownership rules, or at least no relaxation of the current rules? Perhaps a combination of
all of the above? Regardless, it would just serve to tilt the playing field further against
traditional radio providers in their struggle to remain competitive with new entrants.

Conclusion
For these reasons, the NAB would be wise to reconsider which “level playing
field” argument they want to advance in coming years. The “regulate up” strategy is
fraught with peril. While it might net them a short-term win, it would be a pyrrhic victory
at best. New technologies and providers will quickly fill whatever vacuum is left by the
exclusion of satellite radio from the local programming marketplace. And then NAB
members will still be expected to “pay up” when Congress comes knocking asking from
promises in the future.

By contrast, the “deregulate down” strategy offers a principled way to address the
very legitimate problem the industry and lawmakers face today. The “deregulate down”
strategy would:

¾ remove all speech controls from traditional radio and guarantee them the
same First Amendment status and rights as all other media providers;
¾ free terrestrial broadcasters from all other “affirmative” public interest
obligations;
¾ completely relax media ownership rules to ensure that struggling local radio
stations can potentially be saved by larger operators if new competition
threatens their financial viability; and,
¾ allow radio broadcasters to use their spectrum flexibly for whatever purpose
they wished (including selling it to someone else for alternative uses).

While some NAB members would like the sound of that bargain, they would also
likely argue that these liberalization proposals represent a bit of a quixotic fantasy; a
dream best deferred to another day. No doubt, there is some truth to this claim. Getting
a principled liberalization proposal through Congress will be no small feat. In the end,
however, it is the optimal solution and the only one that would benefit all parties
equally—radio broadcasters, new competitors, and consumers alike. And with
America’s terrestrial radio operators facing the fiercest competition they’ve ever
Page 16 Progress on Point 12.27

experienced, they are on solid footing in asking Congress and the FCC to loosen the
chains that unfairly tie their hands in their battle against new rivals and technologies.

Indeed, if lawmakers fail to free traditional radio broadcasters to compete on

equal footing with their new rivals, it could serve as a death warrant for many radio
stations in coming years. It would be unfortunate if it took the demise of several local
radio broadcasters for Congress to realize this.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public
policy. Its mission is to educate policymakers, opinion leaders and the public about issues associated with technological change,
based on a philosophy of limited government, free markets and civil liberties. The Foundation disseminates the results of its work
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