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Radio Eyes Advantages of Deregulation

As the FCC backs off requirements, what will it mean for radio ownership interests?

WASHINGTON — Recent changes to certain FCC rules present opportunities for the industry to operate more efficiently, supporters believe.

Elimination of the main studio rule, the license posting requirement and the requirement to keep a hard copy of FCC rules at radio stations are three of the changes that have swept through the commission under the leadership of Chairman Ajit Pai.

Further significant regulatory amendments remain in the pipeline, such as the potential relaxation of local ownership rules, including modifying limits on common ownership of AM and FM stations in a market. Those decisions are pending completion of the FCC’s latest quadrennial review.

Further, the commission has launched a proceeding to simplify local public notice requirements for radio station applications, according to a FCC filing.

Radio broadcasters are focused  on adapting their operations to better compete in a more relaxed regulatory environment. “The deregulation of the past 18 months is significant,” said Scott Flick, partner at Pillsbury Winthrop Shaw Pittman LLP, ahead of a panel discussion of radio and financial experts at the Radio Show in Dallas.

“Early during Chairman Pai’s leadership he said he wanted to put one media deregulatory item on each month’s FCC agenda. They’ve hit a lot of the low-hanging fruit, but there is more to go,” Flick said. “I think we are on the brink of fundamental regulatory change.”

Radio broadcasters are researching alternate business practices to improve efficiencies, Flick said, but first they must consider structural changes in how they run their businesses.

“Radio broadcasters are so used to being micro-managed by the FCC that it takes a while for these changes to sink in. For instance, the elimination of the main studio rule. Of course broadcasters want to maintain a presence in their local communities, but there are circumstances where having a main studio, or at least what qualifies as a main studio now by the FCC, may not make sense anymore,” Flick said.

“Broadcasters are stepping back to ask how they might do things if they were starting from scratch today. They are giving their operations a fresh look.”

Flick said some of his broadcast clients are adopting new business strategies in light of deregulation, specifically the elimination of the main studio rule, but though not in large quantities. “It takes time to implement changes, and … leases are sometimes years long,” he said.

In addition, deregulation of any industry typically increases the interest level of investors, Flick said; he expects that to be the case for radio.

“Any time you cut out the regulatory straightjacket, then you have people asking, ‘Ok, now I might want to invest the money to figure out an alternate business plan,’” Flick said. “The risks are lower and the industry becomes less complicated with fewer government limits.”

Not everyone feels the direction of radio deregulation is a good thing, Flick said; and on some issues, radio companies don’t speak with one voice. For example, iHeartMedia and Urban One are opposed to a change in the ownership subcaps that many others support.

“Of course, there will always be a split on any proposed deregulation between those who feel the rule constrains them and those who like the rule’s constraining effect on their competitors,” Flick said.

Susan Patrick, co-owner of Legend Communications, said the regulatory environment is presenting opportunities to improve operations and in some cases expand them.

“We are fans of deregulation. It’s going to help small-market broadcasting and help us compete against all of the other audio services that are out there now,” Patrick said.

Legend Communications, which has 23 radio stations, including several FM translators across Wyoming, is always looking for business efficiencies, she said.

“We have several situations where the main studio rule being eliminated could help us. We haven’t made those changes yet. I have spoken to a number of small-market broadcasters who have combined studio facilities, and it has helped them use resources in a different manner that better serves their communities.”

Patrick, who is also co-owner and managing partner of brokerage firm Patrick Communications, said she does see the potential for some broadcasters to utilize the new rules to cut staffing by consolidating facilities.

“To say otherwise is naïve. Some people given the opportunity to save money will try to save money, while large operators are more likely to be able to afford to keep staff.”

Beth Neuhoff, president and CEO of Neuhoff Communications, said the deregulatory mode of the FCC can help radio broadcasters increase value in their properties.

“I think with deregulation there is tremendous upside to a disciplined operator and investor. One of the basic rules of economics is that mature industries must consolidate to survive,” Neuhoff said. “There is so much opportunity in the smaller market for a better, more efficient model.”

Neuhoff said regulatory moves by the FCC offer broadcasters relief but they don’t go far enough.

“I think there would be both top- and bottom-line growth opportunity with less regulation. The ability to streamline back-office and operations is certainly interesting,” Neuhoff said.

“The bigger opportunity in my estimation is top line. With greater scale, I believe markets like ours could be better served with more offerings both that serve multiple markets and a larger portfolio of digital.”

Those stations with market proximity “most certainly can and should take advantage of the main studio rule,” Neuhoff said, but the challenge will be keeping a local presence visible on the street.

Neuhoff Communications, which owns 20 radio stations, is reviewing its best business practices, she said.

“Interestingly enough, our Fast Forward team, our next generation of company leadership, is designing the station workplace of the future as their capstone project. They identified main studio as a real opportunity for us,” Neuhoff said.

David Santrella, president of broadcast media for Salem Media Group, said the broadcaster is looking upon the recent FCC dereg moves favorably.

“I think now all broadcasters need to run more efficiently. There are broadcasters always looking for ways to run their operations with less money than they did the year prior and the year before that. And so I think the main studio rule will present opportunities going forward,” Santrella said. “Salem will look at that.”

The FCC is simply allowing broadcasters to make changes to operations to better fit new technology, he said.

California-based Salem, with just over 100 radio stations in just under 40 markets offering Christian-centric content, is “not behind” the movement for a change in the subcaps, Santrella said.

“If they change the subcaps I think you’ll see more people abandoning the AM band and moving formats to FM. Such a move would devalue AM properties. We built a business based on the current model and regulations, so when you change the rules in a very long tail business, and radio is a long tail business, you severely impact the business model designed based on the rules as they exist,” Santrella said.

Santrella, who also chairs the NAB Radio Board, said radio will need to balance moves based on fewer regulations while not losing touch with radio’s greatest natural strength of being “a local community service” business.

What do you expect the impact of FCC rule changes to be on the U.S. radio business marketplace? Comment on this or any story. Email to [email protected] with “Letter to the Editor” in the subject field.