Clear Channel Not Hot on Music Promotion System

The Texas family that runs Clear Channel Communications Inc. has taken the music industry by storm, transforming itself into the dominant force in radio and live entertainment through a series of multibillion-dollar deals that pulled together 1,200 radio stations and more than 100 concert venues.

But just two years after the station-buying frenzy pushed Clear Channel’s stock price to nearly $100 a share, the Mays family is taking fire from the record industry and Congress for engineering an unprecedented consolidation and allegedly abusing its power to extract money from music labels. Amid the controversy and a weak stock market, company shares have plummeted about 30% since the beginning of the year, closing Friday at $33.65 on the New York Stock Exchange.

The major record companies are calling for limits on independent promoters, the middlemen paid by labels to push songs to radio programmers. Federal law bars broadcasters from accepting money or other compensation for airplay of specific songs without disclosing the payment, and critics say the independent promotion system improperly sidesteps the rules. Sen. Russell D. Feingold (D-Wis.) has introduced a bill that would restrict record promotion payments and revoke the license of any station that uses its cross-ownership of concert-promotion companies to strong-arm artists or rivals.

In an interview last week at the company’s San Antonio headquarters, Clear Channel’s 38-year-old president, Mark Mays, son of company founder Lowry Mays, talked about the prospects for his company and his showdown with the major record labels.

Question: You shocked the music business two years ago when you bought live entertainment giant SFX for $4.4 billion. But your stock began losing momentum when you announced the deal. Your competitors believe SFX founder Robert Sillerman sold you a bill of goods. Do you still think buying SFX was a good idea?

Answer: Sure. I have to laugh because Wall Street, when we made the deal, said, “Well, this isn’t a synergistic business.” Here we are two years later and we have all these people screaming, “Wait a second. This is too much market power. You shouldn’t be able to own all of these different assets.” The truth is probably right in the middle somewhere. It works well with our existing assets. At the same time, it’s certainly not a monopolistic practice.

Q: Your family is friendly with the president, and the Justice Department’s antitrust chief used to be a lawyer for you. Do you expect to receive special treatment from the Federal Communications Commission or the Justice Department with George W. Bush in the White House?

A: No. If you look at the FCC, we talk to the FCC every single day. They know everything we do. If you talk to the Department of Justice, every single acquisition ... we sat down with the Justice Department and we went through every single aspect of them. [The Justice Department has] been in and out of this company. Do we expect to be dealt with fairly in Washington? Sure. If we were doing something that was illegal, then people should come investigate us.

Q: Perhaps the touchiest issue facing your company is your relationship with independent promoters. The promoters pay you fees that are not supposed to be tied to airplay of specific songs. Your company says it is simply selling music research and playlist information but not airplay.

A: We didn’t think this up ourselves. They came to us and said, “Hey, listen. We want to buy research from you, buy all these different things and represent you to the record companies, and we’ll pay you this amount of money.” We said, “Well, sure, there’s nothing wrong with that. It has nothing to do with any of our playlists.” As a fiduciary obligation to our shareholders, we said it’s a sound business practice; we will take the money.

Q: Can these promoters get songs added to your playlists?

A: No. The money is not to promote songs. There’s always somebody out there who is trying to push a record. It’s not our job to play what records they want us to play. It’s our job to play what records the consumers want us to play. If 10% of the songs I play, listeners don’t want to listen to, all of a sudden I lose 10 million listeners across all of our stations. I have $3 billion in revenue in radio. If I get a 10% slippage across that, that’s a huge problem for me.

The record companies have a whole different approach. They couldn’t care less if we had 110 million listeners or 100 million listeners. They’d rather us have slippage and play all of their records.

Q: How much do you receive, in total, from these promoters per year?

A: I’ve seen reports that it’s between $10 million and $13 million a year, and that’s probably in the ballpark. People think that we are going to let independent promoters influence our playlists by payments of that magnitude? When I’m risking $3 billion by not giving the consumers what they want? The math doesn’t work. We may be hicks from San Antonio, but we ain’t that dumb.

Q: You recently met in New York with top executives from the major record companies and told them that if they wanted to cease paying independent promoters, they should. Why would you want them to stop?

A: We don’t think it is an efficient mechanism for them to promote their products. They’re just not efficient marketers at this point.

Q: Why are you willing to deal with congressional scrutiny, a fight with the record industry and a controversy that may be trimming billions of dollars off your market capitalization over $13 million in revenue? Is it because that money goes straight to your bottom line?

A: We’ve encouraged the record companies not to make these payments. I told them, “Please, don’t make the payments.” Why they continue to make the payments, I have no idea. But you know what? If we don’t take that money the way that we’re taking it, it scares me to death what they’re going to pay and how they’re going to try to influence people. We want the record companies to stop trying to influence and make payments to independent promoters. We’re going to take the money as long as they’re willing to pay it.

Q: Some of the executives you spoke with told you they feared that if they ceased paying independent promoters, some of their rivals might not and therefore could receive some small edge in obtaining airplay for their songs, or that the promoters could retaliate by keeping their songs off the air.

A: I think they are a paranoid group. I said, “Grow up.” It seems to me, if they’re that insecure about their own business, they have some real business issues. They need to make some tough decisions. Get on with it. The record labels are sitting here with a very old business model that is going to be very difficult to reinvent. And they’re lashing out instead.

They have come to Congress and they have said, “Please prevent us from paying these independent promoters.” How about just not signing a check, have you thought about that? You got to go to Congress to prevent yourselves from signing a check? I mean, we’re not that inept at being able to run our business.

And then they scream about radio consolidation. Here’s a business--radio--where the top 10 companies account for 44% of radio revenue. The top five companies in the record business, 85%. They scream about consolidation. That’s the pot calling the kettle black.

Q: As part of your efforts to cross-promote using your various assets, Clear Channel stations are creating more station-sponsored events, such as KIIS-FM’s Wango Tango in Los Angeles or Z-100’s Zootopia concert in New York.

A: Will the number of radio shows increase? My guess is yes. The artists love doing it because they don’t have to do as long a show. They can get in front of a big audience, [and] they get promoted on the radio station, which is a big benefit to them. Overall, it’s a good model.

Q: Has anyone at the company threatened an artist that if they didn’t appear at a particular show of yours, they wouldn’t receive airplay or exposure?

A: No. It would shock me if someone did. You cannot take any compensation for threatening airplay. We’re just not going to do that. The integrity of our playlist is the golden goose. We’re not going to cook the golden goose. We don’t alter our playlist based upon who comes to those events.

Q: Do you think consolidation and the increasing financial pressure in radio have made programmers shy away from taking chances on new music?

A: There’s no question that people are focused on making sure they give consumers what they want to hear. Are they less willing to take a risk? I’m not sure if they’re less willing, but they’re going to make dang sure they’re not going to put at risk the consumers’ listening habits. If that means taking fewer risks, maybe they are. I don’t know. We just don’t want people to have a reason to tune out of a station.