Broadcasters Conflicted Over Subcap Plan
Though NAB made a single proposal on AM/FM subcaps, the industry is seen as divided on the issue, and a great deal of activity on the matter appears likely as the FCC gets closer to launching the 2018 quadrennial review, radio industry officials said in interviews. NAB recommended allowing groups in the top 75 markets to own up to eight FM stations, doing away with the FM cap in the markets outside the top 75, and entirely abandoning the AM subcap (see 1806180056).
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Though most FM owners of all sizes are likely to support the NAB plan, radio brokers, radio broadcasters and radio attorneys said iHeartCommunications and AM-centric groups are expected to push back. Most FM station owners see themselves as potentially “either a buyer or a seller,” if NAB’s proposal is approved, said radio attorney David O’Neil of Rini O’Neil.
IHeart didn’t comment, but industry attorneys and brokers said the company’s opposition is connected with its position as the biggest radio group. IHeart “already has a dominant position” in many markets, so looser subcaps would either subject it to stiffer competition from the growing groups beneath it or require it to grow to stay ahead, said Patrick Communications broker Gregory Guy. IHeart also owns many AM stations, radio attorneys said, and so would be affected if the AM band declines because of loosened subcaps.
The AM band would be severely hurt by the NAB subcap plan because groups would be incented to jettison their AM stations in favor of FM ones, said National Association of Black Owned Broadcasters President James Winston (see 1806040037). NAB’s subcap proposal would likely lead to many AM stations flooding the market at cheap prices and could offer opportunities for new entrants, Guy said. But he also said the buyers of those stations would likely find themselves competing with groups that would have consolidated all of the FM stations in their market. It would be very difficult for those new AM owners “to ever achieve parity,” Guy said. The influx of FM translators could help keep those AM stations viable, O’Neil said, saying it's “an overstatement” that the subcap plan would kill AM
All the industry officials we spoke with admitted it isn’t clear how the FCC would respond to the NAB plan. Chairman Ajit Pai regularly touts his work on AM revitalization and has a favorable view of AM radio, which industry watchers say may be hard to reconcile with the NAB plan’s effect on the band. But senior FCC officials (see 1801080059) and Commissioner Mike O’Rielly (see 1703280079) consistently have indicated the agency plans to target the subcaps, and deregulation has been a central theme of Pai’s administration, broadcast attorneys said.
Most FM owners support the NAB plan because it’s expected to jump-start deal-making and attract new capital to the industry, said radio brokers and attorneys. Aside from iHeart, most larger groups see a loosened cap as a chance to expand in and dominate FM radio in markets where they're already broadcasting, Guy said. That means big payouts for the smaller owners of FM stations that could be a large group's “missing piece” in a given market, brokers and attorneys said. That’s likely to lead to station swaps and “a lot of horse-trading” as groups grow to stay competitive with their also-growing rivals, Guy said. A radio group that can show it has cornered a given market is more attractive to investors, broadcasters said. Investors “love a consolidation story,” Connoisseur Media CEO Jeff Warshaw said at a finance summit last month (see 1806140055).