Music Variety, Station Listenership and Station Ownership in theRadio IndustryJuly 22, 2004AbstractThis paper examines ho w changes in radio station ownership have affected music variety andstation listenership. A unique panel dataset of music radio airplay shows that a common owner ofstations in the same local radio mark et and the same broad music category increases the degree ofdifferentiation between these stations, consistent with only a common owner internalizing “businessstealing” effects. The implied effect on playlists is quite large and is not captured by changes instations’ formats. Common ownership of stations in the same category but different local marketsresults in, at most, a small degree of playlist homogenization. Panel data on station listenershipprovides further support for the business stealing explanation, as when stations in a local marketbecome commonly owned their audiences tend to increase.11IntroductionIf product characteristics can be c h anged easily then mergers may affect welfare through changingproduct variety or product quality rather than prices. The effect on variety of radio station mergers,both between stations in the same local radio market and between stations in different mark ets, hasbeen the subject of considerable debate since the relaxation of ownership restrictions in the 1996Telecommunications Act.1I use new data on the artists and songs played by music radio stations from 1998 to 2001 toprovide new evidence on the effects of ownership. Common ownership of stations in the same metro-market and music category (hereafter I denote a metro-market category by MMC) is associated withgreater differentiation in station playlists. I find this result both when I look across metro-marketswith different ownership structures and when I examine how changes in station ownership affect theplaylists of particular stations. This effectisrobusttodifferent measures of station location and it isquite large in magnitude. For example, using a measure of station location that takes into accountthat some artists are alike and others are not, I find that when a pair of stations in an MMC becomecommonly owned they move 13% further apart. On the other hand, common ownership of stations indifferent metro-markets is associated with, at most, a small homogenization of playlists.The finding that a common owner increases the degree of differentiation between local stations isconsistent with only a common owner internalizing “business stealing” effects. If this is the primaryeffect of common ownership then one would also expect station listenership to increase. Panel data onstation listenership provides some evidence that when stations in an MMC become commonly o wnedtheir combined audience does indeed tend to increase. However, the size and statistical significanceof the audience effect are sensitive to the specification used and, in particular, to how the degree ofsubstitution between stations in different categories is estimated.1Critics of consolidation have been particularly concerned about homogenization in music e.g., DiCola and Thomson(2002) on behalf of the Future of Music Coalition, rebutted by the National Association of Broadcasters (2002).2Before describing the relationship between this paper and the existing literature on broadcastingvariety, I define two terms which I use to classify a station’s programming genre. I use a classification ofstations from BIAfn’s Media Access Pro database which is also used by the Federal CommunicationsCommission (e.g., FCC (2001a), (2001b)). A format is the narrowest classification of a station’sgenre. An example of a music format is “Hot Adult Contemporary”. A category groups togethersimilar formats. Each format belongs to one category. Stations in the Adult Contem porary, HotAdult Contemporary and Soft Rock formats are among 24 formats in the Adult Contemporary (AC)category. Table 1 lists the seven music categories which are the focus of most of this paper and themain formats in each category. There are several significant formats in Adult Con temporary andRock, whereas almost all Country category stations are in the Country format. In analyzing variety,I compare the playlists of stations which are in the same category but possibly different formats.This is not the first paper to study the effect of radio mergers on variety. Berry and Waldfogel(2001) find that counts of the number of formats and the number of formats per station in each metro-market increased more, following the 1996 Telecommunications Act, in the largest metro-markets wherethe Act allowed more mergers. They interpret this result as providing evidence that within-marketmergers increase variety.2On the other hand, they also find that commonly owned stations within amarket tend to be clustered in similar, but different, formats suggesting that variety increases mightbe limited to prevent leaving gaps in product space whic h might attract entry. My result that within-market mergers increase product differentiation is similar to Berry and Waldfogel’s result, but I usea quite different empirical method which reveals an important limitation in using formats to measurevariety. The station-level playlist data shows that stations in the same format can play quite differentartists and that stations in different formats can play similar artists. This is not entirely surprising asa format is simply a label which a station assigns to itself. I use actual c h anges in station ownership,rather than the natural experiment of the 1996 Act, to examine how ownership affects a station’s2George (2001) provides evidence that within-market mergers in the newspaper industry increase variety using dataon the beats covered by journalists.3playlist relativ e to other stations in its category. I find that within-MMC mergers increase variety butvery little of this effect is reflected in changes in station formats.3Two studies have used playlist data. Williams et al. (2002), as part of the FCC’s assessmen t of itsownership rules, use data on the top 10 most pla yed songs on 174 stations in March 1996 and March2001. They conclude that variety increased within metro-market formats over time wit hout a clearrelationship with station ownership. However, they do not look specifically at the effect of commonownership on stations in the same market and in the same or similar formats which are most likelyto compete for the same