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3.1 Changes in the Revenue Share Earned by the Metro’s Top Owners

Chart I depicts the current state of concentration in the industry, showing the one-firm (CR1), two-firm (CR2) and four-firm (CR4) concentration ratios.12 The concentration ratios used in this report are the percentage of market revenue held by the firm(s) in the market (one, two, or four) with the largest revenue. This measure of market concentration is frequently used because of its ease of calculation and interpretation.13  The original data points (denoted by “1”, “2” and “4” for CR1, CR2 and CR4, respectively) as well as the smoothed lines reveal the extent of concentration in the markets.14  There is a clear tendency for the smaller markets to be more concentrated, which is not surprising since the smaller markets have fewer stations.  Nonetheless, even the larger markets appear to be somewhat concentrated.  In the 50 largest markets, on average the top firm holds 35 percent of market revenue, the second firm holds 24 percent, and firms three and four split the next 27 percent.  For the 100 smallest markets, on average the first firm holds 50 percent, the second firm holds 27 percent, and the next two firms split 19 percent.  Overall, in 162 of the 276 Arbitron radio markets (almost 60 percent of the markets), one entity controls more than 40 percent of the market’s total radio advertising revenue, and in 79 of these markets (29 percent) the top two entities control more than 80 percent of market revenue.  

12 BIA estimates both station and market revenues.  Due to the difficulty of defining a Metro market and then assigning stations to a unique Metro market, there are some discrepancies between the Metro market revenue and the sum of the station revenues for stations in the Metro market.  In some cases, there are out-of-Metro market stations that nevertheless earn a share of the Metro market revenue.  In addition, in some cases there are in-Metro market stations that earn a share of their revenue outside of their Metro market.  In either case, the Metro market revenue will be different than the sum of the station revenue for stations home to the Metro market.  Because in the majority of cases the difference is small or zero, the station’s Metro market share has been defined as its revenue divided by the Metro market revenue.

13 Market concentration is a function of the number of firms in a market and their respective market shares.  Concentration ratios are one of the various measures economists use to estimate market concentration.  Market shares may be calculated as the firm(s)’s percent share of revenue, as is done here, or may be calculated as the firm(s)’s percent share of audience or capacity.    These measures are also used by the Department of Justice and the Federal Trade Commission as an aid to the interpretation of market data and as an indicator of the likely potential competitive effect of a merger.  See, e.g., U.S. Department of Justice and the Federal Trade Commission, Horizontal Merger Guidelines, Revised, April 8, 1997; Modern Industrial Organization, Carlton and Perloff, 2nd edition, pp. 344-349; and The Economics of Regulation and Antitrust, Giles Burgess, pp. 310-312.

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