Texas Radio and the Really Big Beat
Capstar's Austin-based Empire
By Bill Crawford, Fri., May 22, 1998
Jim Morrison really got it right with "The Wasp: Texas Radio and the Big Beat" (L.A. Woman). What is it about Texas that turns successful businessmen into radio maniacs? Maybe it's the crazy water, drawn from Mineral Wells. Or maybe it's the radioactive dirt that attracted thousands of squatters to Comanche County. Or maybe it's the sky, that huge gaseous expanse that spreads out from the tar-filled waters of the Gulf to the Pampers-clogged barbed wire fences of the West, a canopy so endless that folks just feel the need to fill it with something - anything. Even skinny old radio waves. Or maybe it's the fact that Texas is just so damned big. In the old days, radio was the best way to get the word out to folks in Dime Box and Utopia. These days, Texans spend so much time in the car that they're forced to listen to radio, because when it comes to entertainment, radio beats nothing at all.
Perhaps Governor W. Lee "Pappy" O'Daniel had the answer. O'Daniel was one of the most popular Texas radio personalities in the Thirties, the man who brought Bob Wills onto the airwaves and penned the immortal ballad "Beautiful Texas." Yet it's one of O'Daniel's other songs that reveals the true passion of the men involved with Texas radio. The name of that immortal tune? "My Million Dollar Smile."
Radio brought a million dollar smile to the face of Dr. John R. Brinkley 70 years ago. These days Steve Hicks is doing a lot of million dollar smiling. Strike that. Billion dollar smiling.
Radio's Brave Old World
The feds created the Federal Radio Commission (known today as the Federal Communications Commission) to control the static by licensing particular broadcasting frequencies to particular individuals. Thus, an individual who managed to get a license to broadcast over a particular frequency controlled a federally protected chunk of electromagnetic real estate. The license holder could buy or sell the right to broadcast on that frequency to others, subject to federal approval.
In addition to regulating frequencies, the feds also decided that the FCC would regulate content. They included some really smushy wording in the Communications Act of 1934 about broadcasters having to act "in the public interest, convenience, and necessity." This gave the government just enough legal muscle to crack broadcasters across the knuckles when they got naughty. And one of the naughtiest broadcasters of all time was Dr. John R. Brinkley.
The great-grandfather of shock radio, Brinkley was the first broadcaster to have his license taken away by the FCC. A down-home-sounding physician who originally built a radio station in order to entertain the patients who came to his clinic in Kansas, Brinkley offered his patients something better than Viagra. He claimed that he could counteract male impotency by transplanting goat gonads into the human scrotum. Thousands of individuals underwent the procedure in hopes of becoming, as the good doctor put it, "the-ram-that-am-with-every-lamb."
Brinkley made a fortune, and his radio station, KFKB (Kansas First, Kansas Best), became one of the most popular stations in the country. He branched out into sex lectures and started a prescription by mail service known as the medical question box. But Brinkley attracted as many enemies as patients, and the government took away his license to broadcast in 1929.
Not to be denied, Brinkley was all ears when enterprising boosters in Del Rio, Texas came up with a plan to get him back on the airwaves. They suggested that he build a radio station outside the reach of meddling Washington bureaucrats across the silvery Rio Grande River in the town of Acuna, Mexico. Brinkley thought it was a great idea. He built a radio station in Mexico with its signal directed at the U.S. The Mexicans didn't mind pocketing the doctor's licensing payments, or annoying American officials who had stolen all the best international frequencies for their own use.
Brinkley's border radio station XER (later changed to XERF), was the most powerful station in the world, broadcasting at about one million watts of radiated power. You could pick up the station on bedsprings, barbed wire fences, even on the fillings in your teeth. Folks as far away as Russia, Finland, and the Philippines could tune in to the sounds of country music, Bible-thumping preachers, astrologers, and organ music (no pun intended), which came blasting through the ether from Brinkley's border radio behemoth.
Other Texans were equally successful in the radio game. Lyndon Baines Johnson controlled Austin's most powerful radio station, then built Austin's first television station and the city's first cable system using his political muscle to control Austin's electronic media for decades. In the early Fifties, Dallas linguist Gordon McLendon built a radio network by re-creating baseball games in the basement of the Oak Cliff Hotel. When the baseball teams shut him down, McLendon pioneered the Top 40 radio format - all the same songs, all the time. Dr. Brinkley, LBJ, and "the Old Scotsman" McLendon all made a fortune in radio. None of them, however, conceived of a radio empire as grand as the broadcasting behemoth now being constructed in Austin by R. Steven Hicks.
Radio's Brave New World
Steve Hicks, Austin's modern day Dr. Brinkley, is no quack. He's a savvy 48-year-old businessman who served in the Coast Guard, studied Swahili, and earned a government degree from the University of Texas at Austin before going to work at KBPO, his father's radio station in Beaumont.
Cool wasn't really the name of the game, though. Making money was. Hicks' father John Hicks had bounced around the world of Texas entertainment, working at one point as the master of ceremonies for the Light Crust Doughboys, the Western swing act developed by W. Lee O'Daniel to peddle his Light Crust flour. Big Daddy Hicks brought each of his four sons into work at his station. Second son Steve was so successful at the business, he bought his father out in 1979.
In 1980, Hicks expanded his operations, moving into the Austin market with the purchase of KNOW-AM and KEYI-FM. He had considerable success in Austin in the early Eighties, but then came the bust a few years later. And the feds.
Though Hicks never transplanted a goat gonad, federal regulation impacted his career as much as old Doc Brinkley's. In the mid Eighties, the folks at the FCC decided that it would be a good idea to diversify ownership of radio stations, so they introduced something called FCC Docket 80-90.
"People could transfer their stations from all the outlying markets into Austin," says Rob Balon, an old radio hand and president of the Benchmark Company, a national marketing research firm. "Very little minority ownership came about, but six more stations came into the market."
Before the FCC action, six radio stations in Austin split a $30 million radio advertising pie. After the FCC action, a dozen stations split the same pie, which had shrunk to $20 million due to the bad economy. Docket 80-90, designed to diversify station ownership, actually resulted in many radio station owners going broke, including Steve Hicks. "I had to give my stations back to the bank," he recalls. "It was the darkest day of my career."
Despite the fact that he was teetering on the edge of bankruptcy and going through a painful divorce, Hicks just couldn't get away from radio. "I was $11 million in debt and only had one skill," he explains. "I tried to learn from my mistakes and create a different way of doing things."
By 1987, Hicks had managed to acquire station WSIX in Nashville. Hicks was thrilled to be back in the thick of things, but his friends thought he was nuts. WSIX looked like a dog - number eight in a market dominated by WSM, the Grand Ol' Opry station. Hicks proved the doubters wrong. His research spotted a trend away from twangy traditional country toward the adult contemporary sounds of suburban country. Powered by solid on-air talent, his slick, fast-moving WSIX quickly became the number one station in Nashville, and stayed there for eight years.
It was in Jackson, Mississippi, however, that Hicks revolutionized the radio industry. Acquiring two stations in the market, Hicks decided to cut his operating costs by introducing something called a local marketing agreement (LMA). The agreement essentially allowed one management team to control the operations of both stations. The idea quickly spread to other stations, including KVET-KASE here in Austin. Other station owners felt threatened by the management revolution, filing complaints against Hicks and claiming that his actions violated the Communications Act of 1927. In 1992, the FCC gave Hicks' LMA their stamp of approval. Suddenly, folks in radio were allowed to have two, two, two stations in one.
But Hicks wasn't satisfied with combining two stations. He wanted to combine dozens. In 1993, he formed SFX Broadcasting Inc. and over the next two years acquired 77 stations. He also lobbied hard to change the FCC limits on how many stations any one entity could own. Strangely enough, the strongest argument supporting his case for consolidation of ownership was FCC Docket 80-90, originally designed to diversify radio ownership. Look at how many stations went broke when you tried to force diversified ownership, argued Hicks and his supporters, we need consolidation of ownership to stay in business.
The FCC gave up any attempt to diversify station ownership with passage of the Telecommunications Act of 1996. The 560-page act, which covered everything from the V-chip to long distance telephone market regulation, changed the rules of radio that had been in place for almost 70 years.
"In a single sentence in one of the tiniest sections of the legislation, Telecom did away with the restrictions on the total number of radio stations any one entity could own," explains marketing consultant Balon. "And additional language relaxed the restrictions that any one entity could have in a given market."
With the stroke of the Telecom pen, the rules of the radio game changed completely.
"What the Telecom bill essentially did was allow for unregulated purchase of a regulated medium, which is unheard of," says Balon.
Black Gold, Texas Tea
All of a sudden, individual radio players could control a huge slice of the radio market, and they could generate increased profits by doing two things: cutting expenses and increasing revenue. They could cut expenses by consolidating stations' facilities and operations, just as Hicks had done in Jackson. On the revenue side, owners of many stations could sell ads on all their stations in one market simultaneously, effectively competing with television and newspaper in regards to coverage of the market. Owning a bunch of stations across the country also meant that multi-station owners could deliver a national audience to national advertisers for the first time since television killed the radio networks in the early Fifties. As financiers looked at the new numbers of the radio business, their eyes lit up.
"Wall Street is totally in love with radio right now," says Balon. "It was oil in the Eighties, it's radio in the Nineties."
The rush was on. Radio investors ran to the bank as fast as they could, buying up stations at an unbelievable rate. Between the passage of the act in 1996 and the present, more than 4,400 of America's 10,000 radio stations have changed hands in transactions valued at $33 billion.
Hicks led the radio-buying pack. He left SFX in 1996 to become the President and Chief Executive Officer of Capstar Broadcasting Partners. Backed by his brother Thomas O. Hicks, a principal in the Dallas investment firm of Hicks, Muse, Tate & Furst, Steve paid top dollar in the frenzied radio market. Here in Austin, Hicks paid $49.1 million for KASE-FM and KVET AM-FM, a price that others in the industry thought was way too high. But that was small potatoes compared to the $2.1 billion dollars he paid for SFX Broadcasting, the company he had founded just a few years earlier.
Today, Hicks owns in excess of 400 radio stations, more than anyone else in the United States, and he runs this radio empire from the 14th floor of One American Center in downtown Austin. Why base his operations in Austin? "As a native Texan, this is the promised land," he replies.
While Steve Hicks has bought stations in mostly mid-sized markets, his brother Tom has focused his energies on buying stations in major markets. Tom's Chancellor Media Corp. currently owns stations in San Francisco, New York City, and Los Angeles. Together, the two brothers control radio stations in most major American markets.
They have also developed a sophisticated syndicated programming service called the StarSystem (see "What's Left of the Dial"). They own the software company that developed the system. They own a big-time, big-market program syndication company called AMFM Networks. And they own Katz Media, one of the nation's leading radio station ad reps.
Basically, the future of radio is in the hands of Steve and Tom Hicks. They own more radio stations than anybody else in America. They are fixing to pump those stations full of programs that they produce and distribute. And they are fixing to compete against television and newspapers for local and national ad sales.
Will their grand strategy work? Will they become the kings of American broadcasting? And what will it mean for those of us stuck in traffic as we push the buttons on the radio dial?
The Future's So Bright, I Have to Change Channels
A lot of folks are concerned about the massive consolidation of the radio dial that has taken place in the last two years. In the accompanying article, Michael Bertin spells out those concerns by describing life in the radio trenches. But like Alfred E. Neuman, I prefer to smile and say, "What? Me worry?"
You see, I like syndicated radio programming. I like All Things Considered. I like Paul Harvey. I like Howard, Rush, Dr. Laura, and Bruce Williams. I also like local programming. I like Jeff Ward. I like Phil Music. I like KOOP. I co-host a show on KAZI called The Dad Show, which I like a whole bunch. I even like Sammy and Bob. The way I figure it, even after consolidation there will be plenty of space for local personalities to climb onto the airwaves, because a certain percentage of listeners will always like local radio, and the only way to get advertisers is to attract listeners.
What will the future bring? Well, Dr. Brinkley eventually got busted for medical malpractice and lost control of his border radio station. Nevertheless, a lot of the things he pioneered, like country music, pay-per-order advertising, conservative political commentary, and sex talk, have since become standard broadcasting fare.
Will Steve Hicks conquer the radio waves or will his virtual radio concept crumble in the face of the enormous debt he has used to pay for his network? I don't know, but I have enormous faith that radio maniacs will always find ways to work over, under, around, and through any existing broadcasting system to deliver cool stuff. Like the pirate radio folks at KIND in San Marcos. Like Steve Hicks. And like Doc Brinkley.
People have said for decades that radio is dead, but the oldest broadcasting medium keeps finding ways to reinvent itself. In the words of WIRED magazine, radio remains "the only truly portable electronic medium of our era."