United States v. Capstar Broadcasting Corporation and Triathlon Broadcasting Company; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Capstar Broadcasting Corporation and Triathlon

Broadcasting Company; Proposed Final Judgment and Competitive Impact

Statement

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. Section 16(b) through (h), that a proposed

Final Judgment, Stipulation and Competitive Impact Statement have been

filed with the United States District Court for the District of

Columbia in United States of America v. Capstar Broadcasting

Corporation and Triathlon Broadcasting Company, Civil Action No. 99-

CV00993. On April 21, 1999, the United States filed a Complaint

alleging that the proposed acquisition by Capstar Broadcasting

Corporation (``Capstar'') of the radio assets of Triathlon Broadcasting

Company (``Triathlon'') in Wichita, Kansas, would violate Section 7 of

the Clayton Act, 15 U.S.C. Sec. 18. The proposed Final Judgment, filed

the same time as the Complaint, requires Capstar to divest five radio

stations in Wichita pursuant to the Final Judgment. Copies of the

Complaint, proposed Final Judgment and Competitive Impact Statement are

available for inspection at the Department of Justice in Washington,

D.C. in Room 215, 325 Seventh Street, N.W., and at the Office of the

Clerk of the United States District Court for the District of the

District of Columbia.

Public comment is invited within 60 days of the date of this

notice. Such comments, and responses thereto, will be published in the

Federal Register and filed with the Court. Comments should be directed

to Craig W. Conrath, Chief, Merger Task Force, Antitrust Division,

Department of Justice, 1401 H St. N.W., Suite 4000, Washington, D.C.

20530 (telephone: (202) 307-0001).

Constance K. Robinson,

Director of Operations & Merger Enforcement.

United States District Court for the District of Columbia

United States of America, Plaintiff, v. Capstar Broadcasting

Corporation, and Triathlon Broadcasting Company, Defendants.

Civil Action No. 99-CV-00993 (Judge Oberdorfer).

Competitive Impact Statement

The United States, pursuant to Section 2(b) of the Antitrust

Procedures and Penalties Act (``APPA''), 15 U.S.C. Sec. 16(b)-(h),

files this Competitive Impact Statement relating to the proposed Final

Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

The plaintiff filed a civil antitrust Complaint on April 21, 1999,

alleging that Capstar Broadcasting Corporation's (``Capstar'') proposed

acquisition of Triathlon Broadcasting Company (``Triathlon'') would

violate Section 7 of the Clayton Act, as amended, 15 U.S.C. Sec. 18.

The Compliant alleges that Capstar and Triathlon both own and operate

radio stations throughout the United States, and that they each own and

operate radio stations in the Wichita, Kansas, metropolitan area.

Specifically, the complaint alleges that Capstar owns KKRD-FM, KRZZ-FM,

and KNSS-AM in Wichita and that Capstar controls approximately 20

percent of the Wichita radio advertising market. The complaint also

alleges that Triathlon owns KZSN-FM, KRBB-FM, KEYN-FM, KWSY-FM, KFH-AM,

and KQAM-FM in Wichita and controls approximately 33 percent of the

radio advertising revenues in the Wichita radio advertising market. The

proposed acquisition would give Capstar a significant share of the

radio advertising market in Wichita and control over stations that are

close substitutes for each other based upon their specific audience

characteristics. According to industry estimates, the proposed

acquisition would give Capstar control of over 45 percent of the radio

advertising revenue--even after Capstar divests the two lowest ranked

FM radio stations pursuant to Federal Communications Commission

(``FCC'') regulations. As a result, the combination would substantially

lessen competition in the sale of radio advertising time in the Wichita

metropolitan area.

The prayer for relief seeks: (a) adjudication that Capstar's

proposed acquisition of Triathlon described in the Complaint would

violate Section 7 of the Clayton Act, as amended, 15 U.S.C. Sec. 18;

(b) preliminary and permanent injunctive relief preventing the

consummation of the proposed acquisition; (c) an award to the United

States of the costs of this action; and (d) such other relief as is

proper.

Before this suit was filed, the United States reached a proposed

settlement with Capstar and Triathlon which is memorialized in the

Stipulation and proposed Final Judgment which have been filed with the

Court. Under the terms of the proposed Final Judgment, Capstar must

divest five stations--KEYN-FM, KWSJ-FM, KFH-AM, KNSS-AM and KQAM-AM--to

another radio operator approved by plaintiff at the time it acquires

Triathlon. If Capstar does not divest these stations to an approved

buyer at the time it acquires Triathlon, Capstar must place the

stations in an FCC Trust. The FCC Trust Agreement was filed with the

Court as an attachment to the proposed Final Judgment. Unless the

Antitrust Division of the United States Department of Justice (the

``Antitrust Division'') grants an extension, the Trustee must divest

the stations to a buyer approved by the Antitrust Division at its sole

discretion within four (4) months of the date of entry of the Final

Judgment.

The proposed Final Judgment also requires both Capstar and

Triathlon to ensure, to the extent they are able under the proposed

Final Judgment, that these stations will be operated independently as

viable ongoing businesses while Capstar and Triathlon continue to

operate them. If the stations are transferred to the Trustee, the

Trustee has agreed that he will operate the stations independently as

viable ongoing businesses. Further, the proposed Final Judgment

requires Capstar to give plaintiff prior notice regarding future radio

station acquisitions or certain agreements pertaining to the sale of

broadcast radio advertising time in Wichita.

The plaintiff and defendants have stipulated that the proposed

Final Judgment may be entered after compliance with APPA. Entry of the

proposed Final Judgment would terminate this action, except that the

Court would retain jurisdiction to construe, modify, or enforce the

provisions of the proposed Final Judgment, and to punish violations

thereof.

II. The Alleged Violation

A. The Defendants

Capstar is a Delaware corporation with its headquarters in Austin,

Texas.

[[Page 28513]]

Capstar owns approximately 309 radio stations in 76 U.S. markets. In

1997, Capstar had total revenue of approximately $350 million,

approximately $4.9 million of which was derived from its Wichita

stations.

Triathlon is a Delaware corporation headquartered in San Diego,

California. Triathlon currently owns 31 radio stations in six U.S.

markets. In 1997, Triathlon had total revenue of approximately $33.6

million, approximately $8 million of which was derived from its Wichita

stations.

B. Description of the Events Giving Rise to the Alleged Violation

On July 23, 1998, Capstar and Triathlon entered into an Agreement

and Plan of Merger (``Agreement''). Under the terms of the Agreement,

Triathlon agreed to transfer its licensee companies, including

Triathlon Broadcasting of Wichita Licensee, Inc. to Capstar. Also under

the terms of the Agreement, Triathlon agreed to sell Triathlon

Broadcasting Company to Capstar.

Capstar and Triathlon compete for the business of local and

national companies seeking to advertise in the Wichita radio market.

The proposed acquisition of Triathlon and Capstar, and the threatened

loss of competition that would be caused thereby precipitated the

government suit.

C. Anticompetitive Consequences of the Proposed Acquisition

1. The Sale of Radio Advertising Time in Wichita

The Complaint alleges that the provision of advertising time on

radio stations serving the Wichita, Kansas Metropolitan Survey Area

(``MSA'') constitutes a line of commerce and a section of the country,

or a relevant market, for antitrust purposes. The Wichita MSA is the

geographical unit for which Arbitron furnishes radio stations,

advertising agencies, and advertisers with data to aid in evaluating

radio audience size and composition. Advertisers use this data in

making decisions about which radio station or combination of radio

stations can deliver their target audiences in the most efficient and

cost-effective way. The Wichita MSA includes Butler, Harvey, and

Sedgwick Counties. Radio stations earn their revenues from the sale of

advertising time to local and national advertisers. Many local and

national advertisers purchase radio advertising time in Wichita because

they find such advertising preferable to advertising in other media for

their specific needs. For such advertisers, radio time (a) may be less

expensive and more cost-efficient than other media at reaching the

advertiser's target audience (individuals most likely to purchase the

advertiser's products or services); (b) may reach certain target

audiences that cannot be reached as effectively through other media; or

(c) may render certain services or offer promotional opportunities to

advertisers that they cannot exploit as effectively using other media.

For these and other reasons, many local and national advertisers in

Wichita who purchase radio advertising time view radio either as a

necessary advertising medium for them or as a necessary advertising

complement to other media.

Although some local and national advertisers may switch some of

their advertising to other media rather than absorb a price increase in

radio advertising time in Wichita, the existence of such advertisers

would not prevent radio stations from raising their prices a small but

significant amount. At a minimum, stations could raise prices

profitably to those advertisers who view radio either as a necessary

advertising medium for them, or as a necessary advertising complement

to other media. Radio stations, which negotiate prices individually

with advertisers, can identify those advertisers with strong radio

preferences. Consequently, radio stations can charge different

advertisers different rates. Because of this ability to price

discriminate among different customers, radio stations may charge

higher rates to advertisers that view radio as particularly effective

for their needs, while maintaining lower rates for other advertisers.

2. Harm to Competition

The Complaint alleges that Capstar's proposed acquisition of

Triathlon would lessen competition substantially in the provision of

radio advertising time in the Wichita MSA. The proposed transaction

would create further market concentration in an already concentrated

market. Using a measure of market concentration called the Herfindahl-

Hirschman Index (``HHI''), explained in Appendix A of the Complaint, a

combination of Capstar and Triathlon would substantially increase the

concentration in the Wichita radio advertising markets. The HHI

currently is 3040. If Capstar divests only the two least significant FM

stations, Capstar's share of the Wichita radio market, based on

advertising revenue, would increase from approximately 20 percent to

approximately 45 percent. The approximate post-merger HHI would be

3680, representing an increase of about 640 points. This substantial

increase in concentration is likely to give Capstar unilateral power to

raise advertising rates and reduce the level of service provided to

advertisers in Wichita.

Today, several Capstar and Triathlon stations in Wichita compete

head-to-head to reach the same audiences and, for many local and

national advertisers buying time in Wichita, they are close substitutes

for each other based on their specific audience characteristics. The

proposed merger would eliminate this competition.

During individual price negotiations between advertisers and radio

stations, advertisers provide the stations with information about their

advertising needs, including their target audience and the desired

frequency and timing of ads. Radio stations thus have the ability to

charge advertisers differing rates based in part on the number and

attractiveness of competitive radio stations that can meet a particular

advertiser's specific target needs.

During individualized rate negotiations, advertisers that desire to

reach certain listeners can help ensure competitive rates by ``playing

off'' Capstar stations against Triathlon stations. Capstar's

acquisition of Triathlon will end this competition. After the

acquisition, such advertisers will be unable to reach their desired

audiences with equivalent efficiency without using Capstar stations.

Because advertisers seeking to reach these audiences would have

inferior alternatives to the merged entity as a result of the

acquisition,the acquisition would give Capstar the ability to raise

prices and reduce the quality of its service to some advertisers on its

stations in Wichita.

b. Advertisers could not turn to other Wichita radio Stations to

prevent Capstar from imposing an anticompetitive price increase.--If

Capstar raised prices or lowered services to those advertisers who buy

advertising time on Capstar and Triathlon stations in Wichita because

of their strength in delivering access to certain audiences, non-

Capstar radio stations in Wichita would not be induced to change their

formats to attract those audiences in sufficiently large numbers to

defeat a price increase. Successful radio stations are unlikely to

undertake a format change solely in response to small but significant

increases in price being charged to advertisers by a multi-station firm

such as Capstar because they would likely lose a substantial portion of

their existing audiences. Even if less successful stations did change

format, they would still be unlikely to attract

[[Page 28514]]

enough listeners to provide suitable alternatives to the merged entity.

In addition, new entry into the Wichita radio advertising market would

not be timely, likely or sufficient to deter the exercise of market

power. For all these reasons, plaintiff concludes that the proposed

transactions would lessen competition substantially in the sale of the

radio advertising time on radio stations serving the Wichita MSA in

violation of Section 7 of the Clayton Act.

III. Explanation of the Proposed Final Judgment

The proposed Final Judgment would preserve competition in the sale

of radio advertising time in Wichita. It requires Capstar to divest

five stations: KEYN-FM, KWSJ-FM, KFH-AM, KNSS-AM and KQAM-AM. The

relief will reduce the share in advertising revenues Capstar would have

achieved in the transaction from 45 percent to less than 40 percent.

The divestitures will preserve choices for advertisers and will ensure

that radio advertising prices do not increase and services do not

decline as a result of the transaction.

Capstar must divest KEYN-FM, KWSJ-FM, KFH-AM, KNSS-AM and KQAM-AM

assets to either another buyer or a Trustee at the time it acquires

Triathlon. The divestitures must be to a purchaser or purchasers

acceptable to the plaintiff in its sole discretion. Except in the case

of KNSS-AM, the divestitures shall include all the assets of the

stations being divested. The divestitures shall be accomplished in such

a way as to satisfy plaintiff, in its sole discretion, that such assets

can and will be used as viable, ongoing commercial radio businesses. If

defendants fail to divest these stations within the time periods

specified in the Final Judgment, a Trustee agreed upon by plaintiff and

Defendants and identified in the Final Judgment will be entrusted to

effect the divestitures. If the Trustee is appointed, the proposed

Final Judgment provides that Capstar will pay all costs and expenses of

the Trustee and any professionals and agents retained by the Trustee.

After appointment, the Trustee will file monthly reports with the

plaintiff, Capstar and the Court, setting forth the Trustee's efforts

to accomplish the divestitures ordered under the proposed Final

Judgment. If the Trustee has not accomplished the divestitures within

four (4) months after the date of the Order's entry, the Trustee shall

promptly file with the Court a report setting forth (1) the Trustee's

efforts to accomplish the required divestitures, (2) the reasons, in

the Trustee's judgment, why the required divestitures have not been

accomplished and (3) the Trustee's recommendations. At the same time

the Trustee will furnish such report to the plaintiff and defendants,

who will each have the right to be heard and to make additional

recommendations.

The proposed Final Judgment requires that prior to the consummation

of the transaction, defendants will maintain the independence of their

respective radio stations in Wichita until the closing of the merger

and the transfer of KEYN-FM, KWSJ-FM, KFH-AM, KNSS-AM and KQAM-AM to

either a buyer approved by the plaintiff or to the Trustee.

The proposed Final Judgment also prohibits Capstar from entering

into certain agreements with other Wichita radio stations without

providing at least thirty (30) days' notice of the plaintiff.

Specifically, Capstar must notify the plaintiff before acquiring any

interest in another Wichita radio station. Such acquisitions could

raise competitive concerns but might be too small to be reported

otherwise under the Hart-Scott-Rodino Antitrust Improvements Act of

1976, as amended, 15 U.S.C. Sec. 18a (the ``HSR Act''). Moreover,

Capstar may not agree to sell radio advertising time for any other

Wichita radio station, or to have another radio station that also sells

radio advertising time in Wichita sell its radio advertising time,

without providing plaintiff with notice. In particular, the provision

requires Capstar to notify the plaintiff before it enters into any

Joint Sales Agreements (``JSAs'') in Wichita. Under a JSA, one station

sells another station's advertising time. Despite their clear

competitive significance, JSAs may not all be reportable to the

Department under the HSR Act. Thus, this provision in the proposed

Final Judgment ensures that the plaintiff will receive notice of and be

able to act, if appropriate, to stop any agreements that might have

anticompetitive effects in the Wichita radio advertising market.

The relief in the proposed Final Judgment is intended to remedy the

likely anticompetitive effects of Capstar's proposed transaction with

Triathlon in Wichita. Nothing in this Final Judgment is intended to

limit the plaintiff's ability to investigate or to bring actions, where

appropriate, challenging other past or future activities of defendants

in Wichita, or any other markets.

IV. Remedies Available to Potential Private Litigants

Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any

person who has been injured as a result of conduct prohibited by the

antitrust laws may bring suit in federal court to recover three times

the damages the person has suffered, as well as costs and reasonable

attorneys' fees. Entry of the proposed Final Judgment will neither

impair nor assist the bringing of any private antitrust damage action.

Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.

Sec. 16(a), the proposed Final Judgment has no prima facie effect in

any subsequent private lawsuit that may be brought against defendants.

V. Procedures Available for Modification of the Proposed Final Judgment

The plaintiff and the defendants have stipulated that the proposed

Final Judgment may be entered by the Court after compliance with the

provisions of the APPA, provided that the United States has not

withdrawn its consent. The APPA conditions entry upon the Court's

determination that the proposed Final Judgment is in the public

interest.

The APPA provides a period of at least sixty (60) days preceding

the effective date of the proposed Final Judgment within which any

person may submit to the United States written comments regarding the

proposed Final Judgment. Any person who wishes to comment should do so

within sixty (60) days of the date of publication of this Competitive

Impact Statement in the Federal Register. The plaintiff will evaluate

and respond to the comments. All comments will be given due

consideration by the Department of Justice, which remains free to

withdraw its consent to the proposed Final Judgment at any time prior

to its entry. The comments and the response of the United States will

be filed with the Court and published in the Federal Register.

Any such written comments should be submitted to: Craig W. Conrath,

Chief, Merger Task Force, Antitrust Division, United States Department

of Justice, 1401 H Street, NW, Suite 4000, Washington, DC 20530.

The proposed Final Judgment provides that the Court retains

jurisdiction over this action, and the parties may apply to the Court

for any order necessary or appropriate for the modification,

interpretation, or enforcement of the Final Judgment.

VI. Alternatives to the Proposed Final Judgment

The plaintiff considered, as an alternative to the proposed Final

Judgment, a full trial on the merits of its Complaint against

defendants. The plaintiff is satisfied, however, that the

[[Page 28515]]

divestiture of KEYN-FM, KWSJ-FM, KFH-AM, KNSS-AM and KQAM-AM and other

relief contained in the proposed Final Judgment will preserve viable

competition in the sale of radio advertising time in the Wichita radio

advertising markets. Thus, the proposed Final Judgment would achieve

the relief the plaintiff would have obtained through litigation, but

avoids the time, expense and uncertainty of a full trial on the merits

of the Complaint.

VII. Standard of Review Under the APPA for Proposed Final Judgment

The APPA requires that proposed consent judgments in antitrust

cases brought by the United States be subject to a sixty (60) day

comment period, after which the court shall determine whether entry of

the proposed Final Judgment ``is in the public interest.'' In making

that determination, the Court may consider--

(1) the competitive impact of such judgment, including

termination of alleged violations, provisions for enforcement and

modification, duration or relief sought, anticipated effects of

alternative remedies actually considered, and any other

considerations bearing upon the adequacy of such judgment;

(2) the impact of entry of such judgment upon the public

generally and individuals alleging specific injury from the

violations set forth in the complaint including consideration of the

public benefit, if any, to be derived from a determination of the

issues at trial.

10 U.S.C. Sec. 16(e).

As the United States Court of Appeals for the District of Columbia

Circuit held, this statute permits to court to consider, among other

things, the relationship between the remedy secured and the specific

allegations set forth in the plaintiff's Complaint, whether the decree

is sufficiently clear, whether enforcement mechanisms are sufficient,

and whether the decree may positively harm third parties. See United

States v. Microsoft Corp., 56 F.3d 1448, 1461-62 (D.C. Cir. 1995).

In conducting this inquiry, ``[t]he Court is nowhere compelling to

go to trial or to engage in extended proceedings which might have the

effect of vitiating the benefits of prompt and less costly settlement

through the consent decree process.'' \1\ Rather,

\1\ 119 Cong. Rec. 24598 (1973). See United States v. Gillette

Co., 406 F. Supp. 713, 715 (D. Mass. 1975. A ``public interest''

determination can be made properly on the basis of the Competitive

Impact Statement and Response to Comments filed pursuant to the

APPA. Although the APPA authorizes the use of additional procedures,

15 U.S.C. Sec. 16(f), those procedures are discretionary. A court

need not invoke any of them unless it believes that the comments

have raised significant issues and that further proceedings would

aid the court in resolving those issues. See H.R. Rep. 93-1463, 93rd

Cong. 2d Sess. 8-9 (1974), reprinted in U.S.C.C.A.N. 6535, 6538.

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[a]bsent a showing of corrupt failure of the government to

discharge its duty, the Court, in making its public interest

finding, should * * * carefully consider the explanations of the

government in the competitive impact statement and its responses to

comments in order to determine whether those explanations are

reasonable under the circumstances.

United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. para.

61,508, at 71,980 (W.D. Mo. 1977).

Accordingly, with respect to the adequacy of the relief secured by

the decree, a court may not ``engage in an unrestricted evaluation of

what relief would best serve the public.'' United States v. BNS, Inc.,

858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel

Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d

at 1460-62. Precedent requires that

the balancing of competing social and political interests

affected by a proposed antitrust consent decree must be left, in the

first instance, to the discretion of the Attorney General. The

court's role in protecting the public interest is one of insuring

that the government has not breached its duty to the public in

consenting the decree. The court is required to determine not

whether a particular decree is the one that will best serve society,

but whether the settlement is ``within the reaches of the public

interest.'' More elaborate requirements might undermine the

effectiveness of antitrust enforcement by consent decree.\2\

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\2\ Bechtel, 648 F.2d at 666 (citations omitted) (emphasis

added); See BNS, 858 F.2d at 463; United States v. National Broad.

Co., 449 F. Supp. 1127, 1143 (C.D. Cal. 1978); Gillette, 406 F.

Supp. at 716. see also Microsoft, 56 F.2d at 1461 (whether ``the

remedies [obtained in the decree are] so inconsonant with the

allegations charged as to fall outside of the `reaches of the public

interest' '') (citations omitted).

The proposed Final Judgment, therefore, should not be reviewed under a

standard of whether it is certain to eliminate every anticompetitive

effect of a particular practice or whether it mandates certainty of

free competition in the future. Court approval of a final judgment

requires a standard more flexible and less strict than the standard

required for a finding of liability. ``[A] proposed decree must be

approved even if it falls short of the remedy the court would impose on

its own, as long as it falls within the range of acceptability or is

`within the reaches of public interest.' '' \3\

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\3\ United States v. American Tel. and Tel Co., 552 F. Supp.

131, 151 (D.D.C. 1982), aff'd. sub nom. Maryland v. United States,

460 U.S. 1001 (1983) (quoting Gillette Co., 406 F. Supp. at 716

(citations omitted)); United States v. Alcan Aluminum, Ltd., 605 F.

Supp. 619, 622 (W.D. Ky. 1985).

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This is strong and effective relief that should fully address the

competitive harm posed by the proposed transaction.

VIII. Determinative Documents

There are no determinative materials or documents within the

meaning of the APPA that were considered by the plaintiff in

formulating the proposed Final Judgment.

Dated: May 12, 1999.

Respectfully submitted,

Karl D. Knutsen,

Attorney, Merger Task Force.

U.S. Department of Justice, Antitrust Division

1401 H Street, N.W., Washington, D.C. 20530, (202) 514-0976.

Certificate of Service

I, Karl D. Knutsen, of the Antitrust Division of the United States

Department of Justice, do hereby certify that true copies of the

foregoing Competitive Impact Statement were served this 12th day of

May, 1999, by United States mail, to the following:

David J. Laing, Baker & McKenzie,

815 Connecticut Ave. N.W., Washington, D.C. 20006.

Counsel for Triathlon Broadcasting Company.

Neil W. Imus, Vinson & Elkins,

1455 Pennsylvania Avenue, N.W., Washington, D.C. 20006.

Counsel for Capstar Broadcasting Corporation.

Karl D. Knutsen

[FR Doc. 99-13403 Filed 5-25-99; 8:45 am]

BILLING CODE 4410-11-M