The radio industry is commonly cited by many media critics as a poster child for the supposed evils of media consolidation. While it is true that a large number of acquisitions took place in the radio market following relaxation of the radio ownership rules back in 1996, the reality is that the radio marketplace--properly defined--is very competitive and nowhere near being the "monopoly" that some critics claim.

Take, for example, all the hand-wringing over every media critic's favorite villain: Clear Channel Communications. If you believed the rhetoric spouted by the critics, you'd guess that Clear Channel, which now owns over 1,200 stations nationwide, has a stranglehold on this marketplace. OK, now here's a quick reality check: Clear Channel's 1,200 stations represent less than 10 percent of all radio stations in the America. That's right, less than 10 percent. Does that sound like a monopoly to you?

OK, let's get a little more sophisticated with our analysis here and pull out the old Herfindahl-Hirschman Index (HHI). For those of you who wisely avoided those dreadfully boring Econ 101 classes in college, the HHI is the sum of the squared market shares of every firm in a certain market. A perfectly concentrated marketplace, therefore, would consist of a single firm with 100 percent market share, or a 10,000 HHI (100 squared). If a given market had five perfectly equal competitors with 20 percent market share, the HHI would be 2000. Antitrust officials at the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have adopted the HHI as tool to help them determine when an antirust case should be brought or a proposed merger denied. As a general rule of thumb, a market exhibiting an HHI below 1,000 is viewed as unconcentrated, a market with an HHI between 1,000 and 1,800 is considered moderately concentrated, and a market with an HHI over 1,800 is viewed as highly concentrated under current DOJ and FTC guidelines.

So, would you care to guess what the HHI for the radio sector is? According to a Goldman Sachs survey conducted two years ago, it's a whopping 469, and that's if you compute it using industry revenues. If you use the raw number of firms in the sector to make the computation, the HHI for radio is 92. That's right: 92! Of all the HHI surveys I've reviewed in my life, I don't think I've ever seen a result lower than 100. Most mature industries are well over 1,000, usually much higher.

Now here's the real kicker: These HHI surveys of the radio industry don't even include competition from new sources, like satellite radio, Internet radio, or iPods!!! Of course, it would be hard to throw those sectors or technologies into the mix and make a sensible computation, but we all know that those services have quickly become substitutes for traditional radio programming. Think I'm wrong about that? Then pick up today's Wall Street Journal and look at the Page 1 article entitled by Sarah McBride entitled, "Hit by iPod and Satellite, Radio Tries New Tune: Play More Songs." McBride points out that traditional radio operators, who have seen their revenues level off or even drop significantly in recent years, are scrambling to adopt new formats and cut advertising time in an effort to win back the customers they have lost to the competition.

Since it's inception in 2001, satellite radio (XM & Sirius) has already nabbed over 4 million subscribers and they just keep growing and stealing talent (like Howard Stern & NPR's Bob Edwards) away from traditional radio. And iPods foreshadow a day when consumers will be able to carry their entire music collection with them, potentially even on their cell phones. And then there's the whole file sharing craze.

In sum, the traditional radio industry will need to continue to reinvent itself to remain relevant. "Radio hasn't lost its primacy, but it has lost its critical mass," argues Sean Ross, a radio consultant for Edison Media Research. "It doesn't mean it won't have a share of the audience. It just means that the share it gets will be smaller and smaller."

That's exactly right. So next time you hear someone from the Chicken Little media critic crowd ranting about how radio is a "monopoly," ask them (1) how a "monopoly" business could be hemorrhaging so much money and listeners; and (2) if they've ever heard of satellite radio and iPods. Don't be surprised if they try to change the subject.