Turn and face the strange

Ch-ch-changes...look out you rock n rollers - pretty soon you're gonna get older.


Terrestrial radio - the venue where I have made my living for nearly 25 years - is in a world of hurt. Some of its problems, to be sure, have been self-inflicted...other challenges to radio have simply come along with technology and innovation. Greed, iPods, the economy, the internet, and satellite radio have all contributed to the fall of terrestrial radio. Some people will tell you that deregulation/consolidation was what really precipitated the fall. Others will argue that consolidation has saved radio. For sure, it ain't what it used to be - nothing is. The last thing I want to do is to come across like Andy Rooney. I really don't like people who live in the past and struggle to embrace change. They end up looking like weak and helpless victims of that change.



Radio will never be the same. As a general statement, its quality and relevance will never approach what it once was. There can however be isolated bright spots. These bright spots may be one personality on a single station, one station in a market or one ownership group among many. The remaining listeners that have not left terrestrial radio will learn to pick and choose their shows and stations...and the employees that are still left with a job in the industry after this "adjustment" is over will hopefully still have the spirit and the opportunity to make a difference.



I've now been unemployed for more than two months. In that time I have only applied for three radio jobs. Not only did I think that all three were a great match for my skills, I also believe that all three are unique and special jobs where passion and quality are expected, and where potential personal rewards could be great. Sit back, pour yourself a drink, and I'll tell you what went wrong with radio and where the bright spots still exist. This could be painfully boring if you are not a radio geek....fortunately a good percentage of my friends already qualify.

We'll start with consolidation. Rules on radio ownership were first eased in the 1980's and then really relaxed in the mid-1990's. Generally, prior to consolidation, a company was allowed to own two stations maximum in a given market. After consolidation that number increased to as many as eight stations in a market (depending on market size). In a medium market you may have had a dozen stations and six different ownership groups. Under consolidation those dozen stations could now be owned by two groups. The argument here was that Mom & Pop were having trouble making a profit...so where it used to take 6 offices and 6 receptionists and 6 engineers and 6 traffic directors and 6 business managers...you could now run those dozen radio stations with only 2 offices and 2 total of each the above employees. This would (in theory) allow Mom & Pop to survive and thrive with a smaller payroll needed per station. In reality, consolidation pretty much pushed Mom & Pop right out of the radio business (don't shed too big a tear, many made out like bandits in selling off to larger companies) because the larger companies with the greater resources gobbled them up. Not all larger companies are inherently evil...but the loss of Mom & Pop spelled the beginning of the end of local ownership ties to the communities served by these stations. Mom and Pop were usually playing with their own money...they realized that there would be good years and down years and tried not to overreact to either. Larger companies are usually not playing with their own money - annual expectations from lenders must be met...and in lean years they would be met by expense reductions (translation: people's jobs). Consolidation did not kill radio. In fact radio THRIVED in the early years of consolidation (just about any endeavor thrived in the late 1990's). But consolidation did sort of kill the spirit of radio in many cases. Consolidation apologists say that it added more choices and formats to the airwaves. For example they would argue that the previous six owners in a 12-station market would all be trying for the most popular formats, so you would have 4-6 rock or country stations in that market....after consolidation, the remaining 2 owners would be free to explore other formats. Maybe, maybe not. I believe that consolidation took a lot of local control away from radio...and also took away much of the risk-taking. We eventually ended up with more format choices, but it was due more to greed than to consolidation.

Greed. The second thing that brought radio to its knees. It happened in a couple different ways. First was owner/operator greed. From the mid to late 1990's, radio was on a roll. The competition from internet, iPods and satellite was still a couple years off. The new, larger companies created from the deregulation/consolidation legislation were growing their profits nicely. And what is expected after a year of 15% profit growth? Certainly nothing less in the following year. For a bit there in the late 1990's broadcast groups were able to grow the profits 15% every year in part due to a strong economy, in part due to the expense reductions enabled by consolidation, but truthfully due in large part to the simple addition of more commercials. Fueled by greed and by corporate demands to grow by 15% every year, managers and companies simply loaded up on commercials. Why not? Radio had no real competition at the time. In the 1990's commercial loads went through the roof and challenged the patience of most any radio listener. Clear Channel and others figured it out. Eventually. But many loyal listeners were driven away to those "new" options (iPods, internet, satellite, non-commercial radio)

Greed part two was a joint effort between the FCC and many radio broadcasters. In the old days, getting a commercial radio license was a lengthy legal process....a process not unlike that cliched radio contest where you have to be the last one placing your hand on the new car to win the vehicle. Only instead of taking hours, this licensing process often took years. You would have to submit paperwork to the FCC stating why you would be the best license holder for the new frequency in your community. Usually you were up against several other applicants. The FCC would then (eventually) decide who "won" the license. Often times behind the scenes, competitors would pay each other off to drop out of the process. Finally the FCC realized that people who wanted a radio license were paying their competition to withdraw. Smart FCC. They revamped the entire process and now auction off new radio licenses without any pretense on who'll best serve the community. Highest bidder wins. Some sharp broadcasters also figured out how to stretch the intent of the FCC rules to allow a station licensed to a given community to be engineered to actually serve a much larger market. All of the sudden these tiny communities, often mere wide spots in the road, became potential hot properties for a new FCC radio license. And the commission was more than happy to now auction them off to the highest bidder. In the past 15-20 years, the number of FM radio stations has probably grown to a figure beyond what the economy can support. Metropolitan areas with barely 100,000 people now may have 20 commercial radio stations. Greed was building an industry that was not even strong enough to support itself. (Disclosure: I personally have benefited from this as I have worked for two of the best-known and pioneering move-in specialists).

All of this was just the set-up for the perfect radio storm, and it is crashing down right now courtesy of the recession of 2008/2009. Let me explain how radio works now that Mom & Pop have long since exited.



In general (and in a "normal" economy) a radio station is worth about ten times its profits. No one buys single stations any longer, so the rule is that a radio cluster of 5 or 6 stations is worth about ten times cash flow. Now, this is an example of what's been happening all over radio for the past ten years. You find a group of radio clusters in several markets that may be for sale (you either build them up one at a time, or you might pry them away from a larger company)...Say you end up with stations in ten communities and say that those stations have revenue of $25 million and profits of $5 million (a modest 20% margin). You take those numbers to the corner capital management firm. You ask for $50 million (ten times cash flow) to buy those stations. You tell the capital firm that with your management and synergies you can grow the revenues to $35 million and the margin to 30% in 2-3 years. That would make the group of stations worth $105 million. Not a bad return on that $50 million investment. They happily put up the money. Examples similar to this have played out in radio in the past, but they ain't happening now. The recession has driven radio revenues down 25% and has caused trading multiples to fall to 6-7 times cash flow. Uh, oh! That example above just went from a $50 million profit to a $25 million loss (assuming you could find someone to even take it off your hands). So radio panics and cuts, and reels and cuts even more because someone who was promised a nice return is actually losing their ass. There's no more risk taking, no more money for interesting formats...the final irony is that many terrestrial, commercial stations are just cousins of the iPods that helped kill them. A few years ago I was forced to change an interesting format with strong community ties to a generic jukebox programmed 2,000 miles away and then received via satellite. During the community outcry our corporate president remarked that our company wanted to be "the McDonald's of radio." He really thought that was a great thing (it probably was music to the investors' ears) but it didn't sit too well in my unique community.

Finally I offer one last item that will certainly drain more value from radio. It's the new way that radio ratings will be figured with Arbitron's "Personal People Meter"

In the past people would receive a diary from Arbitron and write down their listening habits. Now, as the people meter is rolled out, people wear the device and it will detect which station is being heard. So what's the difference? The people meter seems to give different results than the diary. I'm not saying it's wrong, but this new data is already causing the radio Lemmings to race each other off of the nearest cliff. It seems that the people meter favors stations with high cume (highest number of listeners) while the diary seemed to give better results for formats and stations that may have smaller, but more loyal listenership (they listened longer). Radio ratings should factor in both the number of listeners and how long they listen on average. This means that under the diary method, station A could have half the listeners as station B, but the same ratings share assuming A's audience listened (on average) twice as long. Again, the people meter seems to favor the high cume, independent of TSL (time spent listening). So what? Well, in markets where the meter is in use radio companies have already jettisoned heritage formats in favor of formats playing more popular music. New Age/Jazz is nearly extinct after losing its radio home in Chicago and San Francisco. You're telling me that this format cannot survive as one of 50 commercial stations in the Bay Area? Now KKSF is just one of several flavors of classic rock available. The people meter will bring us more stations playing the same popular hits. It will reduce the exposure for new songs and new artists - as the familiar is again emphasized over the unfamiliar. And God forbid a jock talks longer than 10 seconds...in fact, let's just get rid of more announcers as the people meter seems to show they are a detriment. Once again radio is programming TO THE RATINGS SERVICE and not to the listener. Once again there will be a painful lesson learned from all this...give it 3 or 4 years.

Okay...I DID promise a ray of hope. Here's what I believe: I think that now is a great opportunity for some smaller operators to get back into radio. maybe some Mom & Pops here and there...or maybe some people who sold stations for big money in the 1990's (and did not lose it all in the past 12 months) will put together small radio groups. Now for the first time ever I believe that it is possible to go into a market with just 2 or 3 FM stations and wreck havoc on a heritage operator saddled with 6 or 7 stations (probably including 1 or 2 worthless AM's) and saddled with the failed math of trying to appease the bank or the capital firm (described above) and kick their butts. Someone with their own money in this game will be able to attract the best (remaining) people and will be able to ride out the occasional bad month or bad ratings book without overreacting (or being forced to overreact to appease the lender)... In the Hare and Tortoise race, I've always been the turtle. It's a great time to be a Tortoise (with your own cash)!!

I also believe that there are a handful of non-commercial stations doing a fantastic job of radio. I don't just mean NPR stations, although many of those do a fine job. Most larger communities now have a station at the left end of the dial that is still committed to their community, still plays new artists and local artists and is still creating fans. (BTW, when was the last time you saw a commercial radio station bumper sticker displayed?) I know, I know...there are challenges in that world as well. The Board of Directors can be a blessing or a curse....and non-profit gifting is way down in this economy. But I think I'd rather take my chances in the non-comm arena. Besides, there are no guarantees, and should it end badly I'll just bet the journey would have been more interesting and personally rewarding. So, I have a job interview at one of these stations soon. Wish me luck!