A question to ponder...

[Surfer]

If large radio companies are serving the interests of their investors by making money, and that is their primary job, then why is everyone still complaining that they don't do what they're supposed to do? From what I've seen, people don't matter, money does.

Thoughts?

 

[SaltyDog]

If large radio companies are serving the interests of their investors by making money, and that is their primary job, then why is everyone still complaining that they don't do what they're supposed to do? From what I've seen, people don't matter, money does.

Thoughts?

When businesses assume control of spectrum for the purpose of broadcasting, which is regulated by the FCC, they agree to operate it "in the public interest", which is entirely different than shareholder obligations. http://en.wikipedia.org/wiki/Public_interest

 

[KeithE4]

If large radio companies are serving the interests of their investors by making money, and that is their primary job, then why is everyone still complaining that they don't do what they're supposed to do? From what I've seen, people don't matter, money does.

Thoughts?

When businesses assume control of spectrum for the purpose of broadcasting, which is regulated by the FCC, they agree to operate it "in the public interest", which is entirely different than shareholder obligations. http://en.wikipedia.org/wiki/Public_interest

If a radio or TV station can serve the public interest (and exactly what is that, anyway? Everyone has their own individual interest.) and make money, so much the better. But the prime directive for a for-profit business - any business - is to make money for its owners. There are no exceptions to this rule. If an owner doesn't care if his company makes a profit (and there are a few stations run essentially as rich men's hobbies, but very few), then it's not really a for-profit business, is it?

If the owners are institutional investors (mutual funds, 401Ks, pension funds, etc.), then their job is to generate cash for their clients. Many, if not most publicly-traded companies are majority-owned by one or more institutional investors, not individuals (insiders) that are directly involved in the company's business. The company's first priority, then, is to generate cash for their investor-owners' clients. If a company doesn't show enough of a profit, the stock price drops and/or gets sold, station formats change, and people lose their jobs.

CBS, for example, is 83% owned by institutional investors. Insiders (Sumner Redstone, Leslie Moonves and others) only own 1% of the company's stock. Disney's ownership is 68% and 8%, respectively. This info is from Yahoo. Guess who gets to put people on their Boards of Directors and set the direction of the companies.

This is just Business 101, and it isn't just in broadcasting.

 

[Goat Rodeo Cowboy]

Can I play the part of the contrarian? (Yeah, like I have never done that before!)

Yes, the number 1 text-book answer is that the purpose of a business is to pursue profit.

But we overlook the fact that if you want to do a research project for a class in your MBA studies, it will not be hard to poke around and find examples of businesses where maximum profit is NOT the number 1 purpose of the organization. In my life time, however, I conclude that is getting harder and harder to do.

In rural America (a vanishing phenomena) many businesses have been operated by someone who could have invested the money in the stock market or secure bonds and done as well or better, but out of civic pride combines with compassion and charity, they chose to keep a nursing home operating, or served as a silent partner in a restaurant which was the only decent food in town. Home town department stores of days gone by fit that category. As long as the chains remained in larger cities this "bargain with the devil" was quite viable in back-water communities. Then Walmart came to county seats and Best Buy came to larger county seats and people have much harder choices today.

Small town airports have been less than sterling investments as a business, but people owned them because they loved doing it.

Being a small town lawyer can be "a living" and allow your spouse to live in the community where there family roots are, but maximum use of your law degree often means going to the city and joining a law firm that understands that the purpose of business is to make money.

Can you see where radio of years gone by fits in here? How many bankers, movie theater operators, funeral directors operated radio stations because it was a good thing for the civic community. As long as it at least paid for itself (little or no subsidy required from the owner) we had this "Golden era of radio".

It was kind of like Walmart coming to the county seat town and squeezing the 3rd or 4th generation owner of the towns most durable retail operation when the FCC circa 1996 changed the rules. It wasn't so much like Walmart coming to town as it was like Walmart buying the "franchise" of the 4th generation owner of the retail establishment and moving it over to the edge of the nearest metro area.

I keep thinking that eventually the broadcasting will reach some equilibrium from all this "ownership churning" and "facility churning" and the pool will once again be safe for little bit of philanthropic ownership to once again "add a little seasoning to the stew". But the elasticity of my dream is getting a good case of dry rot.

 

[secondchoice]

Before 80 - 09, were there were some "capital" requirements to own a radio station? I had heard it was enough to run the station for a year with no income from advertising sales. So if I bought or was awarded a license, I would at least the have the funds (I guess a bank line of credit would be acceptable*) to build or service the debt, staff, and pay the bills for a whole year with no income. Of course that would "limit" the price of stations by reducing the number of potential buyers. It would also make the over leveraging of stations, a bit more difficult.


* Banks usually will not issue lines of credit unless there are some unencumbered assets or a really good track record of success.

 

[SaltyDog]

If a radio or TV station can serve the public interest (and exactly what is that, anyway?

I included a link to a definition. I see no point in elaborating.

Everyone has their own individual interest.) and make money, so much the better.

I wasn't arguing in favor of the way it should be. I thought, perhaps mistakenly, that the question was about current reality. The FCC does in fact have in place, certain "public interest" requirements.

"The Federal Communications Commission (FCC) sets limits on the number of broadcast stations (radio and TV) an entity can own, as well as limits on the common ownership of broadcast stations and newspapers. As required by Congress, the FCC reviews its media ownership rules every four years to determine whether the rules are in the public interest and to repeal or modify any regulation it determines does not meet this criteria."

Source link: http://www.fcc.gov/guides/review-broadcast-ownership-rules

 

[SaltyDog]

Yes, the number 1 text-book answer is that the purpose of a business is to pursue profit.

I'm playing contrarian to the contrarian. Peter Drucker, probably the foremost business consultant of all time said: ""There is only one valid definition of business purpose: to create a customer"

Profits are a byproduct, an essential byproduct, but not the purpose.

 

[TheBigA]

If large radio companies are serving the interests of their investors by making money, and that is their primary job, then why is everyone still complaining that they don't do what they're supposed to do? From what I've seen, people don't matter, money does.

The "if" part only applies to public companies that have investors. Lots of other radio companies don't have investors. But any commercial operation is based around making money. The non-commercial stations have a mission that's also funded by money. No one's doing radio for free.

The government recognized this when they set up the US system over 80 years ago. The government wanted a privately owned and operated broadcasting system. But they still wanted a hand in it. That's where the licenses and regulations came in. Lots of other things we use every day are profit making businesses, licensed by the government, with public service obligations. I had one regulator once refer to them as "public-private partnerships." Electric, gas, energy, forestry, water, and lots of other businesses are public-private partnerships. The government accepts those businesses need to make money, but also serve the public. So that's where regulations come in.

The reason people on these boards complain is because they feel their personal taste in music isn't being addressed, or staffing isn't what it once was, and those things should be required by the government. But those fall outside the realm of regulation and public service, and in the 80 years since the government created the FCC, the government itself has created lots of outlets that directly serve the public that actually compete with broadcasting. Examples include NOAA and the 511 traffic reports.

The second half of your post is "the people don't matter." And I'd suggest that to any business, the people DO matter. But that doesn't mean a business should be run to lose money. And the fact is that when dealing with matters of personal taste, only some formats make money, and most don't. So I'd adjust your statement to SOME people don't matter. And that's how business operates.

 

[davideduardo]

If large radio companies are serving the interests of their investors by making money, and that is their primary job, then why is everyone still complaining that they don't do what they're supposed to do? From what I've seen, people don't matter, money does.

Thoughts?

Radio has a bimodal business model. It's customers are not its consumers.

The customers are advertisers, while the consumers are the listeners.

Any analysis of successful stations must involve attracting listeners of a kind advertisers want to reach.

Saying that radio is profit driven is also saying that it is listener driven. Except for very niche formats and non-commercial stations, the more listeners a station has, the more money it can potentially make by charging higher rates to advertisers.

It's not as simple as "attracting customers" because of this separation of users from buyers.

 

[KeithE4]

If a radio or TV station can serve the public interest (and exactly what is that, anyway?

I included a link to a definition. I see no point in elaborating.

Here's a very good review of the concept and its history.

 

[TheBigA]

Before 80 - 09, were there were some "capital" requirements to own a radio station?

I think that was strictly for the start-up stations, rather than existing licenses. Because a start-up had to assume no advertising during construction period.

 

[Goat Rodeo Cowboy]

Before 80 - 09, were there were some "capital" requirements to own a radio station?

I think that was strictly for the start-up stations, rather than existing licenses. Because a start-up had to assume no advertising during construction period.

I can tell you from experience that FCC policy put the damper on some potential backers for new stations. A friend or relative might be willing to bankroll a new business venture in partnership. Gas Station? fine! Used Car Lot? fine! Sporting Goods Store? O.K.

Radio Station? WAIT! My lawyers tgell me that I will have to submit my personal financial picture into a public file for everyone in this little town to see? I don't think so! I am not going to stand here bare naked for all to see. Let's talk about some other kind of venture.

I finally got my station. Right up there where I expected to put the lighted sign with call letters..... it said S H E L L

 

[secondchoice]

I work for an investment operation and for a fee they will create a "shell" corporation. If done correctly, it will protect you liability wise as long as you stay away from LLC sub chapter S angle. Never "co sign" or extend the "shell" corp credit. You will get hit with dividend taxes however when the "shell" corp make some money after paying corporation taxes and you cannot declare any losses on your taxes unless you sell the stock.

 

[davideduardo]

Before 80 - 09, were there were some "capital" requirements to own a radio station?

I think that was strictly for the start-up stations, rather than existing licenses. Because a start-up had to assume no advertising during construction period.

I filed for several CPs in the late 60's to the mid-70's. You first had to show the ability to build, including commitments for transmitter sites and money to construct. Then you'd give an estimate of income and expenses for the first year, and show that you could cover the difference if a loss was projected.

For owner-operators, a simple personal balance sheet and /or a letter of credit from a bona fide lender or investor was all it took.

 

[KFodor]

I seem to remember a day when you had to show you had the cash up front to operate a station for 3 years in order to get a license, though I don't think it was quite that extensive by the time I got into the business...

 

[davideduardo]

I seem to remember a day when you had to show you had the cash up front to operate a station for 3 years in order to get a license, though I don't think it was quite that extensive by the time I got into the business...

That was related to the 3-year license term. Obviously, you did not need to show you could operate with no revenue for three years. What had to be shown was the ability to build (if applying for a CP) and cover any anticipated operating losses. Naturally, most applicants believed they would be rapidly profitable, so this was just a bunch of paper...

 

[northwoods]

Based on what I have read on this board so far, I'm presuming we're talking about brick and mortar stations. Now if we throw in owning and operating an online radio station, we can discuss cost comparisons and posssible advantages. An online station can be operated out of a spare room in a house or, if you're really restricted on space, with just a computer on a desk in your living room. Now of course you would need a computer with enough disc space and with a high enough internet speed. Throw in a microphone (or two) and a mixer board, and you're basically set equipment wise (of course you could add more bells and whistles, but we'll keep it at where it is right now).

Now compare with a brick and mortar where you have property taxes, upkeep, insurance, utilities, upgrading and maintaining station equipment, complying with FCC rules and regulations, powering and maintaining the towers and (depending on what part of the country you live in) face the possibilty of the towers collapsing due to mother nature (hurricane, tornado, thunderstorm, blizzard, etc.), which knocks you off the air, which brings in the cost of replacing said towers (after you take insurance coverage into effect).

Unless your brick and mortar streams online, your coverage area is restricted. I'm sure more will come to me, but right now we'll leave it at that. Feel free to add your own comments.

 

[Groove1670]

Online streaming. Encoder, Winamp, mp3 files, 20 dollars a month host, a spare room. Nuff said :

 

[Goat Rodeo Cowboy]

Help me climb up here on this tall rock and look around at the landscape. Let's see if I have this straight.

I just finished posting in another thread where the wisdom was: Walmart has made it impossible for small business to exist, thus radio no longer has a customer base. Balderdash!

So here we are in this thread: Business that would advertise on local radio is a dinosaur so local radio is doomed. BUT. WAIT. SOUND THE TRUMPETS! Forget about radio. Everybody go buy a refurb computer on close-out, stick it in your bedroom or a spare room at home, and go into competition with E-Bay, Amazon, Yahoo, Facebook, Linked-In, Pandora... and we shall all be millionaires.

I realize becoming/being an entrepreneur takes "a leap in faith" but I see this proposal as a venture that would make the Flying Wallendas quiver and shake in their boots. ;D

 

[Chuck]

Online streaming. Encoder, Winamp, mp3 files, 20 dollars a month host, a spare room. Nuff said :

Well, yes, if you choose to ignore paying ASCAP, BMI, SESAC and worst of all, Sound Exchange. The last I looked, the Sound Exchange rate for 2013 is $0.0023 per "performance." They define a performance as one listener per song. If 50 people listen to just one song, that is 50 performances.

$0.0023 doesn't sound like much, but if you averaged 100 listeners over a 24 hour period and played about 14 songs per hour, that works out to $3.22 per hour, or $77.28 per day, or a little over $27,500 per year just to Sound Exchange. Don't forget there is ASCAP. BMI and SESAC to pay as well, but their rates are much more reasonable. I suspect you could operate a local AM station for much less, and I know you can operate a LPFM for way less. The music royalties take a lot of the fun out of Internet radio.

How many listeners do you need to attract sponsors? Could you actually sell 100 listeners to a sponsor? Maybe you can, and I'm certainly interested in finding out how.