An observation from Gary Stevens

[TheBigA]

You have to point the finger somewhere. Radio at some point was trivialized.

Radio was trivialized when TV came on the scene. When you compare what radio was up until 1945 to what it was afterwards, it's obvious.

But that's not the point. Someone invited investment bankers into the picture. They never considered radio a place to make money. But by the 1980s, all of the major corporations that had been operating radio stations from the 1920s began to sell. That included insurance companies, electronics manufacturers, and even the radio-only companies. This happened 10-15 years BEFORE the 96 TCA. The first generation of radio owners cashed out, and that opened the door for the new crew, who had no heritage in the industry. They saw the door was open, and walked in. Who profited? The brokers. They had none of their own money at risk. They just make a commission on the transaction. That's why I say Gary Stevens is the pivotal person who knew radio, knew what it could do, and brought the investment folks into the picture.

 

[amfmxm]

Nice analysis, Big A. That makes some real sense, particularly with Gary's connection to Steve Hicks in SFX... thus, Steve Hicks to brother Tom--the Beaumont/Port Arthur (& Dallas) investment broker/broadcaster--and Tom's relationship with San Antonio investment broker/broadcaster Mays. It's all starting to come into focus.

Tom was one of the M & A All-Stars in the eighties, making his name and fortune on the Dr. Pepper/7-Up deal. Tom, Steve & Lowry all saw the parallels between radio and similar industries with no dominating national player but obvious potential for big-time efficiencies and extraordinary profits through consolidation.

If only they could get those pesky ownership caps out of the way...

 

[TheBigA]

Tom, Steve & Lowry all saw the parallels between radio and similar industries with no dominating national player but obvious potential for big-time efficiencies and extraordinary profits through consolidation.

Actually there was one dominating national player in the pre-consolidation world: ABC Radio. It was by far the biggest owner of stations, with a national network. But its owner was unwilling to take advantage of its position.

As for the "obvious potential for big-time efficiencies," let's just say that no one has been able to capitalize on that one, even 15 years after the 96 TCA. Radio is still, by and large, a local business. Even if the owners themselves aren't local.

 

[SirRoxalot]

As for the "obvious potential for big-time efficiencies," let's just say that no one has been able to capitalize on that one, even 15 years after the 96 TCA. Radio is still, by and large, a local business. Even if the owners themselves aren't local.

Which brings us to the real problem with radio these days. Radio is still, by and large, a local business. The owners themselves by and large are not local. So the profits from these local businesses don't get put back into the business and the businesses that provide that profit - they get siphoned off to build the wealth of others, taking that money out of the local economy. Radio is a microcosm of "modern" economics.

 

[TheBigA]

The owners themselves by and large are not local. So the profits from these local businesses don't get put back into the business and the businesses that provide that profit - they get siphoned off to build the wealth of others, taking that money out of the local economy. Radio is a microcosm of "modern" economics.

So what else is new. I was looking at a vacation condo. The owner isn't local. He has a local management company that oversees the property. Most vacation properties are that way. The management company runs lots of condos.

Let's talk about that local shopping mall. The owner isn't local. He just hires local prople to run it for him. Most shopping malls are run that way.

Then we have Rockefeller Center in NYC. The owner isn't local. In fact most of the famous real estate in NYC isn't locally owned (other than municipal and other gov't offices).

Local owners got out of owning things. That doesn't mean those businesses don't give back to their communties. My local area Wal Mart subsidizes the Little League team. No local owner there.

Very few businesses are locally owned any more. Look at most of the products you buy, from the cars to the clothes to the beer you drink. That doesn't mean they don't hire lots of local people, and those local prople don't depend on those businesses for income.

This idea that local profits get put back into local business is 19th century thinking. Even when I went to college, that wasn't what we were taught. Local profits go to the stockholders. It's been that way for a hundred years. Or to the Board to give to the CEO. Who uses it to buy vacation homes. Whose owner is also not local. You want to share in the profit? Become a stockholder.

It's all very idealistic to think that if radio was locally owned, the money would go back into the local economy, but the tax laws really don't encourage that kind of operation. I just did my taxes, and I can tell you the feds don't do a thing to encourage businesses to reinvest in local communities. And if your retirement money isn't coming from a pension, but rather in mutual funds, you better hope the system stays this way.

 

[TheBigA]

Radio is a microcosm of "modern" economics.

Radio was one of the earliest industries where the owners didn't have to live locally. I can't remember the year, but I know the radio networks both took a lot of heat when they attempted to own stations in California. They were seen as carpetbaggers, New Yorkers coming in to plunder the wealth of LA. But ultimately, they were allowed to own stations on the entire opposite side of the country, and thus began the pattern that brings us to today. The major groups of the 50s and 60s weren't locally owned. Malrite, Metromedia, Shamrock, Storer, on and on. They bought stations in cities far away as investments. Lowery Mays could have learned all he knew from Gordon McClendon, who wrote the book on carpetbagging. He started in Texas, but expanded to Oakland and Chicago. What was good for radio 50 years ago is still good today. Only the specific players have changed. But the process isn't very different.

 

[SirRoxalot]

Why should radio be any different than the rest of the economy? We are now at the mercy of multinational corporations who dodge taxes, distribute wealth world-wide, and move jobs to the lowest bidding subcontractor - generally the country with the fewest laws protectings workers or the environment.

Welcome to the Brave New World. Or is that Animal Farm.

 

[TheBigA]

Why should radio be any different than the rest of the economy? We are now at the mercy of multinational corporations who dodge taxes, distribute wealth world-wide, and move jobs to the lowest bidding subcontractor - generally the country with the fewest laws protectings workers or the environment.

Welcome to the Brave New World. Or is that Animal Farm.

Maybe you need to re-read Animal Farm.

The big companies do what they do because they operate in a country and a world that allows them to.

 

[amfmxm]

As for the "obvious potential for big-time efficiencies," let's just say that no one has been able to capitalize on that one, even 15 years after the 96 TCA.

FWIW, that hasn't been my experience. As a GM in the seventies & eighties, if we generated a 25 percent cash flow margin, it got rave reviews. Today if it's not 40 percent, it brings an ass-chewing. And as we've grown AM/FM combos into 4-6-8-station clusters, each additonal station operates at whopping margins. For a 4th-or-5th added station, operating margins of 60 or 70 percent are not uncommon. Economies of scale that weren't possible pre-96 TCA.

(Now, the downside is that those 4th & 5th clustermates would have had full staffs back in the day, so this development has meant the loss of tons-o-jobs in the radio industry. But that's a whole different topic).

 

[TheBigA]

Economies of scale that weren't possible pre-96 TCA.

Depends on the format. If you ran an automated Beautiful Music station, it was easy to get 40%. That's why so many companies did it.