How bad IS radio's business model?

[TheBigA]

The fragility of the advertising economy out here does not necessarily support the same multipliers that may or may not make sense in the metro areas.

Keep in mind that the variable is not the multiple, but the cash flow. So the cash flow is lower in smaller markets, and that's what keeps the price down. And let's not assume that Fayetteville is the same as Wheeling. Wal Mart is based near Fayetteville. Lot of nice expensive homes there. And Wal Mart believes in radio advertising. To reach that market offers a lot of power.

they would have, through the NAB, led the charge to get congress to enact some new and additional provisions to make broadcasting out here in the sticks a bit more vibrant.

Hmmm..I don't see much good coming out of a discussion between the NAB and Congress. Neither of them understand the nuts and bolts of running a commercial radio station in today's marketplace. Both the NAB and Congress are living in the ivory tower.

I'm starting to think that you can't regulate people into doing something they don't want to do. Call me crazy, but I just can't think of a law that will make radio more vibrant without causing problems in other ways. Einstein's theory of relativity.

 

[SirRoxalot]

Learning Curve

First of all, much of this has already been discussed at length under "The Business of Radio". It's a national phenomenon, not a local one, and is probably more appropriate for that board. Since "TheBigA" and others who don't normally get involved in our local dust-ups have chosen to come on board, I guess I'll temporarily join the fray.

It's quite apparent that Big Corporate - as architypically represented by TheBigA - still hasn't learned a few things:

1. Markets differ. The way business is done is very different in the top 25 than it is in markets 26 - 60. Markets 61 - 100 play by different rules, and markets 101 on up face very different challenges and circumstances. Throw in regional differences in business practices, and you have an industry that virtually defies "standardization". In big cities, it's all about numbers, and the bigwigs get together at Mortons to haggle over cost per point. In small markets, deals are made at the Kiwanis meeting to make sure that somebody's kid's Little League game is on the radio that weekend. Success in business MUST reflect local expectations.

2. Audience expectations differ. What audiences expect from a radio station in the top 25 markets is different than it is in markets 26-60. Programming in markets 61-100 is different than larger markets, and small market radio is a very different beast. People don't live in small towns because they can't figure out how to leave, most of them live there because the LIKE it. They don't jealously guard personal space, as people in large cities are wont to do; they crave interaction because they don't get it in their daily lives. Big City dwellers expect the impersonal. Small town residents expect personal. Markets in between vary. Once again, throw in regional differences, and you have an industry that virtually defies "standardization". Successful programming MUST reflect local expectations.

3. The "business cycle" is real. As sure as there is a boom, there will be a bust. As sure as there is a bust, there will be a boom. Smart people who look beyond the moment expect, and plan, for that cycle. If you're in a business for the long term, you try to even out the bumps. If you're a speculator, you try to predict the cycle, stuff your pockets during the boom, and try to figure when and how to get out before the downturn. The speculators are drowning in their own debt because they failed to include "recession" in their spreadsheets.

The only way around that is a top-down system of government, with wage and price controls, where the government tells corporations how much their CEOs can earn.

TheBigA decries a "top-down system of government", but isn't that EXACTLY what the consolidators have created - a "top-down system of management"?

There are two root-causes to the current broadcasting debacle:

1. The consolidators paid too much in order to try and establish de facto monopolies that would allow them to push ad rates up. Many smaller advertisers were priced out of the market, and looked at other media as an alternative. They set an example of efficiency that the larger advertisers looked at carefully, and cut radio spending to compete directly on other media like cable and the Internet. Total change in radio revenue? Down, not up.

2. The "economies of scale" based on "regional synergies" established by corporate were a myth. There were savings realized from installation of computerized automation equipment, which masked the problem, but the cost of HR, utilities, sales, taxes, fees, and other fixed costs either remained the same or increased. Equipment costs were only a small part of the budget anyway. HR requirements varied so much from state to state, and even region to region, that all corporate HR did is add another layer of "oversight" to assure Big Corporate that the local people were "doing the job".

The consolidators are left with the choice of cutting expenses that they can control - personnel, benefits, and commissions - or going bankrupt. Going bankrupt would require some people to admit that they made BIG mistakes.

As TheBigA will amply demonstrate, Big Corporate will NEVER admit that they made a mistake.

 

[TheBigA]

Re: Learning Curve

TheBigA decries a "top-down system of government", but isn't that EXACTLY what the consolidators have created - a "top-down system of management"?

It depends on the company. I've done some research into the CC cuts, and they were not made in a top-down way. That's why the results are so different in every market. The company set goals, and local management was expected to achieve them. Nothing wrong with that. As Bob Dylan so effectively pointed out, we all serve somebody.

Hogan is not telling the market VP in Buffalo who to fire, or even how to program. If a market wants to stay live and local, and they can pay for it, they do. If that station was locally owned, they'd do the exact same thing. And we can see that locally-owned stations ARE in fact running their stations exactly like the big guys.

There are two root-causes to the current broadcasting debacle:

1. The consolidators paid too much in order to try and establish de facto monopolies that would allow them to push ad rates up.

That's simply not true. They paid the going rate in 1990s dollars, and the FCC law was very clear about market concentration in terms of revenue. You can attack the FCC about a lot of things, but one thing they've held to was the revenue caps for groups in a market.

2. The "economies of scale" based on "regional synergies" established by corporate were a myth. There were savings realized from installation of computerized automation equipment, which masked the problem, but the cost of HR, utilities, sales, taxes, fees, and other fixed costs either remained the same or increased.

I think that "synergy" problem is not unique to radio or even broadcasting in general. We still have some groups who are operating their stations in three different buildings, which was the case prior to corporate ownership. I had a friend who worked for Warner Brothers back when it merged with AOL and he told me there were no synergies enjoyed by either party. WB music was not promoted by CNN, and vice versa. That, by the way, is a good thing interms of media concentration and monopoly. So you're basically saying that big radio was unable to achieve a monopoly, which I agree with.

Still, the additional costs, which you say remained the same, would definitely increase if the companies were forced to sell their clusters, and that would result in even more layoffs and programming cuts.

As TheBigA will amply demonstrate, Big Corporate will NEVER admit that they made a mistake.

You seem to suffer from the same disease.

Some people seem to want these owners to "admit mistakes." I think if you watch what they do, rather than listen to what they say, I think you'll find they are making a lot of changes. They are a lot more willing to admit mistakes than you might expect. Look at CBS's experience with Jack. Look at CC's experiment with Whoopie. I think you'll see more of that. Meanwhile, we have small operators who haven't even launched a web page yet. Only a lrge company can absorb the costs associated with mistakes, and can finance the costs associated with new technology. It's similar to the difference between attending a small private college with a thousand students, and a huge state university with hundreds of thousands. A student gets better resources at a big university, but it's more impersonal. That's a decision one has to make.

 

[Steven21]

Unfortunately, small operators simply can't deal with the technological issues that keep changing every few years. There also aren't enough small local owners to support the number of radio stations that exist in every market. And my analysis of the small operators is they aren't better programmers. Take a look at what Mapleton has done with KPIG. They haven't flipped the format yet, but they've gutted the personnel. Entravision is a small owner they just killed Indie 103.

I think there's this idealistic and romantic view that small operators are smarter and less financially motivated than the big ones, and I simply haven't found that to be the case. One other example is Red Zebra, owned by billionaire Dan Snyder, who also owns the Washington Redskins. He runs the sports radio station in DC, and is using his station to control the coverage of his football team. He's also gone through staffs as often as he's changed the coach of the football team (which is about every year). Snyder is an example of a small owner with a specific agenda (not necessarily financial) who uses his radio stations to promote himself and his other businesses. I think this is a model for small owners of the future.

People in radio want a benevolent owner, who will pour money into the station, and leave it alone. That's what some of the big corporate insurance companies did with radio in the 60s and 70s. As long as the station made money, the owner was hands off. I think those days are over for radio, because it's difficult to find a sugar daddy who doesn't want something in return. No one in this world is idealistic enough to "accept less revenue." If you own a house and you put it on the market, you want top dollar. That's not greedy. That's human nature. Same thing with debt. No one wants to get in the hole on their expenses. No one wants to live beyond their means. But it happens. People do it, and it has nothing to do with Wall Street, corporate ownership, or anything else. There's no reason to believe small local owners, faced with declining revenue, won't do exactly what the big companies are doing now. It's why it is very unlikely that radio will find itself with more benevolent owners in the future. The models I've seen, the ones buying up the weak AM stations in the northeast (many of which had once been AM powerhouses) are far worse than the current group of owners in terms of their programming abilities and how they rape the stations for profit. Sometimes the devil you know is better than the devil you don't know.

You misunderstood my refeence to "small" operators.

I'm not talking about Mom and Pops, I'm talking about operators that had decent holdings in numerous markets, BUT under the old ownership cap.

BIG enough to generate nice profits, but SMALL enough that the Wall St. types would never take an interest.

Think LOTUS, METROPLEX, EDENS, NATIONWIDE, EZ, MALRITE, (old school) ENTERCOM, (old school) CITADEL, (old school) INFINITY, etc.

 

[TheBigA]

You misunderstood my refeence to "small" operators.

I'm not talking about Mom and Pops, I'm talking about operators that had decent holdings in numerous markets, BUT under the old ownership cap.

BIG enough to generate nice profits, but SMALL enough that the Wall St. types would never take an interest.

Hey, different strokes for different folks. We shouldn't take a cookie cutter approach to all stations in all markets. That's why you need some corporate radio and some small operators. That's why all the big owners are selling off their small market holdings. But I'm not seeing a lot of creativity or benevolence in the small local owners who buy the stations formerly owned by the big owners.

Buffalo is an interesting case. CBS sold their stations there, and CC is not a player. You have Entercom, Regent, and Citadel. I bet Galaxy would love to buy in Buffalo, but they can't afford it. Then you have a bunch of small local owners operating rim shots who may not get big ratings, but make a lot of money. All that is fine, and makes for a healthy marketplace.

Think LOTUS, METROPLEX, EDENS, NATIONWIDE, EZ, MALRITE, (old school) ENTERCOM, (old school) CITADEL, (old school) INFINITY, etc.

Those are all very different companies, and were run very differently. Nationwide was pretty hands-off, but they were in it for profit. All the insurance companies were. National Life, who only owned one station, WSM, was very much about delivering high margins every quarter. There's a reason why the insurance companies got out of radio, and it's because the margins were going down, and this began in the 80s. They could find better returns on their investments with a lot less trouble.

I think that's why it will be hard to find companies with the money necessary to run radio the way it used to be run. Radio is a declining technology, with declining margins and profits, and they're a pain in the ass to run, when you combine the regulations and everything else. So a company that invests in radio either needs a loss leader (tax write-off), a platform for an agenda, or a toy for a wealthy owner. Do you want to work for any of those owners? I don't. No one is going to spend more than the current owners given the declines in revenue.

 

[Steven21]

Re: Learning Curve

Hogan is not telling the market VP in Buffalo who to fire, or even how to program. If a market wants to stay live and local, and they can pay for it, they do. If that station was locally owned, they'd do the exact same thing. And we can see that locally-owned stations ARE in fact running their stations exactly like the big guys.

The only reason Hogan has a less than hands-on approach to Buffalo, is.....

Buffalo is the only market on the face of the Earth without a Clear Channel repeater.

(low-hanging fruit tastes just as good)

 

[TheBigA]

Re: Learning Curve

Hogan is not telling the market VP in Buffalo who to fire, or even how to program. If a market wants to stay live and local, and they can pay for it, they do. If that station was locally owned, they'd do the exact same thing. And we can see that locally-owned stations ARE in fact running their stations exactly like the big guys.

The only reason Hogan has a less than hands-on approach to Buffalo, is.....

Buffalo is the only market on the face of the Earth without a Clear Channel repeater.

(low-hanging fruit tastes just as good)

Ha ha...yes I know. I was just using the name because that's the group we're in here. As I said, there's no CC and CBS got out a couple years ago. I think Citadel would gladly sell if anyone would buy. Make em an offer! Hey Ed Levine! Are you listening?

 

[SirRoxalot]

Re: Learning Curve

Ha ha...yes I know. I was just using the name because that's the group we're in here. As I said, there's no CC and CBS got out a couple years ago. I think Citadel would gladly sell if anyone would buy. Make em an offer! Hey Ed Levine! Are you listening?

You obviously don't know Ed Levine.

For those of us in the Buffalo market, the choice between a virtually bankrupt Citadel continuing to gut programming like a Friday haddock, or Ed Levine bringing his Eastlan ratings "success" to Buffalo is like the choice between Scylla and Charybdis.

Your contention that

a company that invests in radio either needs a loss leader (tax write-off), a platform for an agenda, or a toy for a wealthy owner.

just ain't so. There are companies out there who will invest in radio AT THE RIGHT PRICE. There are people out there - including former owners who took the Consolidator Cash and dashed - who would love to get back in IF they could put money toward competitive programming instead of paying off outsized bank loans. The consolidators will either have to sell at a considerable loss, or go bankrupt for that to happen.

As the cuts to programming snowball into further decreases in revenue, bankruptcy is their only choice. With the "revaluation" that's happening in radio station values, they can't sell off properties for enough to pay what they owe, so they can't even sell part of the company to preserve the rest. The sooner that fat cats stop getting paid millions to prolong the agony, the better.

 

[Element9]

There are companies out there who will invest in radio AT THE RIGHT PRICE. There are people out there - including former owners who took the Consolidator Cash and dashed - who would love to get back in IF they could put money toward competitive programming instead of paying off outsized bank loans. The consolidators will either have to sell at a considerable loss, or go bankrupt for that to happen.

Are you suggesting Charley Banta and Mercury Radio, which once owned 97 Rock, The Edge and WHTT, might venture back into Buffalo? That's a double edged sword.

 

[TheBigA]

Re: Learning Curve

You obviously don't know Ed Levine.

You're wrong.

There are companies out there who will invest in radio AT THE RIGHT PRICE.

Re-read this thread. As I clearly pointed out, the purchase price is not the most daunting number. It's the declining revenue base. The greatest owners in broadcasting history know that the revenue was declining when they got out. It hasn't improved. Salaries have increased, staffing needs have increased, plus they wouldn't have the benefits of an infrastructure that could save them money in office management.

As I said, if buying at the right price is the issue, they will not invest in personnel and programming any more than the previous owners. If, on the other hand, they think they can do a better job, increase revenues, and support a larger staff, then price shouldn't be an issue. They should be anxious to get in there and start making money. If they want to buy at fire sale prices, every day they delay means the rot from water damage is going to be harder to overcome.

 

[SirRoxalot]

Salaries Have INCREASED?

You obviously don't know Ed Levine.

You're wrong.

So, you've been trying to get Ed Levine to part with some of his money? Or were you involved in the fire sale CC had in Utica? Maybe you're a sales rep for Eastlan?

Radio's revenue decline follows the decline in programming more closely than any other trend. As far as "salaries have increased" is concerned, my question is "WHERE"? Certainly not for talent. Certainly not for LOCAL support staff. Oh, you must be talking about CORPORATE SALARIES.

Staffing needs have INCREASED? BWAH-HA-HA-HA-HA. Most stations are operating with SIGNIFICANTLY smaller staffs than five years ago, let alone 10 years ago. As far as "infrastructure that could save them money in office management" is concerned, any "savings" realized by shifting decision-making to corporate is offset by additional reporting required BY corporate on everything from HR to sales.

If they want to buy at fire sale prices, every day they delay means the rot from water damage is going to be harder to overcome.

Nice attempt to get somebody else to pull your ASSets out of the fire, but unless you're willing to sell at a serious loss, nobody's buying. They can wait for the liquidation sale. The guys who have a chance of making it will keep radio alive until then.

 

[TheBigA]

Re: Salaries Have INCREASED?

Radio's revenue decline follows the decline in programming more closely than any other trend.

You enjoy making stuff up. The problem is that I have been in this game longer than you, and know you're full of crap.

The revenue decline has nothing to do with programming. Never has. I could appoint you director of programming in your market, give you full autonomy, and you'll be unable to meet the revenue projections you'd need to reach to stay employed.

Nice attempt to get somebody else to pull your ASSets out of the fire, but unless you're willing to sell at a serious loss, nobody's buying. They can wait for the liquidation sale. The guys who have a chance of making it will keep radio alive until then.

As CBS demonstrated in Denver, there are lots of bargains. The truth is there are no serious players. Companies can give stations away for free (and I know of places where that's happened) and no white knight has come in.

 

[TheBigA]

Re: Salaries Have INCREASED?

As far as "salaries have increased" is concerned, my question is "WHERE"? Certainly not for talent. Certainly not for LOCAL support staff.

I can name 20 local morning staffs that haven't changed since before deregulation. Do you think they're making the same money they made when they started?

I bet even YOU are making more money now than you did ten years ago. Am I right?

The topic here is the costs owners who were bought out during deregulation would face if they came back in. I said salaries have increased. Explain to me how I'm wrong.

 

[Element9]

The topic here is the costs owners who were bought out during deregulation would face if they came back in. I said salaries have increased. Explain to me how I'm wrong.

Uh, bro... this may be the Buffalo-Rochester-Niagara Falls board, but we didn't fall off the vegetable truck. You may be Mr. Know-it-all-got-all-the-right-answers-been-there-done-that-national-consultant, but some of us rubes ain't buyin'. Why? Because you can't piss on our legs and tell us it's rainin'.

Sorry to be so crude.

First, what stations were given away? Given away? No swaps, no tax benefits? Just curious, that's all. Hadn't heard about it.

Buffalo and to some extent, Rochester are hardscrabble markets... although Rochester may be a bit more quiche and tofu. You say salaries have increased. OK. Here's the deal. SOME may have, somehwere. Maybe Wease in Rochester... but there are conflicting reports on that.

People who are close to at least two clusters in Buffalo tell us that salaries INCLUDING MORNING DRIVE have decreased here. Some as much as 50%. No need to embarrass the jocks and name names.

Buffalo: Citadel, Entercom, Regent

Rochester: Clear Channel, Entercom, Stevens

In at least one Buffalo cluster, key players took cuts from 10 to 20 per cent in the last month. Within the last week, across the board cuts of 5% were levied. This comes from reliable sources in THIS market, not home office, not some consultant. The street.

We've had serious layoffs in industry and on the radio. A Classic Rock night guy who was often #1; a female morning co-host at an AC; a Rochester radio news legend; a well-rated midday guy at a Buffalo AC... all gone within a two month period. Countless support staff shown the door; more weekends VT'd.

This is Buffalo: City of No Illusions.

Clint Beuhlman. Dan Neaverth. Larry Norton. Wide right. Skate in crease. Blizzard of 77. Not tryin' to be unhospitable or rude, just sayin' we ain't easily impressed by consultants. Not sayin' you're one of those types, mind you.

Keep postin'. We're all eager to hear new ideas and discuss things reasonable-like. But give some of us some credit. Please?

 

[TheBigA]

People who are close to at least two clusters in Buffalo tell us that salaries INCLUDING MORNING DRIVE have decreased here. Some as much as 50%.

Are they higher now than they were ten years ago. You tell me. That's what my point was.

Are revenues during their air shift up? You tell me. Because Rox wants to tie revenues to programming.

Would you be willing to tie your job and salary to whether revenue increases or decreases? You tell me.

No illusions.

Keep postin'. We're all eager to hear new ideas and discuss things reasonable-like. But give some of us some credit. Please?

Absolutely.

This is Buffalo: City of No Illusions.

I've been there...in February...you don't need to tell me. I've seen the Falls freeze. How's that?

 

[Mike Sheridan]

Maybe some of the salaries were increased to stay ahead of minimum wage! I know a station that was doing well and their answer to jock saleries was to blow out all the full timers.

Most people don't get on air jobs for the fantastic money. Usually it's because they love doing it. Management knows this and takes full advantage.

Radio has lost a lot of talent who had to move on. Many listeners don't seem to notice or care who is on their favorite music station. Others listen to their ipods and CD's so they don't have to listen to comercials and they can here exactly the music they want when they want it. Not what I call a growth field.

 

[shiftless]

The problem with radio might be even more simple.

Yesterday I saw a nice display of car radios including a couple of HD radios. I took the opportunity to ask the sales guy at the car audio store if they were selling. He said not really, not as much as they expected. He said more people were going to satellite radio since there were more choices in programming. Then he dropped the bomb.

He said personally he was only interested in a CD player, that's all he needed. He likes having control over what he hears.

So there you have it. With the current technology if you are interested in music you can hear exactly what you want where and when you want. Music radio just can't touch that.

That is absolutely right, especially for music lovers, but there are still people who like others to turn them on to new music.

 

[SirRoxalot]

How You're Wrong

I would be willing to bet dinner at The Chop House that the Buffalo salary structure overall is LOWER than 10 years ago. Between salary cuts, and elimination of positions by voice tracking, automation, syndication, reduced commissions, and back-office "restructuring", 1998 is actually looking pretty good.

On-air salaries have generally been stagnant for a long time in Buffalo radio - and most other "rust belt" markets. In fact, in the last few years, more POSITIONS have seen salary cuts than increases. There has probably been growth in some markets, but as an industry, I'd bet that radio salaries - outside MANAGEMENT - are stagnant or less than 10 years ago.

In Buffalo, salary has ALWAYS been tied to revenue. It may not have been "instant gratification", but you'd better believe that your numbers better be up if you were going to ask the boss for a raise. Even that didn't guaranty anything. I can't tell you how many times I heard "When the station does better, we'll ALL be rewarded." I can't tell you how many times I heard "We did better than we expected", but I'm still waiting for "ALL" of us to get that extra pay envelope.

I've seen owners come and go - pockets stuffed with cash - and very few guys got more than a hearty handshake and a "Thanks - and good luck."

 

[qman]

I didn't even get that and i gave them 24 years of loyalty.

 

[Radknowski]

I'm trying to figure out what business is more screwed by bad management decisions: The American automotive industry, GM, Ford, Chrysler; or the American radio business, Clear Channel, Citadel, Entercom, Cumulus. Seems there are parallels in both sectors not being able to manage money, guage change and perceive the needs of consumers. What's particularly chilling is that the American auto industry for so many years drove advertising on conventional media, especially radio.