Lowering Overhead?

[johnbasalla]

One way to attempt to keep the bottom line stable is to lower overhead. In these bad economic times, that has = lay-offs.
At what point is the product damaged so much that this "addition by subtraction" concept actually begins to turn in negative results? In other words, how far can you cut? An example: At some stations they are not giving away stuff on-air as much because nobody is there to take the calls so they're telling listeners to log on to the website and register to win.

 

[Goat Rodeo Cowboy]

Having entered the broadcasting business in Arkansas severala decades ago at the edge of the Ozarks, I have seen my share of "low overhead" operations.

I sold advertising to some second and third generation retailers who were surving in weak little markets by cutting and cutting expenses.

You cannot "cheap" your way to prosperity. Sooner or later you shut it down, or someone figures out how to sell more. (true of radio stations, hardware store, car dealers... even funeral homes.) Going "on the cheap" is only a valid business plan if it allows you to survive a temporary economic situation until your plan to increase the business is possible.

Do you know for a fact that the give-away by web-site is to save expense, or is it part of a business plan to integrate a marginal radio product with the Internet to create a new viable business model? As I am fond of saying: "Today we ask- Does your station have a web-site? Soon we may be asking: Does your web-site own a radio station?"

 

[TheBigA]

At what point is the product damaged so much that this "addition by subtraction" concept actually begins to turn in negative results?

The assumption here is that quantity equals quality. I don't agree with that. I've worked at professional radio stations with only 5 full time employees. We worked very hard at our jobs, and won many awards for our commitment to our community. Heck, I've worked at stations with all-volunteers staffs and no paid employees. Perhaps we will get to a point where people will get into radio for love and passion instead of a paycheck.

The real question is how over-staffed and bloated had radio become in the era of big budgets? I'd like that issue to be addressed, because what goes up must, at some point, come down. That's where we are now.

At the same time, the issue for advertisers is driving customers. That's the purpose of advertising. Clearly one lesson we learned this Christmas season is that customers were not driven in effective ways to buy. To me, that means the advertising was ineffective. It either wasn't aimed at potential customers or its message wasn't clear. I believe there is a huge opportunity right now for radio to demonstrate its ability to drive customers to buy IF the advertising is effective. There are way too many bad ads on radio and TV. And the customers are not being motivated to buy.

At some stations they are not giving away stuff on-air as much because nobody is there to take the calls so they're telling listeners to log on to the website and register to win.

Every contest I've ever known of has been very clear in the entry procedure. I think a bigger question is how useful is contesting today?

I'd suggest the main value of contesting today is to acquire email addresses to build up a mailing list of "loyal listeners." Just giving away concert tickets or CDs is of no benefit to a radio station, even if the contest is paid for by a sponsor.

 

[quadraphonic]

A lot of stations seem to be pushing toward the web to relate to their listeners.
More listeners are pushing there themselves, more than they are pushing to make a phone call at a set time of day.
That's just smart business. A number of prize hounds are undoubtedly aging out of the prize hound lifestyle, or dying.
There is a lot of other cost-cutting stuff that seems kind of self-defeating, though....

 

[Goat Rodeo Cowboy]

Clearly one lesson we learned this Christmas season is that customers were not driven in effective ways to buy. To me, that means the advertising was ineffective. It either wasn't aimed at potential customers or its message wasn't clear. I believe there is a huge opportunity right now for radio to demonstrate its ability to drive customers to buy IF the advertising is effective. There are way too many bad ads on radio and TV. And the customers are not being motivated to buy.

A lot of what you wrote in this posting indicates that you and I have some very similar views of "the world of radio". However, I quoted a part of your message above. At this point I have to raise this point of debate:

"I don't think the lack-luster Christmas season sales tell us didly-squat about the effectiveness of radio. Riding out the current economy leaves many of us feeling like we are in a kayak plunging over Niagara Falls. As long as me and maybe 100 million of my close personal friends have that phobia of maybe going over the falls, I am not sure what could have been put on any radio station that was going to get me to open up my wallet for Christmas 2008.

General Motors says they can't swim upstream against the flow. Merrill-Lynch couldn't win the battle. There there was that dinky little Lehman Bros and the big 800 pound gorilla AIG Insurance could no longer tread water.

And with a straight face you are going to try and convince us that radio, radio alone, if it had done it's job properly, could have held back the flow of money troubles the size of Niagara Falls.

Radio ain't that BIG.

Radio ain't that GOOD and EFFECTIVE.

..... even if radio was being managed well.

And we come to these boards every day to read one horror story after another about how badly managed radio is today.

... and if we had just run some persuasive ad copy the past two months we could have been the ANTI-GRINCH that SAVED Christmas??????

 

[TheBigA]

And with a straight face you are going to try and convince us that radio, radio alone, if it had done it's job properly, could have held back the flow of money troubles the size of Niagara Falls.

I didn't say that. I'm dealing specifically with traditional radio advertisers. Merrill Lynch and AIG weren't big radio advertisers. The car companies have cut back on radio advertising in the past few years. Their agencies say "People can't buy cars they can't see." So they direct their money to TV and the web. I didn't see a lot of Sears ads this year. Not much from Walgreens. Wrangler bought ads, but how about other clothing lines? I saw that clothing sales were down over 25% this year.

I was watching interviews with local store owners on TV stations complaining that customers didn't know the huge values they were offering at their stores. Of course the customers don't know! The stores didn't advertise! It's the first expense they cut!

I am not sure what could have been put on any radio station that was going to get me to open up my wallet for Christmas 2008.

That's where creative salesmanship comes in. You don't tell them to come in and spend money. You tell them to come in for free stuff. The problem this year was store traffic. People stayed on the couch. Just like you, they weren't motivated. They still had family members who expected presents. You can't tell me Santa dropped off coal this year. he didn't in my house.

 

[SirRoxalot]

Reality Check

People who are facing the prospect of being out of a job, or on a long-term layoff to begin next year, still bought for Christmas. The difference is that they looked for the best discounts on necessities, not luxuries. Walmart did big holiday business. Department stores, despite drastic price cuts, didn't do as well.

The bottom line is that the cash flow, and profit margins from Christmas are both down significantly for most advertisers. This doesn't bode well for advertising in the first half of next year. With so many radio companies under the pressure of high debt loads, and facing the prospect of decreased revenue, further cuts to "expenses" are likely. Those cuts will reduce the quality of programming even further, reducing listening even more.

The biggest hope for several broadcast companies is the financial bailout by the Feds. The banks don't want to be broadcast operators. They know that they can't sell off broadcast properties for enough to pay off the current debt. The banks only hope is to take the billions in government money, and use it to write down some of the debt that they've got with broadcasters. Then, the banks will squeeze some of these guys as hard as possible in order to get as much of their money back as possible. When corporate gets squeezed, they'll be responding with even deeper cuts to local groups. The groups with the most cuts are likely to be those who are most successful. The corporate thinking is that those groups generating the biggest revenue can sustain the most cuts. Success will be punished, not rewarded.

 

[TheBigA]

Re: Reality Check

The biggest hope for several broadcast companies is the financial bailout by the Feds.

Not gonna happen. The public has expressed its view that bailouts are not the answer. Which is why Congress balked at the auto company bailout. The car industry employs more people than broadcasting, and would be more disasterous if it went under, and Congress said no.

Congress can't even fund non-commercial broadcasting. The government promised to fund it in 1967, and walked away from its obligations 25 years ago. The government won't help NPR, which fired 7% of it's workforce a few weeks ago. It won't assist LPFM operators, who have no source of income, and are required to operate without advertising.

There will be no bailout. There will be change. There will be reinvention, as big as it was in 1948, when radio fired the orchestras, the comedians, the actors, and the sound effects specialists. And it will take a while for the new image of radio to emerge. But it will happen.

 

[SirRoxalot]

Re: Reality Check

The biggest hope for several broadcast companies is the financial bailout by the Feds.

Not gonna happen. The public has expressed its view that bailouts are not the answer. Which is why Congress balked at the auto company bailout. The car industry employs more people than broadcasting, and would be more disasterous if it went under, and Congress said no.

Um, you really need to read the ENTIRE post and take the statement in context.

The federal government has already dumped $350-Billion into a bailout of the banks and other financial institutions, with more to come. I didn't say that the feds would bail out broadcasting. They're already doing that in a roundabout way by bailing out the banks. The banks are under pressure to get that bailout money into the marketplace, and restructuring the debt of broadcast companies is one place that they may choose to put that money. Restructuring debt might prevent broadcast companies from going bankrupt, and give the banks the best chance of getting their money back.

 

[TheBigA]

Re: Reality Check

Restructuring debt might prevent broadcast companies from going bankrupt, and give the banks the best chance of getting their money back.

Doesn't matter. The best chance for these companies, including Sirius, is to be bought by bigger non-broadcasting companies who can absorb this kind of debt.

The banks are responding to the pressure with arrogance. They're even refusing to say how they're spending the bailout money, and the Associated Press says some of it is going to bonuses for executives.

 

[SirRoxalot]

Re: Reality Check

Restructuring debt might prevent broadcast companies from going bankrupt, and give the banks the best chance of getting their money back.

Doesn't matter. The best chance for these companies, including Sirius, is to be bought by bigger non-broadcasting companies who can absorb this kind of debt.

Oh, please. Who in their right mind would buy Sirius, or any other broadcast company that's saddled with huge debt? Especially when money is tight?

Sirius and XM never made money. At least the terrestrial broadcasters generally showed positive cash flow in the past.

The banks may have no choice but to rewrite the debt. They sure don't want to become operators, and they can't sell the assets of broadcast companies for nearly enough to pay back the loans.

 

[TheBigA]

Re: Reality Check

The banks may have no choice but to rewrite the debt. They sure don't want to become operators, and they can't sell the assets of broadcast companies for nearly enough to pay back the loans.

Fine...have it your way. The only way the banks will rewrite the debt is if the overhead costs are cut even more. And with terms that will make recovery even harder for companies to meet.

 

[SirRoxalot]

Re: Reality Check

Fine...have it your way. The only way the banks will rewrite the debt is if the overhead costs are cut even more. And with terms that will make recovery even harder for companies to meet.

The only way the banks will rewrite the debt is to prevent a radio company from declaring bankruptcy. Under those circumstances, the terms will be easier than the current loan. Tougher terms would just put the company under.

Remember, the banks are now playing with YOUR tax dollars, not their investors' money.

None of this will prevent deeper cuts in "overhead". 2009 is going to be an ugly year.

 

[kd8hho]

Re: Reality Check

2009 is going to be an ugly year.

that right there says it all

 

[pocket-radio]

Sirius could go bankrupt, discharge some debt and come out of the box stronger. They have both paid and advertising revenues.

Plus long before the great 08 depression came to be, radio's revenues have been flat and declining for years, in a so called healthy economy. Traditional money was being shifted to new media. Radio is a mature business and has hit the top, the industry stopped growing. Through 09 & 10 the depression is going to push some operators over the edge, pushing Wall Street out. Advertisers are demanding more accountability, just saying it works minus measurable results won't cut it any longer. Every arrow is pointing at radio now, radio has never seen a time in it's history, when competition is competing for its ears, time spent listening and revenues. And worst, yet, people under 25 forgot to plugin to radio, like you and I did..

 

[TheBigA]

Sirius could go bankrupt, discharge some debt and come out of the box stronger. They have both paid and advertising revenues.

The ticking bomb is the satellite itself, which needs to be replaced soon, and that cost will drop them back in the hole.

Then there's that nasty never-ending subject of music royalties.

 

[Goat Rodeo Cowboy]

Sirius could go bankrupt, discharge some debt and come out of the box stronger. They have both paid and advertising revenues.

Hoss: you ever been through a bankruptcy? To use the language of the cowboy..... I've had my horse shot out from under me in the middle of a cattle drive TWICE!

Bankruptcy is NOT an automatic "get out of jail free" card. It is very typical for the current stock-holders to lose ALL value, all ownership. The company only gets to discharge debt if there is enough remaining value within the company that the people who are writing off the debt feel like the company THEY will now own is worth keeping.

As The Big A has pointed out, the debtors would have to write off their loans, then they might be faced with coming up with the cash for new satellite hardware. If they were unable to make it when times were good, do they really have a chance to make it during the depression we are all going to get to enjoy?

 

[davideduardo]

The ticking bomb is the satellite itself, which needs to be replaced soon, and that cost will drop them back in the hole.

There are two sets of satellites, one for Sirius and one for XM. One uses geostationary birds, and the other has ones that come into position as another moves over the horizon. IIRC, they cost several hundred million each, and have a finite life span. Sirius has 3, XM has 2.

 

[adma]

And worst, yet, people under 25 forgot to plugin to radio, like you and I did..

...and compounding it all, if they associate radio with anything, it's aging conservative white male Archie Bunker types. Talk about shooting yourself in the foot with your meal ticket...

 

[Stewy]

Can't "save" yourself into medium or long term profits. The point of diminishing returns comes quickly.