Not Understanding Current (Radio) Business Model

[kfbkfb]

Why would a company want to own several hundred
(or even nearly one thousand) radio stations?

Seems to me that the original (USA) radio business model
was a good one - create and supply content that local
radio stations would want to broadcast (along with some
national news and advertisements).

Don't own a lot of (or even any) radio stations, let the
locally owned radio stations sink or swim depending on
what they choose to broadcast from content (national or
syndicated) suppliers.


Kirk Bayne

 

[TheBigA]

Why would a company want to own several hundred
(or even nearly one thousand) radio stations?

The advertising model has changed over the last 25 years. At one time, there was a huge base of local advertisers, with local hardware stores, department stores, and other local retail. Today, most of the major advertisers are national, and they're looking for the biggest, most efficient platform they can find. iHeart offers a package of on-air and online that's hard to compete with.

The concept of locally owned radio worked when there were fewer stations per market. Once that changed 35 years ago, it drove down the amount of money each station could make. The ad budget of each market didn't grow when the number of stations increased. You can only divide a pie into so many slices. As a result operating efficiencies had to be made to cut costs.

 

[PTBoardOp94]

Why would a company want to own several hundred
(or even nearly one thousand) radio stations?

Every business gains economies of scale. Having 4, 5, or 6 radio stations in a market makes your traffic, production and sales departments more effective.

Having dozens of markets like that allows more favorable negotiations with equipment suppliers, national advertisers, and provides the resources to acquire the best syndicated talent on the market.

 

[davideduardo]

Why would a company want to own several hundred
(or even nearly one thousand) radio stations?

Seems to me that the original (USA) radio business model
was a good one - create and supply content that local
radio stations would want to broadcast (along with some
national news and advertisements).

Don't own a lot of (or even any) radio stations, let the
locally owned radio stations sink or swim depending on
what they choose to broadcast from content (national or
syndicated) suppliers.

I built my first station in 1964, and it was the market's first Top 40. It became the #1 station in revenue and ratings within the first year in a 30-station market. As soon as I had the money, I bought a second AM and did the equivalent of a country format. It joined the first one at the top.

At that point, I could call on ad agencies where owners of a dozen stations were waiting in the lobby and walk right into the office of the media buyer or agency president. I added another AM, then the market's first FM and then another FM and finally a news talk AM before moving into 6 other markets.

The reason for expanding was that much of the overhead, like accounting, engineering, administration and the like could handle multiple stations without increasing costs. We only needed one office space. The FMs share the same transmitter site. Pairs of the AMs were diplexed, sharing sites, generators and even security personnel.

And having half the agency revenue in a market of a million on just 5 stations out of nearly 40 was very profitable and enormously ego-satisfying. And we had better equipment (first cart machines in the nation, first FM, first stereo, first diplexed AM, etc), paid better and promoted better than any of the other 300 stations in the country.

It was good for everyone involved... so much so that the original 60's staff members still get together once a year and celebrate the good times a half-century later.

See a bit of it at https://www.davidgleason.com/1964-1970-Ecuador-Main-Page.htm I started the group when I was 18.

Having a single station just would not do it.

 

[michael hagerty]

Why would a company want to own several hundred
(or even nearly one thousand) radio stations?

Seems to me that the original (USA) radio business model
was a good one - create and supply content that local
radio stations would want to broadcast (along with some
national news and advertisements).

Don't own a lot of (or even any) radio stations, let the
locally owned radio stations sink or swim depending on
what they choose to broadcast from content (national or
syndicated) suppliers.


Kirk Bayne

Kirk, I think that oversimplifies the original model. The early networks (CBS, NBC, Mutual/Don Lee) all owned stations---as many as the FCC would allow. And the reason those stations, and network affiliates in other markets, had to evolve beyond simply carrying the national network plus a few minutes of local was that audiences voted with their tuners---local stations were more responsive to their needs.

Independent stations, prior to automation and satellite, had very little in the way of syndicated content from which to choose (weekend programming like "American Top 40" excepted). They made their mark in their communities with local personalities.

 

[Y2kTheNewOldies]

The advertising model has changed over the last 25 years. At one time, there was a huge base of local advertisers, with local hardware stores, department stores, and other local retail. Today, most of the major advertisers are national, and they're looking for the biggest, most efficient platform they can find. iHeart offers a package of on-air and online that's hard to compete with.

The concept of locally owned radio worked when there were fewer stations per market. Once that changed 35 years ago, it drove down the amount of money each station could make. The ad budget of each market didn't grow when the number of stations increased. You can only divide a pie into so many slices. As a result operating efficiencies had to be made to cut costs.

Isn't Local TV station owners going in the same direction such as Nexstar, Gray, Tegna, Scripps and Sinclair these outlets have to make way for national advertisers plus subscriptions. Also owning 2 stations per market to increase revenue is a factor here to attract advertisers and subscribers on the TV side.

 

[TheBigA]

Independent stations, prior to automation and satellite, had very little in the way of syndicated content from which to choose (weekend programming like "American Top 40" excepted). They made their mark in their communities with local personalities.

That model may have worked when there were only a few stations per market. It became less viable after the explosion of FM and Docket 80-90. It also helped that the Musicians Union lost a major court case that had previously prohibited radio stations from playing recorded music.

 

[b-turner]

One radio professional noted that radio does not start trends but follows them as I paraphrase. Radio is very much like the retail trade. All we need to do is to look around us and we realize the brick and mortar mom and pop store is not in a real good economic state. Those sales they once had trickled off to the chain stores that popped up and the Fed Ex and UPS trucks (and Amazon Prime trucks) deliver those online purchases to almost every home on the block that were once sold by that mom and pop. Radio is like retail because radio relies on selling advertising from retailers and service oriented businesses to provide it's income.

Today the number of potential advertisers is getting smaller. Those that do advertise typically cannot spend as much as they did even 20 years ago. Even if they are advertising with you, much of their ad budget is going to venues that did not exist a couple of decades ago. The slice of the advertising pie is certainly smaller.

The way to shore up your broadcasting investment starts with any manner of sharing expenses with others (if that be a network of independent stations or that group of stations you own). Simply put, the dollars are not there to support fulltime staffs that made the radio station of three or four decades ago a flurry of people and activity 24/7.

On the other end, the listener has more choices than in the past. Radio has fared well...very well. We have kept the listener but they don't listen as much as they once did, at least as far as a listening session goes. This has altered the value of advertising through having to create plans to reach the all of the targeted audience with the frequency required for a successful ad campaign.

Some will be quick to point at corporate radio as being the big bad elephant in the room that caused this. Nothing could be further from the truth. The big bad elephant spends the money to research and understand the marketplace and what listeners want. If anybody has the knowledge to keep radio vibrant it's the corporation that invests in learning this. That big bad elephant, just like that retail elephant has figured out the best model to sustain the business amid competition on all sides. Literally the more you can own and share expenses with, the better shape you are in financially.

We all might love to relive those independent radio days when we had a blast doing our jobs and enjoyed the ample response from the community but so much has changed in lifestyle, purchase patterns, advertising options and cost of doing business, it just doesn't work except in fairly rare instances. The FCC saw this and eased regulations to help keep radio viable through the years. At one point you had to have a warm body in the station with a 3rd class with broadcast endorsement. Until 1981 FCC regulations pretty much assured most stations didn't turn a profit. I recall reading articles saying upwards to 95% of AM stations around 1980 were operating in the red. The number of FM stations in the same shape was substantial. While FM had surpassed AM listening in the major markets by then, AM was still viable as far as attracting a decent audience.

While I have never worked corporate radio and likely would not like to, I can acknowledge that the corporate giants have aided in the survival of radio amid the stiff competition. Would a software company want to create an automation program for your station because you asked? Now, if you said I have 1,000 stations and I need this, would that get their attention? My point is many of the things we see that have helped radio have come from the corporate giants that had the persuasive ability to get those companies to create just what the industry needed.

 

[TheBigA]

Would a software company want to create an automation program for your station because you asked? Now, if you said I have 1,000 stations and I need this, would that get their attention?

It also helps if you end up BUYING that automation company. As I said, the old model worked fine when there were fewer stations per market and less competition.

 

[davideduardo]

That model may have worked when there were only a few stations per market. It became less viable after the explosion of FM and Docket 80-90. It also helped that the Musicians Union lost a major court case that had previously prohibited radio stations from playing recorded music.

It wasn't a total prohibition of recorded music. Under Petrillo, the AFM demanded percentages of live music in proportion to the recorded music. This went down to markets the size of Knoxville, TN, where one incident took place. But that was in the "Petrillo Power" era of the late 30's to the very early 50's.

In fact, one reason why Todd Storz was able to do the first Top 40 station in 1952 was the elimination of the onerous requirements for small stations to have live music.

Petrillo was a fascinating, sometimes evil, sometimes spirited figure. I have a collection of articles and books about him at https://www.americanradiohistory.com/Petrillo.htm

 

[TheBigA]

It wasn't a total prohibition of recorded music.

Depends. The landmark case was Paul Whiteman vs. WNEW. The issue wasn't the amount of live music the station played, but the fact that they played Whiteman's records at all. The story was that Whiteman had a Saturday night concert show on NBC. WNEW decided to counter-program with his recordings. Paul & his record label RCA sued. The final decision was that radio stations could play recorded music.

 

[boombox4]

Thank you B-turner, for your insightful response. I think it fills a lot of the holes in the story we've been seeing played out since the beginning of this year (and earlier, probably).

 

[davideduardo]

Depends. The landmark case was Paul Whiteman vs. WNEW. The issue wasn't the amount of live music the station played, but the fact that they played Whiteman's records at all. The story was that Whiteman had a Saturday night concert show on NBC. WNEW decided to counter-program with his recordings. Paul & his record label RCA sued. The final decision was that radio stations could play recorded music.

I agree. "It depends..." Here, the issue was using an artist's recordings to compete with his live presentation.

And this was a final stand, of sorts, for the record label uncertainty whether radio helped or hindered the sale of recorded music. Once they figured out that having millions hear a good song, some might want to buy it, they found way$ to encourage radio stations to play songs as much as possible.

I don't think that record companies quite understood what a "hit" was to a listener. It really took Todd Storz and his crew to realize that you could not really play a big hit of the moment too much. And that was 30 years after licensed radio began.

There were a number of eras when record companies were their own worst enemies. And today is one of them. The streaming license fees seem to make it totally impossible for digital radio stations (I mean "streaming" stations, of course) to be profitable. And commercial radio stations have lost about 60% of their AQH listening in the last 12 years. So it is a lose-lose situation, where only people with enough money for paid subscriptions to hear music in the future.

Now that is smart, isn't it? It makes those Whitman proponents look like real Einsteins by comparison.

 

[TheBigA]

So it is a lose-lose situation, where only people with enough money for paid subscriptions to hear music in the future.

Even though everyone gets paid from streaming, nothing makes more money than a #1 song on broadcast radio. Even today.

 

[davideduardo]

Even though everyone gets paid from streaming, nothing makes more money than a #1 song on broadcast radio. Even today.

Maybe for the Composer / Author. Analog broadcast radio pays nothing to the artist or the label. That's why the artosts love digital.

 

[TheBigA]

Maybe for the Composer / Author. Broadcast radio pays nothing to the artist or the label. That's why they love digital.

If you're an artist with a hit on broadcast radio, and you're not a multi-millionaire, you need a new manager. Because I know artists who are on their first single, and they can get sponsorship deals, major tour deals, and other revenue streams. Plus most of the artists have figured out how to get their name on the writing credits. The labels have figured out how to get money from their airplay artists by taking a percentage of their touring and their songwriting. So both are making tons of money from the attention their artists get from broadcast radio. That's why the labels pay surrogates to complain about the royalty situation. They need the airplay more than the money. And they know the constant airplay does more to build careers than on-demand streaming.

Conversely, the artists and labels can see the difference in the flow of money when the endless FM airplay stops. There is no replacement.

 

[vchimpanzee]

At one time, there was a huge base of local advertisers, with local hardware stores, department stores, and other local retail.

That's not the situation on the small local AMs I listen to. Although those also have FM translators and refer to that frequency more than the AM frequency.