Working harder, paid less

[TheBigA]

This may come as a shock to some, but even mom & pop businesses are in trouble. This article is about people working longer hours, getting paid less, and still seeing their co-workers get fired. And it's not about radio.

http://www.msnbc.msn.com/id/35709370/ns/business-answer_desk/

 

[SirRoxalot]

"When the company grows, we'll all benefit". How many times have I heard THAT?

How about if the fat cats in the front office - who created the financial meltdown in the first place - stop adding to the millions already in their bank account and put their money into the enterprise? How about if they "share the pain"? I'm sure that they'll be amply rewarded when their leadership turns the situation around, right? Meanwhile, for every million that THEY don't take, 10-15 people will help make the product better.

 

[TheBigA]

God Bless America.

 

[davideduardo]

"When the company grows, we'll all benefit". How many times have I heard THAT?

How about if the fat cats in the front office - who created the financial meltdown in the first place - stop adding to the millions already in their bank account and put their money into the enterprise? How about if they "share the pain"? I'm sure that they'll be amply rewarded when their leadership turns the situation around, right? Meanwhile, for every million that THEY don't take, 10-15 people will help make the product better.

Actually, the entrepreneurs who formed many of the smaller companies in the post-consolidation years have lost money. Many good radio people formed companies, recognizing that banks and investment bankers were lending to radio, unlike the rule when ownership was limited. So they put in their own savings, and leveraged that money with loans or venture capital financing. When the economy went south, and radio growth stagnated, the lenders or capital providers forclosed and the radio entrepreneurs lost their entire investment.

Those fat cats look pretty mangy and skinny today; very few have millions in the bank. Many owe more due to personal guarantees than they will make before they die or retire on Social Security.

Your rants against owners would be more appropriate for Radio Habana than Radio Info.

 

[SirRoxalot]

Puh-lease. Corporations are formed to protect the entrepreneurs, and finance the enterprise through either investment capital or stock offerings. If I'm paid a million a year plus stock options, and my stock options go south, I've still got a million a year.

How much did Farid lose out-of-pocket when Citadel went bust? How about Bill Stakelin under Regent's bankruptcy? Even Teddy Forstmann had gotten his investment returned to him - with a profit - with Citadel's IPO.

Who took it in the shorts? Stockholders. Even the major investment bankers get something, because they get a piece of the enterprise under terms of the bankruptcy. Will they eventually get back the money that they were stupid enough to loan to a badly-managed broadcasting company? Very likely.

Broadcasting is still very profitable - somewhere in the range of 30-40% profit for most companies. The problem is the leverage. It's like buying a house. How much of your mortgage payment goes for principle in the first 10 years of a 30-year fixed rate mortgage? The answer? Not much. Most of it goes to interest. Bankruptcy wipes out the interest payment, and gives the lienholders a piece (or most) of the house. In this case, Farid still gets to live there, and makes more millions for (mis)managing it.

 

[TheBigA]

In this case, Farid still gets to live there, and makes more millions for (mis)managing it.

I compete against Citadel, and I can tell you that neither Farid nor the debt are the reasons why that company has problems.

 

[davideduardo]

Puh-lease. Corporations are formed to protect the entrepreneurs, and finance the enterprise through either investment capital or stock offerings.

So? This comes as no news, as corporations and their ancestors date back centuries. They also benefit consumers by assuring a continuation of an enterprise despite the loss, death or whatever of a principal.

Stock offerings are investment capital, by the way... since closed corporations and public ones all have stock.

If I'm paid a million a year plus stock options, and my stock options go south, I've still got a million a year.

Or, if you look at many companies, in radio and outside, the founder(s) put millions of their own capital in. In radio, only a couple of dozen pure radio plays are or have recently been public, so all the rest don't do the same stock option deals and such. And this is where nearly every forclosure or loan renegotiation removes most if not all of the founders' equity. I know many who worked several decades, and then bought their own little group of stations only to lose all the money they had... even personal property pledged to collateralize the loans.

How much did Farid lose out-of-pocket when Citadel went bust?

Millions in the future value of stock options, but Citadel is just one case... a case of making an overvalued purchase at precisely the wrong time. There are nearly 15,000 US radio stations Citadel does not own.

How about Bill Stakelin under Regent's bankruptcy?

Millions, much of it in personal savings and investments.

Even Teddy Forstmann had gotten his investment returned to him - with a profit - with Citadel's IPO.

Investment banks are paid commissions on transactions they broker. Realtors don't get criticized because the house they sold for $1.5 million in LA in 2006 is now worth $700,000.... they are just commissioned intermediaries.

Who took it in the shorts? Stockholders.

Just like the GM and Chrysler shareholders did... in fact, in the last 30 months, most investors are still off around 25% from their pre-recession level. Shareholders bear the greatest risk, and stand to make the greatest gain.

Even the major investment bankers get something, because they get a piece of the enterprise under terms of the bankruptcy. Will they eventually get back the money that they were stupid enough to loan to a badly-managed broadcasting company? Very likely.

Very unlikely. Radio and the economy have reset. That $250,000,000 stick in LA will never be worth much more than, maybe, $100,000,000 in the future. The banks are going to take a loss, but by accepting equity, they can spread the pain over a number of years.

Broadcasting is still very profitable - somewhere in the range of 30-40% profit for most companies.

That's definitely not true any more. While some major market music stations can still have high margins, with the industry off about 30% in revenue, that means that even with cost cutting, margins that were 40% will be 15% to 20%... and in smaller markets, there will be barely any profit in some cases.

I know of a top 15 market where the highest margin might have been 30%, but with the market revenue off by 40%, there are only a couple of stations barely making money.

 

[Goat Rodeo Cowboy]

Puh-lease. Corporations are formed to protect the entrepreneurs, and finance the enterprise through either investment capital or stock offerings. If I'm paid a million a year plus stock options, and my stock options go south, I've still got a million a year.

This thread began with the premise that times are tough for mom and pop operations. Now you are trying to debunk the original premise by using the biggest players in the game as examples to prove the original thoughts are wrong.

I once had a mentor who had been a big-accounting-firm partner. He left to join a company that was a client of his.... a family oriented company begun by brothers. They had become big time. In discussing the secret of their success he offered this observation: "If you want to get rich, there are times you have to bet the family grocery money." I was part of the team that looked after the administration and accounting for over 100 corporations. Even in their successful years they apparently escorted their wives to the bank to sign those "personal guarantee" forms. One of their many corporations may have been borrowing the money.... but they personally GUARANTEED the loan if the corporation couldn't make the payoff.

There are some radio people who need to get out of the studio for awhile and go meet some real business people. They have some wonderful horror stories to share.

 

[TheBigA]

There are some radio people who need to get out of the studio for awhile and go meet some real business people. They have some wonderful horror stories to share.

The reason I posted that story was two-fold. One to point that radio isn't the only field where people are working harder for less money. But the second reason, and you reminded me of it, is that these other businesses are exactly who radio salespeople depend on for local advertising.

If the businesses that local radio depend on for advertising are hurting, cutting back, and unable to hire more staff, then what makes any of us think they have money for radio advertising?

 

[Chuck]

If the businesses that local radio depend on for advertising are hurting, cutting back, and unable to hire more staff, then what makes any of us think they have money for radio advertising?

Usually, advertising is the first thing to go. While I think that is a foolish decision, it is what happens...

 

[landtuna]

It isn't only mom-and-pop businesses who are hurting and it isn't necessarily recent. A personal case history:

In 1980 I joined an international corporation which was then, and is now, the leader in its field and has something around an 85% share of its market. Six months into my employment things changed and the first of many cost-reduction programs was implemented.

The first was called the "125% Solution". This meant every non-hourly employee now worked 125% of his/her normal working hours for the same money they made working 100% of their normal schedule. It is important to note that a "normal" work week was between 50-60 hours for salaried employees so now we're talking 60+ hours per week. Because some projects could not move faster than the critical path there was "make work" to account for the extra hours. That lasted some number of months but eventually could not be sustained.

The next year, around Christmas, we were informed we would be taking two weeks unpaid "leave". The good news though was we could file unemployment and receive $125 for one of those weeks. The money would be turned over to the company and we would receive our normal week's pay. This brought guffaws of laughter from most other major corporations in the area but undoubtedly started a new trend.

About every two years there was a "reorganization". This was officially explained as a change in structure to support a changing business environment but in practice it was "weeding out the dead wood". Unfortunately, along with the "dead wood" politics frequently intervened and "empire builders" got rid of star players. Managers who measured their success by the number of people in their department overtook those who best met their customer's demands. The customers noticed.

Throughout this ordeal the division I worked in basically supported the company but when good times once again followed this same division was declared "old business". It was disbanded by "selling" it to another company for......nothing. It was a give-away. The bottom line was dismissed as "old school" which didn't meet the new corporate direction. Employees who had worked tirelessly during the rough times were rewarded with reduction-in-force notices (basically, get another job here if you can otherwise hit the street).

When good times returned at last the company could sell every product it made at premium price. It even had a program for allocating product to preferred customers. Its products were king and the money rolled in. The company got arrogant. Then the rest of the world caught up. Competition grew. Competitors products surpassed the outdated products of my company. Profits fell. Heads rolled.

During my employment IT services were outsourced then brought back inside a total of three times. This was a very expensive and disruptive event each time it happened yet it happened multiple times as new executives took the helm. As more and more employees grew frustrated and morale declined with each massive reorg department productivity fell and fell again. Expenses rose and customers of the IT department became dissatisfied with the constant disruption and either started up their own internal IT services or contracted with outside vendors.

I see multiple corollaries to the radio business:

1. Radio people are not the only ones suffering from the "more work, less pay" nor are they the only ones seeing emerging technology and poor management decisions wreak havoc on their stations.
2. Modern corporations are driven not by traditional mores but by financial results to their shareholders. Decisions which would have once been unthinkable are now commonplace if it means one more dollar added to the share price or one more dividend payout. Short term thinking is paramount.
3. Companies who do not carefully monitor their customers are likely to be bypassed by emerging technologies or competition or, by abrupt changes, lose their customers completely. Those who do not or can not change to meet the demand do not survive.
4. Companies who do not identify and properly manage their star performers put themselves at risk.
5. Companies who cost-cut by eliminating the employees who bring in the revenue are signing a death warrant.

 

[bossbill]

This is the classic struggle between employees and employers. To fully appreciate the challenges, one needs to have been on both sides of the fence. Most employees have no concept of the cost of running a business.

Developing my small radio group was a real eye-opener after working for several broadcast stations as well as a large electronics corporation.

To the poster who railed against the "owners", but then talked about "shareholders" taking it in the shorts? In a corporate structure, the shareholders ARE the owners.

One poster noted that his division was given away to another company "for nothing". TV Guide was sold for one dollar, likely because it was losing massive amounts of money. No one I know would give something away to another company if it had value.

 

[TheBigA]

Keep in mind that I was not talking about "corporations," but small businesses, the ones local radio depends on for advertising.

For example, we have a small restaurant chain in my area. The local paper reported they reported a small increase in profit last year. However, that profit didn't come from increased sales. It came from cutting costs. What does that mean? It means not hiring more people, it means squeezing more work out of current employees, perhaps smaller portions, or cheaper ingredients. That kind of thing. They also reported that they ran fewer sales, so most meals went at regular price. How likely is a restaurant that is doing that to advertise on the radio? I might suggest, as part of my pitch, that they have some damage control to do. But exactly how do you phrase that in a sales meeting?

All this stuff trickles down to radio. If you're running a station that depends on these businesses for advertising, and they're cutting back, it's likely that you too will be forced to impliment similar plans at the radio station. It doesn't matter how much money you spend on radio programming. If local advertisers are cutting back, your station will have less money for that programming, and revenues will be down.

 

[bossbill]

Relevent to your point about small businesses, our local Wal-Mart, largely responsible for virtually destroying our local small business base when it came to town 15 years ago, is undergoing a major expansion. This will have an impact on the only locally-owned supermarket in this area. And that will trickle down to us. A few employes of the supermarket will be impacted, and maybe one of mine as well.

So do we blame the local supermarket when they lay off, and blame me when I lay off? Or do we properly blame Wal-Mart for a major expansion during a soft economy?

 

[12 In a Row]

Stop and think about it, we all need to point the finger back at us.
WE demand low prices everyday! WE choose to shop at Wal-Mart and the other big box stores.

 

[Goat Rodeo Cowboy]

At our house we have hashed and rehashed that scenario back in our hometown. Some of the store that are gone should have been gone. A competitor more their own size could have opened up and caused them to fail. And some of those shop proprietors and their employees ended up with jobs at the new Walmart store. They lost a job and for some it was a loss. Some of them ended up with a better job AND BENEFITS at Walmart.

But the interesting thing is the number of small business operators who sized up Walmart, recognized the Walmart DID NOT do, what Walmart COULD NOT do and changed their business plan to fit the holes that Walmart left untouched, and in some cases, moved out of their crummy old 80 and 90 year old buildings and moved into the center with Walmart or just down the street.

For some the arrival of Walmart was disaster, for others it was a kick in the rear end which resulted in them finding success in a whole new venture.

 

[landtuna]

... our local Wal-Mart, largely responsible for virtually destroying our local small business base when it came to town 15 years ago, <snip>

Another poster already responded but I'll add.....it was your townspeople who had the option of continuing to shop at the locally-owned mom-and-pop shops after Walmart opened. If they valued personal attention and small size to the less costly and larger inventory of Walmart they could have voted with their dollars and Walmart would have eventually moved on.

 

[Goat Rodeo Cowboy]

I think we have a beautiful parallel.

a lot of those small merchants ran rather crummy stores. But we were used to them. If we went to the next town over, we were still shopping on old creaky wooden floors, etc. Along with the low prices Walmart offered a bright, will lit atmosphere with clean floors and wider, deeper inventory of sizes and styles. My loyalty to a hometown family only goes so far if they can't shape up their act.

A lot of radio stations run rather crummy operations. But we at one time were used to them and content. If we tuned to the station in a neighboring community, we were still listening to crummy sounds in some cases. Some hot-shot comes to your market, buys a station and in a programming sense "laid down some clean floors of sound" and kept them well swept and well mopped. Purchased program features we used to not hear. My loyalty to a favorite old grimy, sleepy station goes only so far if they can't shape up their act.

Going back to my earlier post about some hometown merchants being smart enough to see the holes in the Walmart "format" created new paradigms of merchandising and do quite well. While we moan and groan about the state of radio today, when we look around objectively we see that some folks have figured out what satellite radio and cookie cutter radio don't do and have shaped up some stations very well.

Do they PAY WELL? After the current economic tsunamic settles down we can look again and see who pays well and who does not.

 

[Gatekeeper007]

I made a comment a while back about some of our local business owners being out of touch with the local people around them like the man I called on for grant announcements that told me if I would play Jazz instead of Country music he would advertise with me, only problem, he would be the only one listening in most cases in our area. Sadly alot of those business have now closed and some are hanging on simply because they have too much money invested to let go and nothing better to do. Now I am starting to see the business that use to advertise with us but dropped out a while back close their doors, 14 or so which is a lot for our area. Last month we lost 1/3 of our ad income, the biggest drop in our ten years on the air due to the economy. Many of the business that still advertise with us tell us that nearly 80% of their business comes from people that hear grant/ads on our station, This tells me a lot about our role in our community but due to the loss of a lot of our income we had to cancel all our local coverage of high school and grade school football and baseball games as well cut back on local church services coverage. This dissapointed a lot of kids as well as parents and grandparents but there was nothing we could due without the money to cover these expences. So yes people are working harder for less pay, businesses are cutting corners and in some cases so much so that their loosing their businesses all together. Others are working harder making less but at least there still here.