Radio’s $$$ Challenge

Revenues going downRadio, like all traditional media, is in the economic fight of its life.

In 2006, before the start of the Great Recession, the radio industry booked $18.1 Billion in advertising revenue. In 2006, the thought of earning digital dollars from doing anything on the internet was under development.

The Great Recession

Then America’s economy went catawampus. Radio’s ad dollars at the peak of the Great Recession dropped to $13.3 Billion in 2009.

Companies like Clear Channel began jettisoning employees, their biggest expense, by the boatloads. I sadly remember coming back from Clear Channel management meetings with a thumb drive and the dates that different spreadsheets would open and outline where the next employment cuts would be implemented.

John Hogan, Clear Channel CEO, told us at one of those meetings, “Never let a good crisis go to waste.” By that he meant, by using cloud of the Great Recession that the entire structure of the company could be changed.

Digital Dimes

In 2010, the radio industry began tracking the impact that the Internet of Things (IoT) began having on the total revenue of the business. That first year, $0.4 Billion was earned.

In those early years, traditional media talked about how they were converting traditional advertising dollars into “digital dimes.” In other words, for the same amount selling effort, the Return On Investment (ROI) for digital was minuscule.

U.S. Inflation Rate (2006 to 2018)

Not helping the radio industry chiefs was the inflation rate in America. A dollar in 2006 was only worth 75.44-cents in 2018.

How did radio revenues in 2018 compare to what they were in 2006? They were down $4.8 Billion. That’s comparing the same Over-The-Air (OTA) revenue of 2006, which had no digital income, to the OTA revenue produced in 2018.

But what about those digital initiatives?

From $0.4 Billion in 2010, they rose to $0.923 Billion in 2018.

So, comparing total revenues for the radio industry from 2006 to 2018, we see that radio is only down $3.9 Billion. But here’s the problem, just to stay even with 2006, and not grow in revenues, radio would need to have earned about $22.5 Billion in 2018. In other words, instead of being down $3.9 Billion, radio needed to be up about $4.4 Billion. That’s an $8.3 Billion gap!

A Look Ahead

Local radio is one of the top five advertising platforms in America today. BIA Advisory Services SVP and Chief Economist, Mark Fratrik, is predicting that OTA radio revenues will continue to decline one to two percent in 2019 and for the next few years.

Even adding in those digital revenues predicted to be $1 Billion for radio in 2020, Fratrik says total radio revenues are expected to remain flat for the next five years.

That’s why we’re continuing to see radio companies trimming their employment rosters every time we read the latest radio trade publications.

If misery loves company, the only bright spot – if you can call it one – is that the advertising dollar challenge for newspapers and television will be even greater.

Traditional media is converging on one delivery platform, the internet.

Today in China OTA radio trails streaming music for in-car listening. Even in America, for people who listen once or twice weekly, streaming and OTA listening are tied at 33%.

“The decision we have to make is

not whether this is the media environment we want to operate in,

it’s the one we’ve got.”

-Clay Shirky

 

 

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How is Radio Affected by Being Efficient?

EfficiencyI started my professional radio career in the 10th grade of high school. However, I started dreaming about being a disc jockey for as long as I can remember. I built my own AM/FM radio station in the basement of my parent’s home and broadcast to about a three block radius around my house.

Lots of People

In my early professional days, radio was people, lots of people!

Every aspect of running a radio station required people to make things happen. Sales, bookkeeping, reception, disc jockeys, copywriters, news anchors, reporters, engineers, production and promotions people with layers of management on top of every department, up to the general manager who oversaw the entire operation.

As an example, CKLW a stand-alone AM radio station in the Detroit metro, had 23-people just in their news department. Today that’s about double the total number of people running a cluster of AM/FM radio stations in any metro.

Was radio efficient back then? No.

Was radio effective? YES!

Did radio make money? Tons of it!

The Gatekeepers

What traditional media had back then, were gatekeepers. Newspapers, magazines, radio and television had people charged with making sure there was a good flow of information and entertainment. These people acted as filters, and overtime they developed standards and ethics that all Americans could rely on.

It wasn’t perfect and mistakes were made, but it got us through the 20th Century and unified us as a nation.

The New Gatekeepers

The birth of the internet ushered in a new gatekeeper, the algorithm. Now lines of code would replace people as the filter for what Americans read, see and hear. Unfortunately, these lines of computer code lack transparency in how they filter the flow of information.

Have they been encoded with a sense of civic responsibility? Who knows?

Is the flow of information the same for everyone? No, it has been personalized to our likes and dislikes. It has put each of us in our own information silo.

Bowling Alone

In 1995, Robert D. Putnam wrote an essay entitled “Bowling Alone: America’s Declining Social Capital”. The essay chronicled the decline in all forms of in-person social interchange. What Putnam saw in his research was that the very foundation Americans had used to establish, educate and enrich the fabric of their social lives was eroding. People were now less likely to participate in their community, social organizations, churches, and even their democracy.

This trend has only been accelerated by social media and the internet. The unintended consequences of the internet are, that it has isolated each of us to a web of one. Algorithms have taken what Putnam saw happening in the last century and put it on steroids in this century. All in the name of driving more efficiency.

Efficiency Bubble

The “efficiency bubble” means that efficiency is valued over effectiveness in today’s world. It’s a term coined by Will Lion of BBH advertising.

Rory Sutherland, Vice Chairman of Ogilvy in the UK, recently shared this personal experience that demonstrated the efficiency bubble.

“The absurdity of the efficiency bubble was brought home to me in a recent meeting with an online travel company. The conversation repeatedly included the mantra ‘the need to maximize online conversion.’ Everyone nodded along. Clearly, it is much more efficient for people to book travel through the website than over the telephone, since it reduces transaction costs. But then someone – not me, I’m ashamed to say – said something revelatory: ‘Ah, but here’s the thing. Online visitors to the site convert at about 0.3%. People who telephone convert at 33%. Maybe the website should have a phone number on every page.”

“Perhaps the most efficient way to sell travel is not the most effective way to sell travel. What, in short, is the opportunity cost of being efficient?”

“Nobody ever asks this question. Opportunity costs are invisible; short-term savings earn you a bonus. That’s the efficiency bubble at work again.”

Consolidation is Just Another Word for “Efficiency”

During radio’s massive consolidation, Excel spreadsheets produced by new minted MBAs screamed a multitude of ways to have radio stations become more efficient. Unfortunately, the fast-lane involved the elimination of tens of thousands of radio jobs.

And it’s still going on as I write this article.

I don’t ever remember anyone asking about “opportunity costs” being sacrificed in the process.

In the last radio property I managed before entering higher education as a broadcast professor, I would spend my final year going to corporate meetings about Reductions In Force (RIFs) and coming home with a thumb drive that had dates to open new pages in an Excel spreadsheet, that listed what people and what departments were to be eliminated next.

It’s my belief that efficient radio chases away listeners, effective radio creates them.

Blame It on Competition

Tech Guru Pete Thiel blames the efficiency chase on competition. “More than anything else, competition is an ideology – the ideology – that pervades our society and distorts our thinking,” says Thiel.

When all radio companies chase the same efficiency metrics, they all end up sounding the same, their websites end up looking the same, and in essence, they’ve turned the creative medium of radio into a commodity.

Deregulation of broadcast, as I wrote about in The Birth of Radio in America article, now has virtually all of the radio stations in a radio market owned by one or two companies.

Radio always stole great ideas from other radio stations around the country, but most often those stolen ideas were massaged and improved upon in the process. Everyone was upping the game through their own creativity lens, and each radio station had its own unique sound.

Unfortunately, along with corporation radio came the concept of “Best Practices”. This would be yet another contributor to the end of personal creativity at radio stations, all in the name of more efficiency.

Emotions

Roy H. Williams, the Wizard of Ads, says we buy things emotionally and justify those buying decisions rationally. The pursuit of efficiency is a rational answer to an emotional problem.

The radio business was never built on Excel spreadsheets and doing what was most efficient, it was built by creative people who touched others emotionally. Be it station imaging, air personalities, promotions, contests, community events, advertising or marketing, radio always went for people’s hearts.

The successful radio stations today still foster those emotions in their listeners and advertisers.

They’re just becoming harder and harder to find.

 

 

 

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Road Trip Time Again

2019 Southern Cross-Country Road Trip

We’re off again!

Last year we drove over 11,000-miles on a Cross-Country Road Trip that took us from our home in Virginia to the State of Washington and back. You can read more about the planning of our 2018 trip HERE and the re-cap of our adventure HERE.

Yesterday, we set-off on our 2019 Cross-Country Road Trip that will take us from Virginia to the International Balloon Fiesta in Albuquerque, New Mexico, a visit with Pennie & Roy Williams (aka The Wizard of Ads) on the campus of The Wizard Academy just outside of Austin, Texas, a trip to Mission Control in Houston where they’ve recreated the nerve center that put the first man on the moon 50-years ago, a trip down Bourbon Street in New Orleans, a moment to reflect on a historic moment in American Civil Rights at the Edmund Pettus Bridge in Selma, Alabama and lots more along the way, finally returning home.

Our road trip this year will be only 3-weeks long and under 5,000-miles.

When we complete our 2019 Road Trip, Alaska will be the only state in America we both have not visited.

This blog will be on vacation for the next three weeks.

I’ll return with a new article on Sunday, November 3rd.

 

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Hope You Enjoy Your Stinkin’ Phones

Express FinalThat headline graced the cover of the final edition of Express, the free commuter paper published by The Washington Post. It was created only 16-years ago, as a free paper for commuters in the DC area to read on their daily metro commute into Washington. It all came to an end on Thursday, September 12, 2019.

“I’ve always known this day would come.”

-Dan Caccavaro, Executive Editor

The 130,000 daily circulation Express launched in 2003. At that point in time, iPhones weren’t even on anyone’s radar and Facebook was something only students at Harvard were using to communicate with their fellow classmates. The world had yet to be invaded by Tweets, SnapChats or Instagrams.

Those of us in business were getting our first Blackberry smartphones that allowed us to read our emails while away from our offices.

Flip Video

When it debuted in 2007, the Flip Ultra became the best-selling camcorder on Flip_VideoAmazon.com. It was so popular the line was taken over by Cisco in 2009. Fifteen improvements were made to the Flip video camcorders, until in 2011 when Cisco shut down the entire Flip Video division.

From its introduction as the “Pure Digital Point & Shoot” video camcorder on May 1, 2006, till it vanished only four short years later, the reasons for its demise can be traced to the same root disruption that took down the Express.

The introduction of the iPhone on January 9, 2007.

Downton Abbey Movie (No Spoiler Alert Needed)

This past Friday, Sue & I went to see the Downton Abbey movie. The theater was packed. Many of the movie’s patrons had not been in a movie theater in years, but due to this series airing on PBS and now all six seasons being available on Amazon Prime, legions of fans were heading off to their local movie houses.

“Studios ignore the maturing audience at their peril.”

-Hugh Bonneville, Lord Grantham in Downton Abbey

It’s not just the movie studios who are ignoring mature audiences, other forms of media would be well advised to sit-up and take notice.

The movie continues asking the central question raised by the television series; how does a place like Downton Abbey fit into the modern era? I’m sure It’s the same question every form of traditional media is asking themselves.

The Radio Corporation of America (RCA)

IMG_3994Following World War I, America saw a future in long-distance wireless telegraphy using high-power radio stations. In the United States, British owned Marconi Wireless Telegraph Company of America ruled the airwaves, but in order to stay competitive, it needed the new equipment for broadcast, manufactured by General Electric Company.

President Woodrow Wilson and the U.S. Navy decided that America needed to become the leader in global communications, convincing GE not to sell its equipment to Marconi, unless he agreed to give up his American based division to an all-American company.

That new company, RCA, would begin business on December 1, 1919. Its Chatham Radio, WCC (Wireless Cape Cod), became the largest U.S. maritime radio station. RCA succeeded in making America the leader in global radio communications.IMG_3974

2019 marks the 100th anniversary of the birth of Radio Corporation of America. RCA was reacquired by GE in 1985 who proceeded to breakup its assets. The RCA brand today is now owned by a French multinational corporation.IMG_3981

At one time, WCC was fully staffed with 30-people, most of them radio operators. Working around the clock, they would handle 1,000-messages a day. During the busy periods, as many as 10-operators would be on duty at the same time. The messages were all sent in Morse Code.

The radio station closed in 1997. The 100-acre site was sold to the town of Chatham, Massachusetts. The Chatham Marconi Maritime Center was founded in 2002 and operates the center as a museum and promotes the advancement of youth STEM education in the communications science.

Morse Code served as the international standard for maritime distress until 1999, and was replaced by the Global Maritime Distress Safety System. The French Navy ended its use of Morse Code in January 1997 with the final transmission “Calling all. This is our last cry before our eternal silence”. The final Morse code transmission in America was on July 12, 1999. The United States signed off its use with Samuel Morse’s original 1844 message, “What hath God wrought and the prosign “SK”. (The SK prosign was Morse code short-hand for “End of Contact” or “End of Work”.)

Commercial Radio Turns 100 in 2020

Next year, on November 2, 2020, commercial radio in America will celebrate its 100th birthday. That was the day that KDKA became the first commercially licensed radio station to begin broadcasting.kdka

Which brings me back to the Downton Abbey movie, which asks the question of great estates that I feel also applies to commercial radio stations, “Are we right to keep it all going, when the world it was built for is fading with every day that passes?”

“Hope is a tease designed to prevent us accepting reality.”

-Dowager Countess of Grantham

One has to wonder how long the style of radio that many of us grew up with will still be around. In many ways, it’s already disappeared, such as people being replaced by computerized automation. It’s much the same path that the radio station WCC experienced before it was closed down and turned into a museum.

To paraphrase the words of the Dowager Countess in dealing with the world’s only constant, change, and putting it in perspective; today’s broadcasters are the future of radio. The broadcasters who came before us lived different radio lives, and our descendants will live differently again. They will take over and build upon a communications world where we left off. Soon, today’s broadcasters will be the old curmudgeons keeping everyone up to the mark. I’m sure the future of communications will be an exciting time. “I think I shall prefer to rest in peace.”

“At my age, one must ration one’s excitement.”

-Violet Crawley, Dowager Countess of Grantham

 

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Putting a Face on Change

Downton Abbey Movie

If you want to learn how technology has impacted our lives,

watch the Downton Abbey series on Netflix.

This past Friday, I watched the movie.

Stay tuned for my thoughts.

_________________________________________________________

Previously, Here’s what I’ve written this about the series.

They Bought a Wireless

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Taking a Media Break

IMG_7870

Back with a new article in two weeks.

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What’s the Purpose of a Radio Station?

WSM Tower SiteRadio is a business.

Peter Drucker said the purpose of a business is to create a customer.

For radio, that means creating two types of customers: 1) a listener and 2) an advertiser and when done correctly, a radio station makes a profit.

Making Money

For most of my radio career, radio enjoyed a revenue expansion that rivaled the infamous “internet bubble.” Owning a radio station was considered a license to print money. Bottom lines often delivered a profit of 25 to 50% or more, so, while those profits were noticed by Wall Street investors the ownership limits on radio stations kept them away. Investors were frustrated that there was no way to scale up the size of a radio broadcast company.

Telcom Act of 1996

Then President Bill Clinton signed the Telecommunications Act of 1996. It relaxed radio’s ownership rules making it possible for one company to own multiple radio stations in a single market.

Wall Street loved the change! The money poured in from eager investors, and companies like Clear Channel, Citadel, and Cumulus quickly bought as many stations as they could using other people’s money. Mom & Pop radio operations had multiple companies vying for their properties and radio station values soared.

Ownership Limits

In 1953, the Federal Communications Commission (FCC) adopted its so-called 7-7-7 rule to encourage diversity of broadcast ownership. In essence, no single owner could own more than 7 AM radio stations, 7 FM radio stations, and 7 television stations in the entire United States of America.

By July of 1984, the FCC said they sought to encourage media competition and increased the number of radio and television stations a single owner could control to 12-12-12. The FCC Chairman was Mark S. Fowler. The President of the United States was Ronald Reagan. The five member FCC was 3 Republican appointees and 2 Democratic appointees. The vote to expand the ownership limits was 4 to 1 in favor.

“Bigness is not necessarily badness,” Chairman Fowler is reported saying. “Sometimes it is goodness.”

The New York Times reported reaction on Capitol Hill to the expansion of ownership limits this way:

On Capitol Hill, there was mixed reaction to the plan to abandon all limits on broadcasting ownership in 1990, although sentiment has grown in recent years for raising the ownership maximum somewhat.

Representative Timothy E. Wirth, the Colorado Democrat who is chairman of the House telecommunications subcommittee, said, ”The 12-12- 12 rule is just as arbitrary as the 7-7-7 rule.”

Mr. Wirth said a broad bipartisan consensus in Congress favors adoption of ”objective, long-term rules that assure diversity and competition.” He said such rules would provide for increased broadcast ownership but would not completely deregulate it.”

He went to say “If they deregulate in 1990, we could end up with a handful of companies owning every broadcasting outlet in the country.”

President Ronald Reagan

Reagan loved two things, cutting taxes and eliminating regulation. Remember Reagan famously said that “Government isn’t the solution to our problems, government is the problem.” Reagan’s pick for FCC Chairman, Mark Fowler, fully embraced this vision and actively applied it to the FCC.

However, the prediction of Congressman Timothy Wirth wouldn’t come into existence until President Bill Clinton signed the Telecommunications Act of 1996. It would be the first significant overhaul of the 1934 Act in more than sixty years.

Radio station ownership in the first five years under this new act went from 5,100 owners to 3,800.

Instead of opening up ownership to new and more diverse ownership, it created an opportunity for media monopoly. The Wall Street funded radio companies could now buy out the Mom & Pops and the temptation to sell at never-before-seen-multiples was too good to pass up.

Operating in the Public Interest, Convenience and Necessity

When no one really knew what radio broadcasting would become, they did know they wanted radio to be a communications business that would serve its community of license for convenience in good times and of necessity in times of trouble. The airwaves were considered to be owned by the public, so operating in their best interests was a requirement to being an FCC broadcast licensee.

Changing Competitive Landscape

Historically, radio stations competed against one another. Most markets had such battles as, WLS vs. WCFL, WMEX vs. WRKO, WPTR vs. WTRY, KHJ vs. KRLA etc. When FM radio began to take over from AM, a station such as WABC no longer had just WMCA to beat, but now WTKU-FM too, which offered better fidelity and stereo. This new radio competition replicated in every radio market in America.

Then came Satellite Radio, followed by Pandora along with other pureplay streamers, and podcasts so that today, the radio competition landscape lines are blurred beyond recognition.

Mission vs. Platform

Today’s communications company needs to clearly define its mission and needs to earn the trust of all of its stakeholders. That means building trust between its employees, advertisers and listeners.

We need to stop thinking of “radio” as AM or FM.

We need to think of radio as being the audio leader for creating an environment for convening and supporting groups. We need to be preparing for a future that is still coming into focus.

 

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