The Day the “Dumbest Idea” Invaded the Radio Industry

shareholder valueLast week I wrote about killing the goose that lays the golden eggs. It was my way of comparing the Aesop fable to the world of American radio. It got a lot of discussion. But I felt that while I touched on how radio operators twenty years ago wanted to harvest all the golden eggs immediately versus waiting to get one each day, by virtue of a last minute insertion into the Telcom Act of 1996 that basically removed the ownership caps on radio, there was – as Paul Harvey used to intone – ‘the rest of the story’ to be told.

The rest of the story involves “the dumbest idea.” I grew up about a decade after World War Two ended. This was the period when America enjoyed an extended period of economic growth and a shared prosperity. By “shared prosperity” I mean it was a time when the workers who produced a product or service shared in the profits produced by the company. Managers and workers would see their income grow together. As everyone’s pay increased, there was more discretionary income to spend. This was the rise of the middle class in America. All boats were rising with the economic tide.

In 1968, I started on-the-air at one of my hometown radio stations while in the 10th grade in high school. I was paid the minimum wage; $1.60 per hour. Did you know that 1968 was the year when someone making the minimum wage had the most buying power for that rate of pay? The equivalent in 2012 dollars is $10.34 per hour. So what happened?

Somewhere in the 1970s things changed. Firms began to focus on themselves. The productivity gains produced by the workers were no longer shared with the workers. Since no one complained, this new way of doing business continued.

The 1980s really saw this new operational style take hold. And as it did, incomes for the middle class stagnated. When the middle class incomes stop growing, the ramifications on the rest of the economy are magnified. Workers no longer have discretionary income to spend. This was initially covered up by women entering the workforce producing two wage-earner incomes. Then when that ran its course, credit cards, second mortgages would keep the party going under false pretenses.

Today we are in a vicious cycle of decline.

What changed in the 1970s was a new idea about what metric should be used to measure the success of a business. Before this new idea was born, Peter Drucker’s measure was the rule. The purpose of a business, said Drucker, was to create a customer. But that went out with leisure suits, the new crop of business wizards would proclaim. What replaced it was something that even GE’s Jack Welch has called “the dumbest idea in the world.”

What was this dumb idea? Increasing shareholder value.

In an effort to offset declining profits and performance, a new operating modus operandi was conceived that the purpose of a corporation is to maximize shareholder value. To make sure the captains of industry got the message, boards of directors would change their compensation packages to cause these business leaders to focus on increasing the company’s stock price. What could possibly go wrong?

Everything!

The concept was embraced by both America’s business schools as well as industry. Unfortunately, the new policy not only didn’t solve the problem it was supposed to address but by unintended consequences created a myriad of new problems no one foresaw.

Tell me if any of these “unintended consequences” sound familiar to you: short-term decision making, relentless cost cutting, staff reductions (RIFs), less investment in the business, virtually no innovation, low workforce morale, no raises in pay, reduced benefits, non-stop mergers, increased debt, lost ability to compete, declining R.O.I., and economic stagnation. I’m sure you can add to this list based on your own experiences. For a more detailed look at this, you should read Steve Denning’s “Why ‘The System’ Is Rigged And The U.S. Electorate Is Angry,” the inspiration behind today’s blog post.

So twenty years ago, in 1996, President Bill Clinton signed into law the Telcom Act of 1996. This would bring “the dumbest idea in the world” to the radio industry. Wall Street jumped into the new shiny investment opportunity; radio. Everything that every other industry was experiencing from this new operational style was now rearing its ugly head in the broadcasting industry. All with the same negative impacts.

Not all organizations adopted this dumb idea of operating. They stuck with Drucker’s rule. And it’s the same with the radio industry. The smaller radio operations do operate differently. Their success has others sitting up and taking notice.

However, most organizations – and not just in broadcasting – are still in denial. The evaporating middle class is not good for an industry that lives off of advertising. Advertising is pitched to the masses who are the consumers that drive over seventy percent of the American economy. I wrote about the future of ad supported media last year after I read Thomas Piketty’s book “Capital in the 21st Century.” You can read that blog post here.

Based on the tumultuous presidential election season we’ve seen so far, it would appear that the American society has awakened and is now “as mad as hell and not going to take it anymore.” Cue Howard Beal here.

Steve Denning writes: “We are now at an ‘emperor has no clothes’ moment.” It’s now clear that this way is not working and is not only leading to systemic value destruction but an economy that no longer works for the middle class.

If we’ve ever needed real leadership in America, it’s now — and from all directions.

22 Comments

Filed under Education, Mentor, Radio, Sales, Uncategorized

22 responses to “The Day the “Dumbest Idea” Invaded the Radio Industry

  1. Al Newharth in his book Confessions of an SOB also blamed Wallstreet quarterly profits presure for Gannett Media’s lack of innovation and long term planning. I think you hit the nail on the head. Al also advocated for better paid and stronger corporate boards. So who came up with Pandora’s box of “shareholder value”?

    Liked by 1 person

  2. Joe M.

    Unfortunately, IMO, that electorate that is “mad as Hell and not going to take it any more” seems to love the party that’s largely putting it to them in the first place.

    Liked by 1 person

  3. Common Sense and American Motivation have become rare commodities. We need positive voices and that where radio / audio delivery / excellent presentation & delivery continues as essential, perpetual service.

    Like

  4. James Heckel

    America needs to once again become a place where things are made, not just designed. Only good manufacturing jobs can bring back a thriving middle class. Too many college degrees chasing too few college level jobs doesn’t benefit anyone but the college industry. We’ll need to level the global playing field to do this, and that means tariffs. We must reduce our economic reliance on consumer spending to at most 50% of the overall economy, and use tax incentives that reward companies that take a long term view of their businesses via investment in plant and equipment.

    Like

  5. Pingback: The Day the “Dumbest Idea” Invaded the Radio Industry

  6. Pingback: Reblog: The Day the “Dumbest Idea” Invaded the Radio Industry | Adam's Advertising and Marketing Manifest ... oh.

  7. Reported in today’s (3/31/2016) Radio+Television Report, comments from an anonymous expert: “Radio never should have gotten involved with Wall Street and hedge funds,” says this expert, saying the results of the ’96 Telecom Act which relaxed radio ownership limits have been a disaster for the industry.
    Read more at http://rbr.com/when-does-debt-load-become-crushing/#6G29IOrb08mWd62U.99

    Liked by 1 person

  8. Maximizing shareholder value remains in fashion. In one study of S&P 500 companies, the share of profits going to stockholders has increased from 50 percent in the early ’80s to 86 percent in 2013. That leaves a shrinking pool of money to invest in businesses themselves.

    Read more here: http://www.marketplace.org/2016/06/08/world/profit-shareholder-value

    Liked by 1 person

    • spotmagicsolis

      Yes, but as you may have read on my fb today that Increasing Shareholder value is just a lying slogan, and that most companies use it to ease frustrations while the corporation looks for any loophole/excuse to reduce and often eliminate shareholder dividends,

      Like

  9. Talk to old radio people and they’ll tell you that the Telecommunications Act of 1996 destroyed radio. If it didn’t destroy radio, the law certainly changed it forever, and none of it for the good.

    It’s done no good for anyone, not the industry, not listeners, not advertisers.

    radio bug newnew 1996The only people who ever stood to come out ahead were the fast-money people, the folks who financed the explosive growth of giants like iHeartMedia. In end they too may take a hosing.

    The problems radio faces today trace directly back to 1996. Indeed, 1996 is the great divide in the history of radio—radio before 1996 and radio after.

    Read more here: http://www.medialifemagazine.com/1996-year-changed-radio-forever/

    Liked by 1 person

  10. Pingback: My 100th Blog Post | DickTaylorBlog

  11. Pingback: Don’t Let Radio End Up Like Yahoo! | DickTaylorBlog

  12. Pingback: Tall Towers in Big Fields | DickTaylorBlog

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  14. Pingback: Best of the Blog 2016 | DickTaylorBlog

  15. spotmagicsolis

    Reblogged this on Synchronicity is taking terrestrial radio into a *better* digital future. and commented:
    From Dick Taylor’s best of 2016. Here is my favorite blog post.

    Liked by 1 person

  16. A new report from McKinsey Global Institute report quantifies the threat: We estimate that about half of all the activities people are paid to do in the world’s workforce could potentially be automated by adapting currently demonstrated technologies. That amounts to almost $16 trillion in wages.

    http://www.mckinsey.com/global-themes/digital-disruption/harnessing-automation-for-a-future-that-works

    Like

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