Have you ever thought about how Silicon Valley became such a powerhouse in the world of technology? Back in the 80s, my home state of Massachusetts was home to world class research with institutions such as MIT, Harvard and the Route 128 corridor. So how did Boston cede its leadership to California and Silicon Valley? Employee non-compete contracts that held employees bound to these vertically integrated firms.
Meanwhile, taking a different approach companies such as Hewlett Packard and Sun Microsystems were embracing their people to job hop. They encouraged open technologies and building alliances.
Cross-Pollination of Ideas
In her book Regional Advantage AnnaLee Saxenian writes that these same phenomena took place in all kinds of industries all over the world; that being that these companies in California allowed cross-pollination of ideas to occur by the movement of people between them.
Ironically, radio enjoyed this same kind of cross-pollination up until 1996.
The Telecommunications Act of 1996
President Clinton signed sweeping communications reform in America with the Telecommunications Act of 1996. The radio industry consolidated almost overnight with a handful of major companies owning virtually all of the best “beachfront” radio properties.
The radio business, is not about just having a license to broadcast, but is about transmitted power and – like the real estate business – location, location, location. Unfortunately, that’s not how the FCC looks at license assignments.
Federal Radio Commission
The first regulatory body for communications in the United States was the FRC (Federal Radio Commission) and it divided the country into five equal regions and assigned the same number of radio services to each region. Why was this a bad idea? Because most of the people all lived in one or two regions of the country at that point in time and so more radio service was needed in them than in regions where it was mainly wildlife.
History Rhymes Again
I fond of saying that history doesn’t repeat but usually rhymes and in the case of radio’s number of AM or FM licenses a single company can own in a metro area we are repeating the same mistakes made by the FRC.
It’s not about number of signals but the power of those signals and location.
Cross-pollination of People
Part and parcel with the Telcom Act of ’96 was the loss of cross-pollination of people. If a person was RIF’d (Reduction In Force) by his company, he was under a non-compete to walk across the street or maybe some place else in the country as the same companies were now competing against one another all across this great land.
Before the Telcom Act, a single radio company could only own 12AM-12FM-12TV stations in the entire USA. After the act, pretty much as much as they could afford to buy (with certain limitations).
Worse, these huge new radio companies would introduce across their footprint the concept of “Best Practices.” This is a code word for putting a knife in the heart of innovation.
Innovation requires risk.
Wall Street investors are basically risk adverse.
Playing it safe becomes the rule of the day and anyone that can’t play by the new rules is quickly shown to the exit doors.
Innovation requires three things according to the author of The Rise of the Creative Class, Richard Florida. Those are talent, technology and tolerance.
Consolidation and the new goal of “increasing shareholder value” would chop the talent pool while replacing people with technology. And the tolerance for anything new was likewise reduced to nil. Welcome to “playing it safe” radio; sterile, predictable and boring.
The Day I Tore Up My Employee’s Non-Competes
Back when I was in Atlantic City, I had an employee walk across the street to a radio competitor of mine. I wanted to pursue this employee because I had them under a non-compete contract. My new owners said that if a person didn’t want to work for them, to just let them go. I said then if they didn’t intend to enforce my employee’s non-compete contracts why did they keep them in place when they bought my stations from the previous owner. The president’s response to me was, “darn if I know.” I said then I’m going to tear them all up and he said, “go ahead.”
Life Without Non-Competes
I have to tell you, as a young manager, the realization that everyone at my radio stations could walk across the street to competitors was scary.
However, something wonderful happened.
People who now worked for me knew they no longer were working under non-competes and they now worked for me because they wanted to. It also made me realize that I too needed to provide a style of management that made people want to stay with me more than going someplace else. That, I would learn, is the best way to run a business.
Even better, having this type of work environment saw lots of talented people waiting in line to come work at my stations.
Make Radio Great Again
Radio became the force in America it is by being open to risk, new ideas and innovation. It kept the things that worked and jettisoned the ones that didn’t.
In other words, before radio was encumbered with huge debt brought on by consolidators, it invested in its future.
Radio can only win the future by investing in it.
8 responses to “Radio’s Non-Compete Contracts”
Reblogged this on artversnick and commented:
very insightful and so true on the “state of the industry” today.
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Here’s another thought about the irrelevancy of non-competes today in radio as it pertains to air talents. When Entercom assumed management of WBT-AM (along with two other stations) in Charlotte, the first order of business was to eliminate one of the high profile air talents. What is to stop him from launching his own internet station and/or podcast? He did. Although that’s not terrestrial radio, it is competition, audio-wise. I don’t know if he had a non-compete, but the fact is there are other ways to compete today.
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At WNUA/Chicago we, the announcers and members of AFTRA, worked with our union rep to have non-compete clauses made illegal in the station of Illinois. It took a couple years of discussions with a state representative, who supported our cause, but our collective efforts got it passed in the early 2000s.
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I’ve been on both sides of non-competes and they smell. It appears Wall Streeters, Spread Sheeters and CYA Incompetents can mess up a station in a 5 or 500 station group. HDTV & film content that steps away from bland junk makes money. Stagnation over service isn’t allowing radio to deliver it’s full potential. Smart phones are transistor sisters on steroids. Nearly 100 year old Radio is still Everywhere, Wireless & Free. Now with excellent audio and complementing a bunch of other new shiny connected gadgets. INVESTMENT IN RADIO IS NOT A LINE ITEM. It’s creative stimulation, personnel curation, psychological income, practical experience, ascertainment and positive motivation. “Build it and they will come!” Clark, http://www.broadcastideas.com It must be Sunday with Professor Taylor.
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The Telecommunications Act would of happened sooner or later. Half of radio stations at the time were losing money and stations would of went dark, or forced to reduce staff. Cuts would of started due to the advancement and accuracy of modern computer technology. Budgets have always been a reality (how many of you worked for a combo where one station was operating with 4 reels and Carousels). I have fond memories of the old days, but I also know they are not coming back. If you want to be in radio, you must be passionate about all parts of the business, or the future will be pretty bleak.
Thought provoking piece, Dick. I read this week that President Clinton was asked several years ago if he would have signed the Telecomm bill if he had known what the result would be. He said he’d essentially signed it ‘blind,’ without being briefed first. He said he never would have signed it if he’d been aware of the potential for job loss and severe reduction in competition. Although I’m a lifelong progressive Democrat and far-leftie, when I read that, I said “Thanks, Bill.”
Thank You Pete.
I have a friend who shared a stage President Clinton and had the opportunity to ask him about that bill. According my friend Clinton said that the radio/TV consolidation part was added at the 11th hour and when he signed the bill was not aware it had been put into the bill.
The bill was supposed to provide competition between the cable and phone industries (and I’m really condensing it with that remark…FYI). The goal was to create competition to bring down the cost to consumers.
But what it really did was consolidate the radio/TV business from 12AM-12FM-12TV to basically as much as you could afford to buy.
And that genie can’t be put back into the bottle.
Thanks for stopping by the blog. -DT
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