This week produced some conflicting economic data. The stock market was setting new records and the unemployment rate dropped to 4.3% but the number of people filing for unemployment benefits beat analysis estimates. WTF?
The Surprising Threat to Radio
It’s estimated that two thirds of the American economy is driven by consumer spending. Don’t get hung up on the percentage, but know that a lot of our economy is driven by the buying and selling of stuff that is consumed.
Some things, like a Whopper are consumed quickly and other things, like the car you drive, are consumed over a longer period of time. Much of our spending is discretionary.
Radio is a strong driver of putting thoughts into people’s heads about things they should be deciding to consume. Radio is the word of mouth medium with the big mouth.
So what threatens radio today? Consumers are not spending.
Radio’s Role in Consumerism
Broadcasters can’t change the attitude of an apathetic consumer for the most part. Other factors in the world create consumer attitudes, uncertainty being one of the biggest.
Uncertainty causes consumers to hunker down and make do with what they already have. And today’s world is filled with lots of uncertainty that is being stoked 24/7 by the cable news networks, talk radio and social media.
Radio is excellent at directing consumers to different businesses, products and services when they are feeling confident and want to part with some of that discretionary cash.
Barron’s reports that year-over-year growth in U.S. retails sales peaked in mid-2011 at 8.3% and has since rolled back to 4.5%. The four biggest performing stocks are Amazon, McDonalds, Comcast and Home Depot.
A World of Debt
Radio people are very aware of the huge debt problems impacting iHeartMedia and Cumulus. But they may not be aware that American household debt in the last quarter reached a record $12.73 trillion and Barron’s says that just surpassed the debt American’s owed at the height of the housing bubble.
Student loan debt is now over $1.4 trillion, which is about $620 million more than U.S. credit card debt. Student loan debt rose six percent in the past year.
American credit card debt rose by $3 billion in February 2017, its highest level since 2008 according to The Motley Fool.
Market Watch says that U.S. households now have surpassed the amount of debt they had in 2008. Plus Americans are struggling with their auto loan debt with these sub-prime loans hitting their highest delinquency levels in December 2016. A pattern that Market Watch says was seen prior to the 2007-2009 great recession.
An Inconvenient Truth
During the 1960s and 1970s, the American economy expanded over 11%. In the 90s it couldn’t get above 9% and in the most current expansion it hit 5.9% and recently was only 3.6% according to Barron’s.
Many Americans no longer see consumption as being the “American Dream” but now are saving as much as they possibly can despite interest rates on savings sitting at anemic levels.
Income inequality is also playing a huge role in the current state of American consumerism. 76% of the wealth in America is now held by the top 10%. Only 1% is in the hands of the bottom 50% of American families in today’s America. CNN Money reported in December 2016 the wealth inequality in America is getting worse. “The rich are money making machines,” said CNN.
A 2016 study by Gallop senior economist Jonathan Rothwell found that the bulk of our national spending is eaten up by just three items – healthcare, housing and education.
What’s the impact on ad supported media in a world of enormous debt and haves vs. have-nots? I wrote about this after reading Thomas Piketty’s book “Capital in the 21st Century.” That article was called “The Future of Ad Supported Media” and you can read it by clicking on the link here .
Survival of the Fittest
What all of this is telling us, Spending is OUT and Frugality is IN.
A broadcaster friend of mine was sharing that in his PPM market TV ad time is now selling at “radio rates.” When the pie isn’t growing, media companies are forced to begin taking more from someone else.
Radio is the best value for the money when the economy goes soft.
I started my radio sales career at the beginning of the early 80s recession. I was very successful and it saw me enjoying a four plus decade long radio career before becoming a broadcast professor to pay-it-forward to a new generation of broadcasters.
As Warren Buffett says, “It’s when the tide goes out, that you know who’s wearing a bathing suit.” In other words, when the business changes from taking orders to really selling, we will learn which companies have trained their sales people to not just survive but thrive.
DickTaylorBlog 
Wow…a Saturday posting Dick! Trying to keep us on our toes, huh?
Your last paragraph made me think about WABC just before the switch to talk. When it was the hottest station in the world, the Sales Department was full of “order takers”. When the ratings fell (even though they had ratings that the 2017 version of WABC would kill for), there were hours where the log had nothing but the spots from the Network Newscasts!! When the worm turned, it truly showed who could really sell. Even I could take orders, but being a real seller is a temperament and a skill set that seperates success from failure when times are hard. I worked with lots of order takers over the years, but watching a real seller work is a truly a work of art! Lucky to have known and worked with a number of those folks.
Frank
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I’m traveling very early Sunday morning and will be off-line during the time of my normal Sunday morning ritual of doing the blog. Thanks for adding to the conversation Frank. -DT
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Radio Changes Attitude. Information, entertainment, music and influence!
On-line disrupts retail. Automobile buying is cyclical. Selling is an art and Radio paints the picture. Part of the imminent “shaken not stirred” to revitalize radio is “The New Commercial.” Curating consumer spotlights changes the presentation, atmosphere and informative style. It’s another
no cost, in-house opportunity coming to a frequency near you. So, when
the going gets tough….the tough get going. And, the CYA nay-nays best encourage it to happen. Safe travels, Professor Dick. Clark, http://www.broadcastideas.com
BTW, two outstanding Boston happenings, this weekend: The 50th WRKO
Anniversary reunion and broadcast, coinciding with Sgt. Pepper’s golden.
Senior broadcast boomers certainly have the magic sound and get it on. https://www.linkedin.com/pulse/wrko-50th-anniversary-reunion-6217-clark-smidt?published=t
And, Boston Impresario Supreme Fred Taylor kicked off his Heritage Jazz Series at The Cabot Theater with twenty something stunning sax & wonderful song protégé Grace Kelly. Old powers new. New powers old. Radio lives with outstanding legacy, new formats, everywhere connection,
and The Best is Yet to Come!
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Very thoughtful editorial, Dick.
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Thank You Jim
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I get the economic points above and appreciate your work in assembling them. Another appreciation is your ability to exchange comments in a civil way with folks who disagree.
That said: Why, with the exception of Connoisseur Broadcasting’s Jeff Warshaw, do we not hear leaders ever saying “it’s radio’s fault”: (Insert long list of known negatives here.)
Always pointing a finger at the operating environment, without admitting to not changing with the times, grows old.
In business it gets done, or it’s not done. Reasons why don’t matter.
I thought getting things done is why execs are paid such high salaries.
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Ken I certainly understand your point, but there’s more radio going on in America than just those BIG DAWG operations and for them radio IS changing with the times and they are working hard to change with the times.
That said, when the economy goes soft, the great operators are able to get a bigger piece of the pie.
When it comes to those Wall Street financed companies, not just radio, their appears to be a click that sees to it that those at the top get paid whether things go well or not.
Most have golden parachutes that those in the trenches never have access to saving their bacon.
I only take exception to the concept of painting ALL broadcasters with the same brush. That’s never a good or valid position to take. -DT
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Dick: My error – I should point that my comments refer to broadcasters in the top 75 markets. Some smaller markets do work well for their communities (when not tied to a conglomerate). Your point is well stated.
Though, there’s always the “but.” I recently drove from Ohio to San Francisco, to Seattle, and back to Cleveland. Weeks later the wife and I drove from Cleveland to Washington DC. Did a lot of dial turning and found only a few small market stations excelling. I was also surprise by the high number of religious broadcasters.
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I really like where you’re going with this article and appreciate your insights tremendously. One thing that comes to mind is that radio in major markets very expensive, small to mid size businesses are not able to afford and radio cannot help them grow. There must be a way to do this and still be profitable perhaps everything isn’t designed around spots
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Ken, Thank you for clarifying. Like most situations, one-size does not fit all and there are good examples and bad examples that can be found. It is my hope that as those broadcasters doing it right profit, others will wish to adopt their method of operation. -DT
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Tim Moore was one of my broadcast consultants over the years. This morning’s MIDWEEK MOTIVATOR ads to the discussion about this week’s blog article I wrote and I thought I’d share it here:
Twenty-one years: nearly a quarter of a century gone like a breath since Lowry Mayes saw the infinite potential of the Telecom Bill; bundled under “deregulation.” We shake off the sad sense of the passing of time, looking back on that giddy runaway acquisition fever where suddenly radio’s “ma and pa culture” saw companies forming overnight, while financial institutions raced into oncoming traffic with trucks full of money, literally throwing it at ownerships. Clear Channel tripled its licenses; tripled them again then doubled the count. Companies were born while entire segments of the country saw new names on licenses, new investment people falling ass-over-applecart in love with radio. The reasons were valid; the financial assumptions weren’t.
As a young guy who was enjoying ownership in Michigan and Florida, I remember thinking “I didn’t attend Wharton or Harvard business school, but something about this seems surreal, not quite connected.” At that point Alan Mason and I had cranked-up Audience Development Group adding programming clients around the country. And so I took a deep breath and asked myself, “Do I jump into the big pool of acquisition?” Respected colleagues were urging me to take that plunge. In fact one our clients sold their holdings for $700,000,000, roughly twenty-times trailing cash flow! It was my moment of epiphany: I’m a good operator and I’m quite sure I can’t do those multiples or anything close to it. Today in the middle of 2017 we see the ultimate outcome. From Mayes’ ingenious empire-building to current headlines proclaiming iHeart and Cumulus’ stressed with seemingly impossible financial positions based on the obvious.
Military and business judgment should never stray far from principles of time, space, and force (in radio’s case, cash flow-to-net-sales parameters). The cold arithmetic of force versus “run-rate” never lies. It became simply a contest with time. By mid 2006 ominous storm warnings began to appear for Clear Channel, Citadel, Cumulus, and innumerable less incandescent names. By 2008’s recession skies darkened; massive downsizing turned off lights, closed offices, and darkened hallways.
Since then radio has unfairly and inaccurately been labeled a troubled medium. With 266,000,000-plus weekly listeners, any sense that radio is on the rocks is fantasy. Good operators are proving it daily-some of whom are clients. No, the larger “what-if” now asks, “if the mega companies are in fact ultimately placed in trusteeship poised for a managed sell-off, aren’t we looking at the potential for an intriguing rebirth of radio ownership demanding highly skilled operating parameters?” Think about it: last we checked banks cannot own licenses. So when smaller groups like Border Media handed over their keys, it was a savvy and nationally respected financial steward appointed as trustee, ultimately managing the sale of those markets. Ponder the potential for radio’s future if in fact many industry predictions come to pass! Radio done right, is still an incredible business, especially given its expansion and horizontal integration into the digital frontier and beyond!
Few would actually pull for the demise of a company; but today with awesome inevitability its clear some cannot and will not, sustain indefinitely. After every war, armchair historians have their pallid fun telling those who bled ‘how they should have fought their war.’ On paper, what the mega groups had in mind was a good plan. But broadcast battles aren’t fought on paper. Out of the past comes great optimism. Radio will grow and prosper but through people, not B-school arithmetic.
The brilliant German philosopher Hegel captured it two hundred-fifty years ago: Every great nation or civilization has its time on the world stage…then, at its own hand self-destructs. Greeks, Romans, Carthaginians, and some corporations go this way. But, just over the horizon…
Sincerely,
Tim Moore
Tim Moore
Managing Partner
Audience Development Group
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“It certainly feels like traditional advertising is in a recession…”
http://www.insideradio.com/free/analysis-upfronts-haven-t-shifted-ads-back-to-tv/article_b999aef2-4c17-11e7-aeb1-57a764f8cce9.html
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I entered selling radio in Orlando Florida in 1963 it was not easy then and took real selling . Today is no different. Then the big dog was newspaper today it is internet. It is always easier to sell radio in good economic times because it has never been though of as necessary. Newspaper was necessary then and today internet is necessary. Radio has been and always will be though of as extra fill in the cracks advertising. Sorry guys but that is just the way it is but for a very few advertisers.
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Thank You Daniel for stopping by the blog and adding your thoughts. -DT
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With sales plunging, more than 8,000 U.S. brick-and-mortar stores could close this year — twice the number as 2016, per Axios’ Steve LeVine.
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