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.

 

25 Comments

Filed under Education, Mentor, Radio, Sales

25 responses to “What’s the Purpose of a Radio Station?

  1. Excellent telling of history and the abandonment of operating in the PICAN. Now, it’s a matter of 3D Chess to coordinate multiple elements for the profitable service mission. It can de done with the strategic refresh of Radio
    100. And, all candidates should use more effective radio messaging.

    Liked by 1 person

  2. Gene Vallee

    My response to what is the purpose of a radio station is very simple actually, First it is to inform, second it is to entertain and thirdly and most important in my book is that it’s to be in touch with the fabric of the community that it’s programs are broadcasts to.

    Liked by 1 person

  3. Dick, I am going to argue that the only customer of the radio station is someone who pays the radio station. The advertiser, for the most part, is the only customer. The audience is the product that the radio station manufactures.

    Liked by 1 person

    • Fair enough John. But in my radio stations we always took the point of view we had to sell the listener why we were their best choice (usually done via advertising and marketing done in other mediums) and then deliver was we promised on-the-air.

      Then we had to sell the advertiser that the audience we worked so hard to attract to our station was a valuable place to advertise their wares to increase their cash register rings.

      Thanks for stopping by the blog today.
      -DT

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  4. James Wades

    The history is correct, but like many significant changes to a regulatory environment, there have been unforeseen consequences. The initial side effect in the 1990s was the fact that station values detached from their values as operating businesses. In a sense, investment in station licenses became analogous to speculation in a real estate market. For some stations, operating revenue didn’t match the demands of debt service, particularly as consolidation in the retail market simultaneously undermined local revenues, resulting in imbalances in the economics of broadcasting. Programming also became centralized, monolithic and unimaginative. With a few exceptions, connections to local community were often severed, particularly as qualified individuals who contributed to product quality and networked with local community left in droves. In a sense, a sizable portion of stations devolved into a less flexible, less responsive and poorer quality version of Pandora or other emerging audio services. Yes, radio is a business, but it exists in a unique environment in which access to the marketplace is artificially limited and in which powerful cultural forces have driven its evolution over nearly a century. The issues are probably too complex to discuss in brief comments here, but suffice to say, there are those who might, to a greater or lesser extent, disagree with your apologia for the massive and rapid media consolidation of the recent past.

    Liked by 1 person

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  6. Eric

    It’s noticed that you attacked Reagan but failed to attack Clinton.

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    • I didn’t “attack” anyone Eric. Actually, most radio folks who watched their job eliminated by the consolidation that occurred with the stroke of Clinton’s pen, probably hold him more accountable for the state radio is in today.

      I merely showed how both Presidents contributed to the place the radio industry finds itself in.
      -DT

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  7. Dick Taylor, thanks for another well-reasoned piece. So OTA radio’s race to the bottom began with abandoning its purpose, codified in the 1934 Act, accelerated by relaxing ownership rules, and being driven into the ground by leveraged buyouts of conglomerates. In 57yr since my first job in it, I saw the FCC go from engineering based science to being politicized and dysfunctional (for example Chairman Pai, succumbing to corporate influencers, naievely proposed total deregulation of station power and geographic interference). Hard-won 1st Class Licenses devalued as compliance has reverted to self-policing by manufacturers (think Boeing and the FAA?). Music playlists limited to the lowest common denominator, such as the classic rock playlist fixed by one conglomerate at 672 recordings that are immutable, unlike the hundreds of thousands of old and new releases of more diverse genre Extremist fake news & opinion because outrage, being more entertaining than the truth, gets higher ratings. Radio’s purpose is most evident today listening to community & public stations and NPR.

    Liked by 1 person

    • Robin, you correctly demonstrate how the polices that affected the radio industry were being simultaneously carried out in other areas and with the same results.

      Thank You for giving all of us more to think about on this subject.

      Thanks for stopping by the blog today and all you wrote.
      -DT

      Like

  8. Bob Sorrentino

    Like waves in a pond, the ill effects of these 1980s through recent deregulation stances continues to show harm to the industry. Gorgeous for corporate ownership at the expense of workers pay and even a subsistence level retirement, the public at large is still unaware that it may NOT be being served very well. The public servicee announcements, on-air live broadcasters able to instantly transmit LOCAL news & events are pale shadows of true community service in past decades. All in favor of going back to 7-7-7 ownership caps and moving back to local not “loco”.-12 year broadcasting vet(1975-1987). Radio listener since the 60s.

    Liked by 1 person

  9. Again, wonderful words with a morale.

    If I may throw out the Lowry Mays’ 2004 comment in Fortune Magazine: “We’re not in the business of providing news and information. We’re not in the business of providing well-researched music. We’re simply in the business of selling our customers’ products.”

    18 months later the Broadcasters Foundation of America created the Lowry Mays Excellence in Broadcasting Award.

    Liked by 1 person

    • James Wades

      I can’t quite determine if you’re being literal or facetious. If broadcasters are only in the business of selling products, then licensing should be eliminated and open competition should rule. Perhaps we can return to the Radio Act of 1912? Broadcasting is unique in that government provides the broadcaster with a deed to a unique piece of public real estate. In exchange for a protected service area and that piece of real estate (i.e. the radio frequency spectrum) something is expected in return; namely, operation in the public interest. Those who might suggest that a broadcaster’s only duty is to sell advertising can only be described as unethical. A social contract exists in exchange for the lease on public property and limited competition. Yes; the operation must be profitable, but broadcasting is not just another Wall Street business that any number of players with sufficient capital can enter. The FCC may now be a politicized, captive agency no longer capable of balancing corporate and public interest, but this doesn’t negate the foundation of a century of regulatory history nor does it alter public expectations.

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      • Hi James, I’m sure Ken will answer you, but the quote Ken mentioned was said by Lowry Mayes the head of Clear Channel Radio. Lowry was serious about what he said too. That’s what he believed.

        “If anyone said we were in the radio business, it wouldn’t be someone from our company,” says Mays, 67. “We’re not in the business of providing news and information. We’re not in the business of providing well-researched music. We’re simply in the business of selling our customers products.”

        You can read more here: https://money.cnn.com/magazines/fortune/fortune_archive/2003/03/03/338343/index.htm
        -DT

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      • Ken Dardis

        James, I wish there was room for being facetious but as Dick points out these were words used by a person who was the namesake for an Excellence in Broadcasting award. My feelings on that were written in a later article: “The topic of Lowry Mays being a shaker in this industry is yesterday’s news. He shook radio like a machine shakes the apples off a tree for harvesting, depleting the industry of the fruits of talent and responsibility it held to a community. End of story.”

        One also needs to understand that trade magazines helped in publicizing radio’s myth of creating “compelling, local content.” The reason? Being owned by industry giants (Inside Radio’s ownership is traced to Critical Mass Media, Inc. whose parent organization is iHeartMedia), or making revenue through conventions (and attendees don’t come if you write the truth about radio). Commentary like the above from Dick Taylor are hard to come by today.

        My heartache: How, in just over a decade, a few old white guys (and they were all old white men) destroyed the reputation and credibility that it took over 50 years to build by thousands of carrying, hard working professionals.

        Liked by 1 person

  10. Prior to the telecommunications act about half of stations were losing money (including the stations I was working at the time). Stations were being shuffled to individuals who thought it would be fun to own a station. It didn’t work out. We had 3 full power FM’s that went dark in 1995 in my market. More were going to suffer that fate around the nation. The act had to happen. I’m not in favor of how some of it worked or was structured, but I also understand with the increased competition and new technologies, cuts and stations shutting down would of happened anyway. Radio was forced to adapt, and still does well. It is a business and has made necessary changes to survive.

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    • Docket 80-90 came about in 1990. In 1991, I did one of the first LMAs in New Jersey taking over a struggling 3KW FM station that was programming classical music. We flipped the format to Country and it turned into a revenue/ratings winner.

      A lot of people thought running a radio station would be fun and, when radio is done right, it looks easy. It’s NOT. It’s a lot of work. But if you love the work, and I did, it was wonderful to be in the radio business.

      What dereg did open the doors for, was the movement of local radio service being moved into a larger metro with the hope that it would increase spot revenue and stick value.

      Sometimes that happened, sometimes not. But the loser was the community that lost it’s local radio station(s).
      -DT

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  12. Bobcat Brown

    Pricing “multiples” of radio stations were the killer! What had been the industry standard of eight times cash-flow, as the average price tag of a local station, escalated to 10 times cash-flow, 15X, 20X, even 50-times cash-flow as the major broadcast entities went on a highly speculative, competitive buying sprees, often ignoring due diligence in acquisitions. The debt service forced massive announcer lay-offs, which eliminated Broadcast Radio’s Unique Selling Proposition to it’s audience, “Live and local!”

    bc

    Liked by 1 person

    • It was truly the “wild west land rush” to buy up as much radio real estate as quickly as possible. Not only did the cash flow multiples lose touch with reality, some properties were sold based on multiples of projected cash flow.

      Thanks for stopping by the blog and sharing your thoughts today Bobcat.
      -DT

      Like

  13. Does radio create a “product” or deliver a “service?” One states an answer in a neutral, passive tense, likely without human sensitivity for its producers. The other indicates at least three receivers of this service: the listener, the advertiser, the community at large.

    Like

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