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The Birth of Radio in America

Early Radio ListeningWhen World War I ended, it didn’t go unnoticed what a powerful role radio communication had played in the outcome. Led by the General Electric Company, the Radio Corporation of America (RCA) was formed in October of 1919. With guidance from the federal government, RCA brought together GE, Westinghouse, and AT&T to develop the radio broadcasting industry in the United States.

In the early 1920s, no one knew what radio might become. RCA would be the entity to coordinate the manufacturing and sales of all radio receivers. They held all the patents from GE, Westinghouse and AT&T and it was RCA that would authorize others to use these patents to produce radio receivers, as well as collect and distribute the royalties to the patent owners. GE, Westinghouse and AT&T could manufacture equipment for their own use, as well as build and operate their own radio stations.

The Interstate Commerce Commission

Initially, the regulation of radio broadcasting fell under the jurisdiction of the Interstate Commerce Commission (ICC). In 1920, interest in broadcasting ranged from amateurs to experimenters and businesses. Some talked, some played music, and some began broadcasting news of local interest and weather reports. In an effort to bring some order to what had become a chaotic broadcasting environment, the ICC decided to place amateur broadcasters into the less desirable air space, below 200-meters, as well as restrict the type of broadcasting they could air. Amateur broadcasters had to agree that their radio stations could no longer air weather or market reports, music concerts, entertainment, speeches, news or other similar information. The ICC would begin to issue a new broadcast license on the 360-meter band for radio broadcasters that would be licensed to provide such services. All the members of RCA, including RCA itself, would begin to build radio stations. Westinghouse would be the first to establish one of these new radio stations, with their own inhouse amateur radio enthusiast Dr. Frank Conrad, and what became KDKA in Pittsburgh on November 2, 1920. Westinghouse followed this station with WBZ in Springfield, Massachusetts and WJZ in Newark, New Jersey.

However, Westinghouse management quickly realized that merely providing a superior broadcast service, which would create demand by the public to buy the new radio receivers they manufactured, would be futile if their broadcasts were harassed and interrupted by uncontrolled amateurs disrupting their ability to be heard.

Quality vs. Quantity

The ICC now had a new problem on its hands. Broadcasters interfering with other broadcasters, and what kind of culture should America’s new, growing middle class, be hearing through their radio sets? Since the decision had been made to not have radio be government controlled in the United States, broadcasters said they needed the government to regulate radio in order to help establish order and control.

Westinghouse proposed a solution to the ICC, to create two classes of commercial radio service.

Broadcasters on the current 360-meter band would become Class A broadcasters and a new service on the 400-meter band would be reserved for Class B broadcasters.

In order to qualify as a Class B broadcaster and receive higher power authority (500 to 1,000 watts), the licensee would need to never play phonograph records on the air, or any other kind of recorded material. Class B broadcasters would only air live talent and performances. Such a requirement would insure the public was receiving radio entertainment that was unique and original and not available on any other radio station.

The new license would also mean that only wealthier and more established organizations would be able to afford to operate radio stations under these new conditions.

Westinghouse’s concept, having government and business working together, was a way to “improve” radio broadcasting through restricting it to “responsible” parties without stepping on anyone’s First Amendment rights as to what a radio broadcast should consist of.

The Radio Act of 1927

This act laid the foundation for what radio broadcasting in America would be for the next several decades. The first being that radio broadcasting would not be open to everyone, but restricted based on quality. The feeling being that Americans would be better served by a few quality broadcast radio stations, rather than a plethora of mediocre ones. The new act also introduced the hard to define concept of “operating in the public interest.”

Radio, unlike newspapers or the movies, was to become a government regulated medium, with decisions about quality and public interest being made through an alliance of government and private interests.

And it was with the Radio Act of 1927, that America decided that radio broadcasting would be a commercial medium operated in private hands. Radio would support itself through the selling of advertising.

Today’s Radio Marketplace

From June 1927, when 705 commercial radio stations were on-the-air in America (all on the AM band and most with transmitter power of under 1,000-watts) to June 2019, we now have 25,819 radio stations (21,209 FM / 4,610 AM) with transmitter power up to 100,000-watts on the FM band and 50,000-watts on the AM band.

The concept of quality over quantity is certainly no longer the guiding principle.

The Ad Pie

As I read about how radio revenues are doing, I’m struck that both public and private radio broadcasting companies are reporting that local advertising revenue is dismal for Q2. However, major radio stations that enjoy eating from the national trough, saw this category of advertising as their only bright spot for radio ad revenue.

While digital revenue is hoped to be a new area to grow advertising revenues for radio broadcasters, the reality is that Facebook, Google and Amazon are already gobbling up about 90% of those dollars, so how fertile is this area for broadcast radio?

Reading comments being made about radio advertising conditions, I was struck by what Beth Neuhoff, CEO of Neuhoff Communications had to say when Radio Ink asked her, “what are local advertisers saying about the economy?” She responded by saying: “Local advertisers seem less focused on the economy and more concerned about over-saturation of the competitive landscape.”

It’s something that I believe the radio industry should be just as concerned about when it comes to OTA (over the air) broadcasting.

Gone are the days when putting another broadcast station on-the-air is a license to print money. People who aren’t use to quality, always will chase quantity.

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Think like there is no box

78One of the things you often hear people say is you need to “think outside the box.” You’ve probably heard this cliché so many times that you want to punch that proverbial box out. So when I heard Ziad Adbelnour say “Don’t think outside the box. Think like there is no box,” it got me thinking how you might do this for today’s radio.

Walt Disney

I just spent a week in Orlando. I went to Disney World and experienced an environment Imagineered by Walt. Imagineering, Disney said, was a blending of creative imagination with technical know-how.

Carousel of Progress

I first experienced Walt’s Imagineering at the 1964-65 World’s Fair in New York City. My dad worked for General Electric Company. We got discount tickets to the fair and went both years a couple of times each year. My favorite exhibit was GE’s “Carousel of Progress.”

It was a theater that revolved around a center series of stages that showed how technology evolved over time improving the lives of families and ended with a glimpse into the future.

That exhibit still exists in the Land of Tomorrow at Disney’s Magic Kingdom in Orlando and I went to re-live one of my fondest childhood memories.

Walt conceived of the Carousel of Progress himself.

8 Principles of Imagineering

Alex Wright explained the way Walt Disney worked in his book “The Imagineering Field Guide to Disneyland.” There are eight principles: 1) Area Development, 2) Blue Sky, 3) Brainstorm, 4) Dark Ride, 5) Elevation, 6) Kinetics, 7) Plussing and 8) Show.

So how would these apply to radio? Let me take a whack at that.

  • Area Development: means the first impression your radio station gives off; the grounds, lobby and overall look your facility make on everyone who comes to your station. Have you stopped seeing what others see when they arrive?  Look at your property again with fresh eyes.
  • Blue Sky: means when you start thinking about anything new generate as many ideas as you can. Anything is possible. Nothing is out of bounds. The sky’s the limit.
  • Brainstorm: When any group brainstorms the only rule is there are no rules. Nothing is a bad idea. The whole reason for brainstorming is to generate as many ideas as you can.
  • Dark Ride: While in a Disney theme park this means a ride that is all indoors, where every element can be controlled, in a radio station, this should mean the layout of your broadcast studios. Are they able to be lit to individual tastes? Does everything work as it’s supposed to and kept in operational condition through preventative maintenance? Is the chair comfortable? Can a person(s) stand if they want? How about the HVAC? When I toured the famous RCA recording studios in Nashville where Elvis recorded, I learned that they had multiple light conditions to bathe Elvis in the kind of mood lighting to fit the song he was recording. When recording “Are You Lonesome Tonight” Elvis decided none of the available lighting schemes worked and so he had every light turned out and the band, engineers and Elvis recorded the song in total darkness. If you listen to the end of that recording you can actually hear Elvis bang his head against his microphone because he forgot where he was and couldn’t see it in the dark.
  • Elevation: A series of drawings to bring clarity to the project and guide construction activities. In radio, this would be a fully written out plan of action so that everyone is on the same page in executing the plan.
  • Kinetics: Walt wanted to know how everything would move in one of his attractions giving it life and energy. For radio, our remotes need some serious kinetic thinking. Taping a station banner to a card table and calling in the breaks on a smartphone is not getting the job done for the listener or the advertiser.
  • Plussing: This is perhaps my favorite one of Walt’s eight principles. With Disney, nothing was ever finished. He was always thinking how everything could be made better. Plussing is non-stop Imagineering to provide continual surprise and delight to all.
  • Show: For Disney everything was part of the show. It’s why all of the people who work at Disney are considered cast members, even the people picking up the trash. How important is it to be so fanatical? Very. In addition to Disney World I spent a day at Universal Studios in Florida. I only have one word for that day’s experience: disappointing. I won’t ever be going back. Those that were with me maybe summed it up best when they said of the rides, “they are all the same ride, only a different movie is played.”

More Outside the Box Ideas

One of the things I try to do in this blog is look at other industries and find the lesson for radio, broadcasting or education that can be applied.

Another is reading a variety of things that literally have nothing to do with one another. Being a curious personality helps here, but it also exposes you to new worlds.

In fact, my office at work and home is filled with a variety of knick knacks that to the casual observer have nothing to do with one another. That’s because they really don’t. But they caught my attention and stimulate my thinking.

“Today you hear people talk about ‘thinking outside the box.’

But Walt would say, ‘No!

Don’t think outside the box!

Once you say that, you’ve established that there is a box.’

Walt would refuse to accept the existence of a box.”

-Jim Korkis, Disney Historian

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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.

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