Tag Archives: Operating in the Public Interest

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

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.

quote-quality-is-more-important-than-quantity-one-home-run-is-much-better-than-two-doubles-steve-jobs-51-96-69

4 Comments

Filed under Education, Mentor, Radio, Sales

Seems Like We’ve Been Here Before

I teach a course called the “History of Broadcasting in America” at the School of Journalism & Broadcasting at Western Kentucky University. It’s from this background I’m writing this week’s blog.

Broadcasting began with the U.S. Department of Commerce, Bureau of Navigation issuing KDKA the first commercial broadcast license on October 27, 1920. Let’s be clear, there was lots of broadcasting going on in America before this date, but this license marks the beginning of radio broadcasting that would be ad-supported.

Think about it. This period in American history was called the “Roaring 20s.” It would be a time the first tabloid newspaper would appear along with publications like Reader’s Digest, New Yorker magazine, and TIME magazine. This would be the world that commercial radio would be born in.

It was a time in America of unprecedented economic prosperity and social change. It was also a time of a strong backlash of racism, fear of immigration and morality.

Radio would be the new kid on the block in the 1920s. Broadband wireless Internet is the new kid today as we live in a period of time giving birth to the “Internet of Things (IoT).”

Déjà vu

Let’s compare the issues of then and now. In the 1920s, immigration was feared. America got tough on immigration with a stringent set of restrictions embodied in the Immigration Act of 1924 designed to limit the flow of immigrants from Europe primarily. Today we hear all about how we need to build a great wall between the American and Mexican border.

In the 1920s, the focus was segregation and discrimination of African-Americans. These same sticky issues are still with us today. Think Charter Schools. Gay Marriage. Muslims.

While women had earned the right to vote by the Roaring 20s, they still couldn’t go to college, most professions excluded women, they couldn’t own property, couldn’t establish credit or get loan to start a business. Women? How’s it going today besides your fight for equal pay, equal rights and women’s health?

The 1920s had the 18th Amendment, which brought about Prohibition. Today we have the “War on Drugs.” It’s been about as successful as Prohibition was, but it appears America learned nothing from its past.

The 1920s saw a technology revolution. American-made films not only captivated Americans, but the world. Every American city would have a movie theater by the end of the 20s. Today, virtually every American home is connected to the Internet, most with Broadband service.

Radio would grow up to be an ad-supported medium. It still is today. The Internet pursued the same ad-support path.

The 1920s were the best of times and the worst of times. Society was made up of the haves and the have-nots. The wealth-gap was huge. Today, that gap is bigger than it was a century ago.

The 1920s saw modern corporations and the federal government in a close alliance. And everyone thought that was a good thing, until October 29, 1929. A day known as Black Tuesday, the day stock market crashed, which would mark the beginning of the Great Depression. After that happened, Americans weren’t so sure about the big corporations’ influence over their government.

The equivalent (and hopefully the extent of it) comparison in our time would be “The Great Recession of 2007 – 2009.”

America 1920, commercial radio was born in America. It was the start of a mass communications revolution. It would kill Vaudeville.

Déjà vu All Over Again – Yogi Berra

Today, we are living in a period of world history that is undergoing a new communications revolution brought about by the creation of the Internet and the smartphone. And what the Internet of Things is doing is challenging the business model of just about every business.

When TV came along in the 1950s, it took the entertainment that radio had stolen from Vaudeville and stole it from radio. But radio, unlike Vaudeville back in the 20s, didn’t die. It re-invented itself into a new form of mass communication.

The challenge for radio today, unlike back in the beginning, is that broadcasters and the government understood they had to make a choice. Have lots of broadcasters and poor quality of broadcasts – OR – have fewer broadcasters but ones that could support the economics of high quality broadcasts.

Broadcasting in those early days was all live programs. Live music, live drama, live comedy, live variety, live everything. This requirement to do only live programming is what separated the big boys from the amateurs and that’s how those corporations got the best signals and the most power to broadcast on.

Operating in the Public Interest

 The requirement for gaining access to the public airwaves for these big broadcasters was that they operate in the “public interest, convenience and/or necessity.” The Radio Act of 1927 would embody these principles:

  • Access to the public airwaves would be restricted to a few quality broadcasters vs. lots of mediocre ones

  • They would operate in the public interest

  • They would be regulated by the government

  • They would be a commercial medium operated by private entities

Today, the government is licensing Lower Power FM stations and Translator FM stations like Johnny Appleseed planted apple trees. Today there are 22,970 radio stations broadcasting in America as of June 2015. Add to this the infinite number of streaming radio stations on the Internet and you can see how this challenges today’s radio owner to fulfill operating in the “public interest, convenience and/or necessity” and make a profit.

While some may make the case that radio is not living up to the original covenant, you also need to realize that neither is the government. Less radio stations enabled broadcasters to provide more services to their communities of license.

Nielsen Audio says radio still reaches over 92% of all Americans 12-years of age and older on a weekly basis. It’s the #1 reach medium today. It has always been the #1 frequency medium. That powerful combination of reach & frequency is the one-two punch of effective advertising. American’s still love their radio.

But today, places to advertise on radio are infinite. The advertising budgets, however, are finite. The advertising pie has never been cut thinner.

And that’s the problem.

3 Comments

Filed under Education, Mentor, Radio, Sales