Tag Archives: Telecommunications Act of 1996

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.

 

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Radio’s Non-Compete Contracts

69Have 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).

BEST PRACTICES

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.

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