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.