Does AM/FM Radio Have a Future?

I talk and correspond with hundreds of young adults. Many are students, some read this blog, and a few I meet through consulting. I always make it a point to ask them about their radio listening habits. As a general rule, people under 35 (the infamous 18-34 demographic) tell me that they are abandoning AM/FM and switching to Pandora or some other streaming service. Yet when one looks at top line Arbitron data, it appears that approximately 93% of us are using AM/FM radio each week.

There is no question that streaming is affecting radio listening levels. Recently, NDP Consumer Research stated that 23% of average weekly listening time among Persons 13-35 is transmitted via some form of streaming. Clearly, the Smartphone is driving consumers to the net either at home, work, and in the car.

All this leads me to a larger question--what is the future of AM/FM radio? I have spoken with dozens of people in recent weeks, sent e-mails out to panel members and have contacted a number of radio salespeople, general managers, and a few station owners and station owner wannabes. A limited number of ad agency personnel who are active in radio rounded out the sample.

My findings are a bit surprising and I will share them at length with you.


Background

Radio used to be a great business. Profit margins were lush, the business wasn’t complicated, and management and sales teams could make a very good living. Not so any longer! Three things popped out from virtually everyone that I contacted:

1) Morale at radio stations stinks! Only one person, a buying service operator, said he knew of a market where people seemed happy. All said that radio used to be a great place for young people in their 20’s to make a good income and accumulate some capital. A great and deeply experienced radio salesman described the current environment to me as follows: “Every year, we bring in a bunch of young kids, offer them a few days training, and then essentially toss them out in the street. They make a very low draw and are given a tough lists of directs to contact. Many quit very quickly. Perhaps one or two make it past the first year. It is close to immoral to me.”
2) There is no pricing power anymore. Many stations and radio metros are only getting the same rates that they did years ago. A strong plurality do not even get rates equal to what they had in 2007 just prior to the economic meltdown. Some are selling inventory at rates that were common 15 years ago if they are in a depressed market.
3) New York, aka corporate, has to meet their huge debt service payments and care about little else. If the local economy is down the toilet, they don’t cut you any slack. You have to find the money!

In-Car Listening

One area that most people who weighed in on the subject agreed was a continued strength for conventional radio in-car listening. A long time radio sales executive put it nicely,-- “I believe that as long as people drive to work in vehicles with radios, and traffic continually worsens, radio will have a future.  The March, 2013 PPM data from Arbitron shows nearly 30 stations with listening in my metro area.  That is a lot of choices.  There also are other choices for listening beyond broadcast radio.  Stations with good content I believe will continue to survive, especially if they are programmed with local news, information, or content of interest that is not available through other means. were. The bottom line is, if you can attract and maintain a good audience, and sell access at a reasonable cost, you are in a much better position to stay in business”.


Debt Problems of Larger Groups

This was an issue that generated some strong opinions. Some general managers have said that Clear Channel and Cumulus will have a hard time rolling over their multi-billion dollar debt in a few years. They will have to sell off stations and three told me that they just might step up and buy them on their own.

I was surprised as these comments came from people thousands of miles apart and they were not with the same group.

The first said that he has lined up friends and relatives plus his own funds and when, the station group falters, he will make a low ball bid and buy the station outright. I asked him if he truly thinks that he could go it alone locally. His response was interesting and he is letting me quote him--“With no debt, you can operate very efficiently.  Some years will be better than others but there will be no bean counter breathing down my neck each month. Remember, that time 20 years ago when we had lunch and talked about what solid businesses water utilities are? Well, this will be the same thing--slow and steady with limited growth.”  I responded that a water utility had a Public Service Commission that generally granted rate increases every year. And, you may cut back on the frequency of washing your car or watering your lawn, but you still had to wash clothes, cook, do dishes, and shower. People do not have to buy advertising time on your station. He saw my point but said that I was becoming a grumpy old man. Maybe so.

The second wants to go to a sports format in his mid-sized town. He says the nation is full of talented kids who all want to be on ESPN. That is not going to happen. For a modest sum, he can pay them and their passion for all sports, particularly local sports, will work in his market. If one really catches on he will give him a hug and let him move up to a bigger market and there will be no shortage of people waiting in the wings. I warned him that with no major league franchise in his metro, it could be tough sledding.

The third says he really dislikes his current owners and will make a low ball bid and buy the station on the cheap when they need the money. He may have modest financing but not much. With great candor he has said that he had confided his game plan to his pastor who told him his strategy was scavenger economics.  He laughed and said he told the sincere clergyman that it was simply economics in a free market. Inefficient producers had to be weeded out of the landscape. He said the big companies borrowed to put the chain together on the assumption that they could raise rates faster than inflation forever. As the media world has changed they are now holding the bag and must pay the price for bad judgement.

A reasonable old pro had this thought about the big guys. “The larger radio groups that purchased many stations and have huge debt service are probably in a very difficult situation, as the economy and increased competition since 2008 have reduced the rates that were commonplace before 2008”.

Another radio maven had this comment   “It’s hard to say what will happen with Clear Channel and potentially Cumulus when the big debt comes due in a few years.  Some are predicting that Clear Channel will be broken up, which I would love to happen.  I would think though that the big market stations are never going to be within the reach of anyone but very large companies or very wealthy top management/top shareholders who could start a group.

Right now, the big companies are cutting as many people as they can because of the debt.  However, technology that makes possible running a station with hardly any local people is here to stay.  In small markets, subscribing to a satellite service is a lot less expensive that hiring air talent with the possible exception of mornings.  I know firsthand that making money in a small market with just 1 station is very difficult”.


Audience

Media Researchers stubbornly told me to forget any anecdotal evidence and go back to Arbitron and crunch the numbers. Consistently, they all said that Pandora and fellow travelers had made gains but over 90% of us still listened to radio each week.

A final salvo from a long time radio hand was--“Radio, however, still has far more audience than Pandora or anything else, even in the youngest demos.  Pandora is the #1 station in a number of markets according to Triton, but its overall share is small compared to over-the-air radio.  And I believe that 25 years from now, FM stations in large and medium markets will still be doing well.  The reason is the transmission system.  All you have to do is turn it on, and it’s loud and clear”.

Ad Agencies and Radio

A senior sales executive on the West Coast raised a few disturbing issues regarding ad agencies and the future of radio. He said that an account executive asked him to meet a buying director of a key agency. At the meeting he and his sales person made a few innocuous comments about one of the stations that they represent and, a junior buyer attending the session, asked whether the listeners were loyal. “With a big smile, I said loyal? Look at our time spent listening!” The buying director asked what that meant. I was stunned but took the two of them through the time honored formula. She responded “this is really interesting.” How had she gotten her position and how did she oversee several million dollars of radio advertising each year?”

Another problem that he found with agencies is that a number of young people said that they do not listen much. So, if media planners are putting together a media mix, they may use radio less if they do not like it or use it much. He then went on a long and funny rant about how overpriced ESPN was because planners love it and want to be on it. His conclusion was that he would have no interest in buying a station going forward as the ad community will not be supporting the medium as much in the future.

Conclusion

Radio is here to stay. However, as is true of all media types, it is going through a big transition. If the big companies do shed a number of stations in a few years, local radio may indeed become a viable locally owned and operated business in many localities. N.B.-- turning a buck will not be a day at the beach as it was 25 years ago.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Do You Trust Your Customers?

Last year, I had the privilege of spending some time on some beautiful islands off the coast of the state of Washington. As I passed a local farm, I noticed a fruit and vegetable stand that by the side of the road. No one appeared to be there but a customer.  A few months later, I “googled” the islands and read a story about the farm stand and how payment has been made on the honor system for generations. At the end of the day, the farmer goes to the stand, collects the money and any unsold produce. I had to smile as I read it, wondering how many locales in the United States one could take such an approach and succeed. The farmer showed complete trust in his island neighbors and visitors.

Reading the article sent my mind racing. How many businesses are built on complete trust and do they succeed? As a New England native, it did not take me long to think of a great example.

Sometime before the beginning of World War I, Leon Leonwood Bean , a passionate Maine hunter, had an idea. He wanted to develop a hunting shoe that would keep his feet warm as he trekked across the frigid Maine woods. A shoe store manager, he approached the town cobbler to help him develop the perfect shoe for hunting. Jointly, they came up with a new shoe with strong leather uppers and waterproof rubber bottoms. By 1912, he tried to market it via a direct mail campaign to out of state hunters.
The prominent line in the direct mail effort was “We guarantee them to give perfect satisfaction in every way.”

Shortly after the mailing, things looked rosy. Over 100 pairs of The Maine Hunting Shoe were sold. Not long after, disaster struck. The new shoes fell apart after very little use and 90 of the original pairs were returned. At this point, most people would have quietly closed up shop. Not Leon, who soon was to become known as L.L. Bean. He borrowed money and promptly returned payment for the shoes to each customer.

Undaunted, Mr. Bean did perfect the shoe, branched out in to other areas, and today L.L. Bean of Freeport, Maine is a household name. And, importantly, the company still maintains its 100 percent guarantee. Virtually every year in my adult life, I have purchased either a pair of top-siders or moccasins from Bean. As they age, I change their use and the oldest pair is used when I am (rarely) doing yard work. I know that despite their age I could return any worn pair for a full refund, but I never do. Why? L.L. Bean has trusted me to behave honestly and I plan to do so.

Is this unique? Well, several retail players have aped the Bean approach but others have not. It has been rumored that Home Depot, Barnes and Noble and Wal-Mart have sophisticated software that tracks consumers who make frequent returns. Some stores allow managers to refuse returns to these customers using their own judgement.

Bean does get ripped off now and then. But, I would bet that the number who return worn out items if very small. Somewhere in the cobwebs of my memory is a quote from a Roosevelt cabinet officer who said, “The only way to make a man trustworthy is to trust him.”

As online retailing has grown, marketers have to make many quick decisions around the holidays. People call and say that their order has not arrived yet. Do you send another knowing that, at some point, the customer will have two orders?

 When you insist on credit card or certified check or money order and granny sends you a personal check do you ship the order before her check clears because that is the only way she will get the item before Christmas Day? Most retailers seem to say it depends on the size of the order.

Each year a few research outfits track who gives the best customer service in the U.S. Recent leaders have been Zappos, Overstock.com, Amazon, and Land’s End. But as far back as I can track it, the gold medal often goes to, you guessed it, L.L. Bean.

It appears that trusting customers and communicating that fact well is a big brand builder. Do you truly trust your customers? Think about it.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com