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Friday, April 25, 2014

Radio's Rocky Road Ahead

For the past forty years, I have kept close tabs on the advertising revenue of each major medium. Lately, of course, the really dynamic growth has tended to be dominated by on line media and mobile. When you look at traditional or legacy media there have been ups and downs depending on the business cycle. One old time medium, radio, does seem stuck. Radio growth in recent years tends to be crawling along at a 1% compounded growth rate in ad revenue.

I sent some questions out to many of my Media Realism panel members and some friends. The response was mixed. Some said radio was clearly no longer a growth medium but hastened to add that it would always be there. Only a few very young respondents said that the medium was toast. A surprising number of people mentioned a station that was doing great and all such stations tended to be in a top 15 market in a radio metro with a fairly buoyant economy.

My point is that the 1% revenue increase in recent years is an average. For every station that is up 15%, there may be several that are down, sometimes significantly. The same is true of markets. Some Texas markets and a few southeastern metros are seeing solid year to year gains but go out into the hinterlands and it is a different story. A few smaller markets in oil rich North Dakota and Oklahoma appear to be doing great as good paying blue collar jobs abound. In much of America’s heartland, it is a different story. Here a few verbatim comments from station general managers or sales managers:

1) “Last year, I pushed myself and my staff harder than ever. We almost broke even in billing compared to the prior year. Headquarters wanted gains. I fired seven people and the savings in salaries, commissions, and benefits got me close to their objective for me. This year, I have little room to maneuver. We have not had fat in years. Now, I have to take bone. There are no stones left to turn in this market. Everyone knows us but spending is not growing.”
2)“The cable guys are beating our brains out. They come to our established customers and put together attractive packages across a carefully selected range of stations. The smaller clients love being on TV as they could never afford network affiliates. Our market skews older and older folks watch more TV. The new cable GM is a smart young guy who works his tail off. He has raided some of the best radio salespeople in town. How do I compete? Our station has no local talent. It sounds the same as hundreds of others playing the same 30 songs over and over again. We fake community involvement but it is nothing like it was years ago where we mattered in town.”
3) “Two years ago, I told you that I could not wait for corporate to go broke so I could buy my station. I was an arrogant fool. There is no way that I would buy it now even at a really distressed price. The billing base is shrinking. It is almost a structural thing both with our dying industrial base locally and changes in media habits.”
4) A veteran broadcaster who went from radio to TV and, after a couple of firings, is back at radio said, “We have zero pricing power. I did a deal with a TV station recently and we are charging less than we did 22 years ago. Sure, the ratings are lower but they are in TV, too. If I hint at raising rates old friends who I thought were cronies, tell me that if I increase the rates they will go elsewhere. Anytime I called their bluff, the business disappeared.”
5) “Our sports station is doing great. We have a blend of local talent plus ESPN at other times of day. The other stations in our stable are really struggling. I try to have the team package up buys across our offerings but few people bite.”
6) “Radio is not dead but it a no growth medium. You are right about the 1% billing growth in recent years. Remember the rule of 72 from finance class? If I keep up this hot pace, I will double my billing in 72 years. That will play well in New York. :):):)
7) “I have busted my butt the last seven years and we are slightly below where we were in 2007. The situation is similar to what you have written about in Media Realism with mid-sized agencies. You have a few old pros assisted by a bunch of kids. I have kept my best sales guy as he is carrying 80% of the billing. The kids go at it tooth and nail but barely cover their draw most months. After a year or so I fire the worst performers and bring in some new eager young recruits. It cannot keep going on like this.”

We have always said that no two markets are alike. In radio, that is more true than ever. Several people mentioned the tremendous revenue that WTOP, Washington generates. It is, indeed, a great station that does just about everything right. They have a huge news staff and are perfectly situated in our nation’s capitol with more news junkies per capita than anywhere in the country. Couple that with some terrible traffic jams and the station is really in a sweet spot. Yet, their format cannot work in many markets around the country and billing does not exist in most locales to support an extensive team of good reporters.

A very astute media researcher weighed in as follows:

My boss doesn’t think radio is going away anytime soon. In fact, he feels that online is getting credit for too much.  With online’s metrics, advertisers think it’s the end-all.  He hopes that radio can develop metrics that would show its importance in the purchase cycle  -- it creates awareness, but because the audience can’t click on their radio for more information, the media suffers. I really don’t think such metrics can be developed.  We’re still using random duplication in this industry for R&Fs!

                We’re trying to move advertisers into online audio (as we now call it).  Our buying/research software even includes Pandora in a ranker with the Arbitron-measured stations.  I think it’s a disservice, but that’s how the industry is moving”.

A recently retired 40 year radio veteran summed it up this way:

“Radio is like a cockroach it just keeps reinventing itself but I am not sure it has ever seen a predator like the internet. Like all media it is always about content/personalities if you have a strong personality on your station you can survive. We have a radio station in DC, WTOP, that might be the prototype for all radio. For the last few years, they may have been the #1 billing station in the USA.  If you can make your self relevant to your audience you will survive and do well, local news, local traffic. Internet cannot do local news it might be able to do traffic but only in some top markets but the local station can do it better.
The big issue is these huge radio companies are only about what have you done for me lately. Everything is measured by the next or the last quarter, very short term thinking. They do not invest in their salespeople and yet expect them to create revenue in ninety days. If the big companies can get out of the business and let local ownership back in radio might have a chance.”

What do I think? Radio is bleeding but not finished. As long as people drive to work, it will still have a place in American advertising. And, in some markets, some stations are getting some very profitable action out of their web sites. What people fail to recognize is that young people are not embracing it anywhere near to the extent that previous generations did. College kids, and I speak to hundreds, tell me that they listen in the car but never in their dorm rooms or at home. There are just too many other options available that are commercial free and offer exactly what they want, when they want. So, I see a rocky road ahead for radio broadcasters. A few stars will do great but most will struggle and many will fail.

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

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