Doing the Consolidation Dance

Is consolidation really the best thing for consumers? Companies are getting bigger. Right now, just in the radio business, the biggest company, iHeart Radio, is in bankruptcy with debts of over $20 billion. The third biggest company, Cumulus, just emerged from their bankruptcy reorganization. And the second biggest company, Entercom, just absorbed a bunch of debt with their purchase of CBS Radio.

This is all happening at a time when revenues at radio stations are going down. The big radio companies have reacted to lower advertising rates by increasing the number of commercial messages they run. Now, on some stations you will hear over a dozen commercials in a row. This can’t be good for the businesses wanting to get their message out, and it certainly isn’t a good listener experience.

When radio was healthy, there was a limit that no company could be in more than seven cities, and they couldn’t own more than one AM and one FM station in each market. There was healthy competition between stations. Radio ownership was wide and varied – stations were owned by local businessmen, media companies, insurance companies, manufacturers, and just people who loved serving their communities.

It all changed when the Telecommunications Act of 1996 was signed into law, with the pitch from the National Association of Broadcasters that it would benefit the public by allowing companies to grow and offer more programming choices. However, just the opposite was the result.  There was a land grab of radio stations. Companies no longer were restricted to only seven markets; they could be in as many markets as they wanted. They could own up to eight radio stations in each market, with no more than five of them being from one band (AM or FM). 

Because it was a seller's market, radio station owners could demand top dollar for their radio stations. Small companies like San Antonio’s Clear Channel (now iHeart Radio) grew quickly by paying top dollar for radio stations. They paid as much as 15-times cash flow for radio stations that had big profits because they were debt-free with plenty of cash flow. Owners of these successful radio stations quickly calculated that if they accepted these ridiculous offers, they could take the proceeds of the sale, invest their money, and make more than they did actually operating their radio station. This saw the exodus of radio station owners that operated their stations in the public interest, and the new owners whose main goal was to grow their business.

Then came the 21^st Century and new technology: streaming audio-on-demand. Advertising dollars shifted from traditional radio to streaming services. Big city stations that used to run 8-10 commercials an hour found that their ads that used to sell for over $300 each were worth less than $100. So, they increased the number of commercials they run every hour and made major staff cuts to lower the cost of operation. Radio stations that used to have 40-50 employees for one station were now part of a big radio cluster, where up to eight radio stations were being run by a small core staff.

This week, the National Association of Broadcasters has come up with a new solution to the problem of decreasing revenues at radio stations. Considering Sinclair Broadcasting’s pending purchase of Tribune Media for $3.9 billion (which will increase Sinclair's reach to 72% of all American households) and the proposed $70+ billion sale of 21^st Century Fox to either Disney or Comcast, the NAB has a new idea for radio: let companies get even bigger! Their new proposal – let one company own up to eight or ten FM stations in each of the top 75 radio markets, while at the same time, allowing them to own as many AM stations as they like. Oh, and in markets smaller than #75, one company can own every single radio station in that city.

The idea that Disney, which owns ABC, will be able to own Fox is just strange. Even stranger, if Comcast, who owns NBCUniversal, ups their offer, then we could see NBC and Fox owned by the same company. Imagine MSNBC and Fox News in the same building! But getting back to radio, think what it would be like to have every radio station in El Paso, Texas (market #76) all owned by the same company and all in the same building.

It didn’t necessarily help radio in 1996 when the Telecom Act was passed. It took what was a healthy industry and straddled it with tremendous debt. Radio stations that were throwing off good cash flow, were now spending most of their profits to pay off their debt. I mentioned that radio stations were selling for as much as 15-times cash flow then. Today, when a radio station calculates its value, it uses cash flow multiples closer to 6-times as a starting point. So a station that might have been valued at $65 million dollars in 1996, today might only have a value of $12 million (lower cash flow and lower multiples).

I believe that if radio stations had been healthy with lots of smart people in the building when the new digital radio age hit, today’s outcome might be a lot different. Instead of focusing on gobbling up other radio stations and dealing with a debilitating debt, a healthy station might have created compelling digital content to stay up with changing trends. We can only imagine what might have happened.

What is Triple A?

Triple-A radio is not a format. It never has been. It is a grouping of radio stations that don’t really fit within the normal format descriptions. For this reason, there are no two Triple-A stations that sound the same. Each has their own, unique approach.

Rather, Triple-A radio is a lifestyle. The key to a successful Triple-A station is that it connects with the lifestyle of the adults in its market.  Every community has a unique history and lifestyle. In some cities, rock radio has been defined by stations playing harder-edged rock, while in others, classic rock or alternative radio has been dominant. If a new station comes on the air out of the blue and starts playing a list of songs that has no relation to the community, it would indeed be challenging to the average radio listener.

The key is to find a relatable mix of music that talks to the adults in the community the station serves. Being a lifestyle, a Triple-A station is not defined by the music it plays, but rather, why it plays the music it does. Also, it’s important to express why the station exists. Expressing why you do what you do is what builds loyalty to your station’s brand. It’s why people are loyal to Apple products; they believe in the company’s mission statement.

Become proactive with your audience. Getting out to family and adult events that appeal to the station’s potential listeners is just the start. You should also organize lifestyle activities for your listeners and potential listeners.

Because many of your station’s adult listeners lead busy lives, they won’t be able to attend every event. But, many of these people live vicariously through your radio station. They want to be kept up to date about the concerts and events that come through town, and they want to hear about the latest trends in music, food, fashion. The radio station can provide meaningful information that helps listeners feel connected to an ever-changing world.

Triple-A radio is also about being a leader. Tell your listeners what is going on in a non-condescending way. Introduce listeners to new music by their favorite artists, and keep them abreast of the new musical artists and trends. Stay relatable by not getting too far ahead musically, and make sure the station has strong familiar posts in the music mix. You don’t want your station to sound like listeners need to know the secret handshake to listen. Familiar songs give listeners a point of reference that you can use as a foundation before you take them out on an adventurous ride through your musical library.

Doing these things will keep your station in touch with the adult lifestyle in your community, and make your station relatable to a larger audience.

Caller 5 is a winner!

To give or not to give? That is the question. Do on-air giveaways really help your radio station? When a deejay announces that the fifth person to call will win a copy of a hot new album, who calls in, and why?

The truth is that less than one percent of your listeners will actually pick up the phone and call for any reason. And of course, only one person wins. So, why do we have on-air call-in giveaways? Yes, folks who are listening hear that your radio station gives away cool prizes, but for them it's just not worth the hassle. 

Does an on-air giveaway get you more listeners? Does it get people to listen longer? Does this serve your core listener? The answer to these questions is no. Giveaways that appeal to less than one percent of your audience are a waste of precious airtime.

The same principal applies to texting contests. Taking the nth texter, or a random texter has no effect on increasing the size of your audience. Isn’t that the reason we thought we had to do contests?

A better option is to serve your core audience with your prizes. Give the prizes to the people who deserve them - your loyal listeners who have registered as part of your listener database. These are the people who really care about your station. Instead of giving away prizes to random callers, select people from your database to gift.

Call up a listener out of the blue and say, “We just got some copies of a hot new album, and since you are part of our KAAA family, we thought you might like one.” Or send a prize to a listener on his or her birthday.

When you give a gift to a member of your listener club, it’s given because you care - it comes from the heart. Giving a prize in such a positive, genuine way enhances your rapport with your listeners. They will have a warm spot in their heart for your station and will be your ambassadors with their friends. You’ve won a listener for life.

Yes, it’s still okay to give something away on the air, but it’s the attitude you project that matters. You don’t want it to sound like you are bribing people to listen. Make it a contest that the remaining 99% of the audience who aren’t calling in can participate in: a game, trivia question, stump the jock, etc. Make it interactive.

Making on-air contests a reason to listen and sending gifts to your loyal listeners is a much more effective use of prizes than asking for a random caller or texter. It’s a positive way to make friends, keep listeners entertained and expand your listener base.

More Consolidation of Radio

With the new administration taking over Friday, the new Republican-controlled FCC will have a different view of the business aspects of broadcasting. It's predicted that the FCC will lift the restrictions of cross-ownership between radio, TV and newspapers. This will allow newspaper companies to own radio stations and consolidate their news departments.

I also expect that there will be some loosening on the number of stations one company can own in a market. While the limit of eight stations might stay in place, the restrictions of owning no more than five in one band might disappear. That would allow one company to own up to eight FM stations. In reality, this is already happening in some markets, as companies like Clear Channel have been aggressive with the use of FM translators, which are not included in the current eight-station limit. Engineers have found ways to maximize the 250-watt FM signals to get a good city grade signal over the major population areas. Some of the translator signals are actually better than Class A signals in the market, which have height and power limitations.

The new free market approach could help values of radio stations, which have been stagnant and falling for years. There will be more demand for FM signals as a new wave of consolidation will be open, and some groups might be looking to snap up signals or consolidate their group with another one.

We've already seen some loosening of other regulations, such as having to keep copies of every correspondence in the Public File. Gone are the days when every single email sent to the station from a listener had to be kept in the file. And we'll see the hard copy files move more to the digital domain, as the FCC will allow more stations to post their public files online.

The other thing the FCC will address is the increasing RF noise for AM radio. All of the new electronic devices have added more noise to the environment, which makes AM difficult to receive. Stations that have lower power levels are having a hard time cutting through the noise, and the FCC will want to find a solution for those stations. The "AM Revitalization" plan was really the "Clutter up the FM band" plan. The major market FM dial is getting very crowded, as a result of all of the move-ins, all the new FM translators, low power FM stations and the relaxing of the second-adjacent protections. The recent TV auction will open up more bandwidth, and I wouldn't be surprised if some of that bandwidth will be allocated to expand the FM band.

What's been lost since the consolidation of radio is the competitive attitude. One result of the '90s wave of consolidation is that, in many cases, stations that were once fierce competitors found themselves owned the same company. At many clusters, meetings were held to give each station its own identity. Decisions were made to move one CHR in a more Urban direction, or one of the rock stations to harder rock. Sometimes, music libraries were divvied up and songs and artists were claimed for one station or the other. The result was less appealing radio stations. My recommendation my clients is to do what's best for each station. Don't dilute the product to protect another station in the cluster, it only makes your station less appealing and inviting for an attack from another station. 

I have the feeling that it's going to be a wild few years coming up, so hang on.

Heavy Music Rotations

The people who listen to your radio station the most might have the opinion that the station plays the same songs over and over. If you had a focus group with these core listeners, you would probably find that they are not upset about how quickly songs are rotating. Rather, there is more of a curiosity about why the station repeats songs, more than an adamant dislike of the practice. 

People only notice repetition when it’s a song that they don’t particularly like. Great care should be taken to make sure the songs in your hot category don’t polarize listeners.  This is not a place for novelty songs or specialty songs. The best songs for heavy play are the ones that are the cross-cuming songs, or what I refer to as horizontal songs - the ones that are getting exposed in other venues and on other radio stations. Keep in mind the purpose of playing songs heavily: to make the station relatable to the occasional listener. These should be the songs that help draw listeners in, not ones that are polarizing.

By the way, at many radio stations, the songs that rotate the heaviest are the horizontal recurrents, as they are the ones that are best known by a larger audience. 

Your core, loyal listeners will always want the station to be more adventurous. These types of complaints from the loyal core should be expected, and even welcomed. It means they really care about your station. If you don’t get any complaints from core listeners, it means they’re not intimately involved with your station. 

First Quarter Sales Packages

Welcome to the new year 2017! The busy-ness of the holidays are behind us and now it’s time to get down to business.

Traditionally, radio sales are slow in the first quarter of the year, as local businesses take inventory of their stock and attempt to recover from a busy holiday shopping season. If sales people are waiting around for the orders to come in, the station’s commercial logs will be empty. This is the time of year to be creative and put together some sales packages to encourage local businesses to buy spots on the station.

Many stations create special rates to entice clients. The problem with this approach is that when an advertiser gets used to a $20 rate, it’s going to be difficult to get him back at a $60 rate. In my experience, the best sales packages are when you offer an advertiser something they normally can’t buy.

For example, put together special 60-second spots that have a unique purpose. On Valentine’s Day, have a Valentine’s Day package where you put three appropriate clients – florists, sweet shops, restaurants - all in one spot. Produce a 60-second spot with an open and close, and give each client fifteen seconds of copy inside the donut. If the sales department is aggressive, you could sell fifteen to twenty different clients on this package. Charge each client one-third your top ratecard 60-second spot rate, and you’ll be getting full rate for each spot, while at the same time giving a small business an affordable way to get their message out to your listeners.

Put together a package for a shopping mall or a shopping neighborhood. For instance, you can produce an open and close for Crossroads Mall, then plug three different small stores into the donut. There are numerous types of packages you can put together: medical centers, restaurants. Think of any type of product category and you can put together interesting and creative sales packages.

These types of packages will be production-intensive, and good production will make them interesting to listen to. They are also sales-intensive, as salespeople have to call on many smaller businesses to make the packages work. To incentivize sellers, offer a special higher commission for selling businesses into these packages. Some stations have had such success selling them that they even put together some packages during their heavy advertising time, too. If produced properly, they will become part of the content of the radio station letting listeners know where they can find shopping bargains, as opposed to just another commercial.

The Moving Target

I’m going to make a statement that some might consider blasphemous: Setting goals is not the way for a radio station to be successful. Here’s why: A goal is a destination. A destination is an end. Have you ever gone on a long hike, and you’ve set a particular lake or mountain top as your destination? What happens when you finally get there? You stop! How many radio stations have you known that have reached the pinnacle of success only to lose that position shortly thereafter to another station? The reason is: the people at the station stopped trying. They reached their destination.

If a goal is going to be effective, it needs to be a moving target. It’s okay to use some guideposts along the route as markers of success. For example, you could set a certain target you’d like to reach by a certain date, and use that as a measure of success. But too many programmers have set a particular goal as their mission, and when they reach it, they go on the defensive so that no one will steal away their little victory crown.

The inspired leader keeps reinventing the radio station so it never gets complacent.