What's wrong with radio and how to fix it

Implications: Radio revenues for the month of November took a gigantic drop. National advertising was off by 15% (and local revenues were off by 5%).

Analysis:  The radio industry continues to take hits on generating advertising sales. Certainly, this is in part due to Madison Avenue’s love affair with on-line advertising. It is also a function of the industry’s inability to generate new and exciting programming. A quick look at the Wall Street charts for public radio companies tells a clear and somewhat scary tale. With only a handful of exceptions, Entercom, Fisher, CBS, and Clear Channel, every publicly held radio company has a stock price in single digits. Some of radio's most prestigious companies, including Emmis, and Citadel are at nearly $1.00 per share. Emmis closed this past week at $2.00 and change and Citadel at just under $2.00. If these or other radio stocks fall below $1.00, they run the risk of either being moved to the pink sheets or de-listed from the stock exchange. Clearly this begs the question as to whether any radio company should be public. In fact, as a public company, there are two masters to serve. One is the bottom line of operating the business and the other is keeping both institutional and private investors happy. For radio, this has to become too difficult a chore. Revenues have fallen, broadcasters have tried to cut expenses to the bone, often at the expense of local programming and local market presence. Being part of a local community it is part of what radio has historically done best. Even the private equity funds are having second thoughts about the radio industry. The closing date for the privatization of Clear Cvhannel, by private equity funds Thomas Bain and Thomas Lee partners has been pushed back until likely June of this year, and Cumulus has been pushed back indefinitely. The tightening credit markets and the mortgage crisis certainly share some of the blame, but not all of it. Radio’s problems are rapidly becoming numerous. First, it lost a major public relations battle with satellite radio. Satellite radio is "cool", terrestrial is old news. The hope of the radio industry is that HD Radio will provide a competitive platform against this satellite onslaught. Distribution of HD Radios into automobiles, the key to broad-based listenership, is still one to two model years away. That means that radio will continue to have to play catch up, and at the same time rely on alternative ravenue streams to grow business. One might argue that no radio company should be public anymore. The task of serving two masters have become almost impossible. Clear Channel recently cut staff both on air, and behind the scenes in numerous major markets. In Chicago for example, the morning drive host does a four hour live show followed by another personality doing a five hour live mid-day show, followed by the return of the morning drive host via voice track, and then an imported voice track at night. This is hardly the way for radio to generate local interest and buzz. Clear Channel is doing this in large to help trim cost as part of its attempt to get ready for its privatization deal. Wall Street still seems to be skeptical of the ability of the deal to close, as Clear Channel l stock price remains below the tender offer. The stock price has been as low as 15% below the tender offer, before rallying a bit. However as the stock market took significant hits this past week, the stock price has now fallen below the 15% of tender offer. The odd part of all of this is that radio remains of vital and important part of most consumer’s everyday life. Indeed, more than 90% of the United States population over the age of 12 listens to the radio for an hour a day or more. That is a very solid distribution and business model. Yet, with the creativity increasingly drained from the medium, will radio be able to maintain that? Last week for example in New York, Valerie Smaldone long affixture for nearly a quarter century at WLTW, was forced out after being asked to take a pay cut. Another icon of the industry is gone. This is a story being repeated around the country in markets of all sizes. In Syracuse, New York, Brother Wease is off the air in a contract dispute. As radio attempts to cut costs to maximize revenue and please Wall Street, localism and creativity decline. For radio to survive and return to its "golden age" of high margins, it needs to be finding more ways to involve each stations’ local market audience as well as recruit new talent to the industry. Increasingly, radio is failing to resonate at the younger demographic levels. For example, my alma-matter, Northwestern University, continues to offer a major in Radio-Television-Film. However, the curriculum has no radio courses. I asked the Dean of the School of Communications how this could be possible. Her answer was that the perception that the students had no interest in radio is what drove course choices. Frankly, I am not sure that I believe that. I think it is more a function of faculty interest or lack thereof. It is indeed the faculty that chose the courses to be offered and taught, not the students. Yet, if this important bastion of higher education does not even offer a single course in the medium, how will new talent be recruited into the industry if this trend continues? It cannot. There are many people who have expressed concern that radio advertising revenues will follow the same path of newspaper advertising revenues. You may recall for the first few years of the internet advertising boom, newspaper revenues remained flat or off just slightly. Then, in just the last couple of years, advertising revenues have fallen dramatically. The concern is that radio may follow the same suit. Industry advertising revenue has essentially been flat, or off by 1-2% for the past four years. It is a fair question to ask whether or not radio ad revenues are being setup for a similar fall. The answer I believe is, no. KNewspaper ad revenues dropped not only because of the rise of the internet, but because leadership has steadily declined. Radio listnership continues at levels above 90% for the broadcast week, although critics point out that the younger demos, specifically 18 to 34-year-old, have been steadily declining and now only approximately 75% are listening to radio for an hour or more per day. Even at that level, radio does not have the same matrix that the newspaper industry had. The only way radio industry revenues will grow, is if the industry returns to what it does and has historically done best: providing local content and serrvice, in addition to being a town hall meeting place, a source of new music, and a place to hear play by play of your favorite sports. Radio must invest in its own product. The only thing radio has to fear, is itself. Investing in its own product, rather than being concerned about pleasing Wall Street investors, will allow the medium to not only maintain its revenue share of the advertising pie, but allow it to grow with inclusion of new opportunities that include both HD Radio and their own internet streams.