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A couple of years ago, the radio business was awash in money. Major-market stations were showing double-digit percentage increases versus the previous year, and many were achieving sales growth of 20, 30, even 40%. Radio groups, which paid aggressive multiples -- 15-20x cash flow -- to acquire stations in the late 1990s, felt those multiples were good value since tremendous revenue growth created the cash flow to satisfy the debt service. Every sales person, sales manager and general manger was a genius. Eighteen months later it's hard to even remember how good it was. How could everyone have gone from genius to dummy in less than 2 years? Truth is, few were geniuses when sales were skyrocketing, and few are dummies now that the bottom has fallen out. There are lessons in the tremendous softening of the radio marketplace worth understanding and there are issues far beyond the obvious ones that need addressing. First what happened? History now tells us that the initial reason was the rapid demise of the flash-in-the-pan dot-com category. It's now also old news that the current recession, which began in late 2000 in the radio business, deeply hurt radio sales as well as virtually all media. And though the recession does not appear to be worsening, there are really only soft signs, at best, of a brighter short-term future. But what's important to understand is that the issues facing the radio industry today are far deeper than the demise of dot-coms and the current recession. In fact, the key issues are merely being masked by the current weak economy. The problem in a nutshell is that radio programming for the most part has gotten boring and stale. The sameness of formats within a market ultimately yields a less-than-stellar product and creates a media not as attractive to advertisers. The passion for the media is fading among listeners, and I believe that lack of passion leads to advertising that is not received with the same degree of effectiveness. How many formats are really necessary which play a big dose of music from the '80s? In my home market, Philadelphia, for example, there are now four stations that heavily or exclusively focus their play lists on '80s music, resulting in too much John Mellencamp (pre and post Cougar). How did this happen? Three key reasons: 1. The consolidation of the radio industry driven by the 1996 Telecommunications Act resulted in a tremendous number of station acquisitions by large radio groups at obscene financial multiples (see above). The result? Conservative programming, which creates formats that all sound alike. Who wants to risk a radical new format with heavy debt service to pay? 2. A corollary of reason #1 is the influence of radio consultants who work for these radio groups who recommend the same songs market-to-market, station-to-station. Journey and .38 Special weren't that good the first time around, yet they are the meat and potatoes of innocuous '80s music formats. 3. Most current music is derivative. Perhaps I'm showing my age by saying music was more innovative and fresh in the '60s and early '70s, but it was. Today there are interesting songs, but fewer bands. And that makes much of today's current music less exciting. Ultimately, this translates into less exciting music-based radio. The traditional radio industry also has reasons to be concerned since the introduction of satellite radio-XM and Sirius-will, over time, cut into automobile radio listening, particularly among the more bland, music driven formats. So even though the Buggles sang "Video Killed the Radio Star", radio still survived and thrived. So, too, will the industry probably survive its current funk. The radio business has always rewarded talent and creativity. The smartest, sharpest and most creative are always ultimately the most successful. Let's hope they help lead the industry to future success and out of its current malaise. Lonny Strum is the Managing Director of Strum Consulting Group, a strategic business & marketing consulting organization. He can be reached at 856-770-1154 or at lonstrum@strumconsulting.com |
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By
Lonny Strum