Guy Wire is the pseudonym of a veteran broadcast engineer.
credit: iStockphoto/Barry Gregg We have all heard the hype about radio needing to be live and local to compete with satellite, Pandora and all the other new options coming out of the cloud. However, at least two of the largest group owners are pushing a contrary model. Except for their largest markets, live and local is apparently not succeeding for Clear Channel and Cumulus.
At the core of their new strategy is a move to “nationalize” the programming and overall operations. They won’t call it that, and actually say it’s a better way to save and improve radio’s appeal. These are the primary ingredients:
• Homogenized formats for all markets, planned and managed by corporate and regional team leaders;
• Distant voice-tracking across most markets;
• Syndicating the most popular shows across multiple markets;
• Elimination of most local station personalities;
• Fully centralized automated delivery systems and support functions for all stations.
It’s really no surprise these two and a few other group owners have been steadily moving down this road. They’re heavily leveraged and compelled to show their lenders they are doing everything humanly possible to reduce expenses and maximize revenue to remain solvent.
THE TRIED AND TRUE
While all radio owners have had to cut expenses and tighten their belts to keep their companies profitable, most are not adopting a nationalized or corporate mandated operational template for all their owned stations. These owners are committed to the importance of the tried and true, live and local formula as radio’s key advantage in the multi-media war of attracting and holding audiences.
Distant voice-tracking by talent not familiar with local names, places, popular events and important issues gets exposed rather quickly. In particular, late-breaking news stories with heavy local impact are always best covered by real people in real time who are on the scene.
These owners also know that their stations have to earn their place in their communities as respected contributors to the overall health and welfare of those communities. It is critically important to gain the support of their local area businesses for advertising revenue. They hire the best managers and PDs they can find and let them do their jobs.
THE BATTLE OF VISION
What we have shaping up is a battle of two very different operating philosophies. Which one will better allow radio as a business to survive and prosper in the future?
On one hand, we have a highly indebted group committed to the idea that central planning and control is the best way to survive and succeed. On the other hand, we have another group that champions the importance of local service and control while reducing or carrying minimal debt to remain successful and grow. Some owners will cherry-pick and blend the methods they like best from both groups.
Companies that are highly-leveraged and betting on their one-size-fits-almost-all approach to management are really in a race against time. Some are staying afloat with financing that could be labeled funny money. Their debt, much of which was acquired when valuations were grossly inflated, simply gets restructured and refinanced over and over with the assistance of private equity firms.
Some investors do lose money, but the big ones get protection and incentives to stay the course. Sadly, the CEOs and upper managers get paid every time the debt is rolled over. They keep promising better performance is just around the corner. Everybody buys in and they all keep kicking the can down the road together.
The game stays alive with business as usual as long as interest rates stay low and the bankers remain willing partners. If and when inflation returns and rates spike up dramatically, the game could end rather quickly.
As new media players continue to chip away at radio’s traditional base and profitability, radio station valuations will probably continue to slowly erode. At some point, the Wall Street bankers and venture capital groups will run out of patience and want to cut their losses.
The petition to move Nassau into Chapter 7 liquidation by Goldman Sachs last May is a good example. The accumulated debt in excess of $200 million simply became too large for primary lender Goldman Sachs to accept the eventual risk. The group of approximately 50 stations was largely liquidated in a court-run auction at a small fraction of its book value. Other distressed groups may face similar proceedings in efforts to bring debts in line with the underlying value of their stations.
Breaking up debt-ridden groups and selling off the assets in pieces is usually the best way the debt holders can move on to more promising investment opportunities. Owners unburdened by heavy debt who want to stay in the business and grow will be the logical buyers of such stations when prices fall to attractive enough levels.
Unless of course, and perish the thought, there is some kind of government bailout that comes to their rescue. It’s ironic that the companies pushing the nationalized model are saying it’s the best way to actually make local radio better.
Where the nationalization approach is ascendant, the original programming and local management decisions have been judged as “not good enough” by others sitting many thousands of miles away. Where else do we see this kind of thinking being promoted?
One size certainly doesn’t fit all in the changing landscape of making radio succeed and survive. Our monkey-see, monkey-do business is just one of many in this country coping with a similar metamorphosis. Will more of the monkeys see and do like some of the so-called leaders of our industry are doing?
Read Guy Wire’s archive under the Columns tab at radioworld.com.
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