Time to Build for the Future

Stations With an Eye on the Future Should Prepare to Grow When the Downturn Ends
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Recent news stories about the radio industry have highlighted the difficulties we are facing due to the economic downturn in the United States. Ad revenues declined about 8 percent for the year 2008, which has put pressure on the largest radio groups, particularly those that are carrying the most debt. If stock prices are any indicator, belief in the future of many groups is at a dangerously low point: as of this writing Citadel, Emmis, Entercom and Cumulus — about 700 radio stations in combination — are all trading at a share price around or below one dollar. It seems that just about every week another headline announces continued layoffs at stations all over the country. Current projections call for a continued decline in ad revenue for 2009, according to a recent report from BIA Advisory Services. A recovery in advertising revenue for radio is not forecast until 2011.

Engineering departments everywhere are facing this pressure relatively well. Although there have been some layoffs, the average staff size for engineering has been carefully limited at most groups. When a sole engineer is already responsible for several stations, there is little room to cut back the one-man band without causing the music to stop. Having technical staff to keep stations operating is as important as having someone to handle payroll or sales.

However, in my conversations with other engineers I hear of capital projects that are being cut back or eliminated until conditions improve. That means engineers have to keep equipment running longer while maintaining the high reliability and consistent quality that listeners and station owners have come to expect.

The constant drum of bad news has convinced many owners to wait for a sign of good news in the industry. And that creates a host of opportunities for those stations and groups that have the financial means to invest or expand their business this year, anticipating the turnaround that is almost certainly ahead.

GOOD TIME TO BUY

The downturn in the radio market is precisely the reason why now is such a good time to make capital investments in station facilities and keep those engineering staffs busy. There are good deals to be made on real estate leases, transmission equipment and even on tower rentals. If you have the money, you can get better quality and higher performance on just about anything you buy for less than you could a few years ago. Locking in those savings now means that when industry conditions improve you can hold a competitive advantage over others.

Why do I have this much confidence? Because the core place that radio holds in the marketplace has held up quite well under competitive pressures from other media. The overall pool of advertising dollars in the market is shrinking but radio is holding its place.

For the last 5 years or so the most dangerous competitor to the traditional radio industry has been satellite radio, which took off on a debt-fueled expansion that initially seemed unstoppable. By giving away their services, the satellite radio companies were able, for a while, to make their success seem inevitable at the expense of terrestrial broadcasting. But this is no longer the case. The remains of the two merged satellite radio companies have been lurching along from financial crisis to crisis for the last year, narrowly avoiding in March the complete dismantling of a system that now appears to have no potential to ever make a profit. Sirius XM Radio stock price today? Thirty-four cents. While it's not dead, the satellite radio business model seems irrevocably broken and faces at least several years of restructuring just to survive.

In other advertising media, newspapers are suffering more with revenues down 17 percent for 2008, according to the Newspaper Association of America. And, even in a year with both the summer Olympics and a presidential election, television revenues were down 7 percent according to BIA. Radio remains a good value compared to these more expensive alternatives. Even Google is now announcing layoffs.

Stations with their eyes on the future have learned to maintain and improve their Internet services, particularly streaming, as a way to offer more localized and personalized services to their listeners. Once seen as a threat, the Internet is now an asset for terrestrial radio stations that have developed a large listener base amongst the online community in the workplace. Digital advertising may well be the area of growth that will lead radio out of the recession.

Even the scary prospect of a massive technical change in delivery systems, as forecast by the proponents of mobile subscription data services (via WiMax wireless broadband technology), seems to have receded somewhat as rollout plans for the service have slowed due to difficult financing conditions. It appears that radio still has some years of life left to it.

GOOD TIME TO HIRE TOO

While I'm at it, I would also like to point out that this is also a good time to consider strategic hiring. A number of industry veterans with excellent skills have found themselves looking for new work. A skilled staff is a competitive advantage and essential to the highly localized services that will keep listeners loyal in the future. This might be the time to pick up that person who brings the expertise or attitude that can make your radio station better. And the ranks of recent college graduates are also a good source of well-educated workers who are willing to accept employment on terms that have been unthinkable since the dot-com boom of the late 1990s. Those of us responsible for technical hiring can now consider bringing in staff with better education and training than before. These younger workers bring with them an excellent IT background, now an essential component of radio engineering. We can train them on the RF part.

In short, it is when the situation looks the worst that the best opportunities arise. Radio remains a good business that has a future for those owners who will commit to providing the best possible service to their listeners.

Think I'm crazy? Drop me a line at rwee@nbmedia.com and tell me why.

Michael LeClair is the tech editor for Radio World Engineering Extra

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