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Can Radio Shed Its Lead Boots?

Clearly if the industry is to survive in the corporate marketplace, it needs to reverse these trends; and the sooner the better. This is especially true at the station level, where the problem seems most acute.

(click thumbnail)stock.xchngLast time we took a bit of a fictional visit to the future in New York City and looked in on one of radio’s best-known haunts, the transmission facilities atop Empire State Building.

This midtown Manhattan temple of broadcasting has long been an important engine of the industry, made even more so by the loss of the World Trade Center.

But another driving force of broadcasting still lives in downtown New York in the stock markets that call Wall Street their home.

That’s a place columnist Guy Wire visited a few issues back in Radio World Engineering Extra, when he profiled the recent, generally poor performance of publicly traded radio broadcasting companies.

We’re going to pick up this time with a discussion of how this commercial engine of the industry might fare in the future.

Markets 101

First let’s consider a few basic premises about the stock market, and see how they apply to radio.

There are three main components that drive a particular stock’s price: 1) General market conditions; 2) the company’s long-term earnings growth rate; and 3) the company’s recent results vs. expectations.

Each of these has impact on a given stock’s performance, but if two or more happen to be moving strongly in the same direction at the same time, the results can be dramatic (either positively or negatively, but more on this later).

The third item is often most influential in the short term. This implies that stock markets rarely reward current performance — it’s all about the future. From an engineering perspective, it’s a differential process, where the deltas are the only things that matter.

So even if a company is profitable now, the market is more interested in how the company is likely to fare in the next year or five. Perceptions of whether things are likely to improve or decline can be more critical to the company’s stock performance than the current quarter’s balance sheet.

Thus relative values are often more highly touted than absolute ones, such that the stock at a small company with a positive forecast can outperform that of a larger, profitable company with uncertain prospects.

So much is focused on expectations that even a company that has done well recently can be penalized on the market if it did not do quite as well as had been forecast. (Good news becomes bad news if it’s not good enough.)

The markets are not alone in this reaction. Think about this the next time your child brings home a B when you had been told that all indications were pointing toward an A.

With such an emphasis on speculation, the market naturally dislikes uncertainty. Of course, there are no sure things when predicting the future, so the market usually rewards those that seem least uncertain.

Where a company is investing plays a role, as do any pending external forces upon the company, such as regulatory decisions or court judgments.

Finally, there is an asymmetry to stock performance based on these perceptions, in that good news generally is rewarded mildly, and really good news receives moderate benefits, but even a little bad news often is punished severely.

This is why many historical stock curves show steeper slopes in the negative direction, and shallower climbs toward the positive (i.e., big drops can happen in a hurry, while big gains typically occur more slowly.)

Again, engineers might find familiarity in waveform mechanics: Adding two identical waves in phase causes only a 3 dB power increase, but add the same two waves out of phase and a nearly infinite attenuation results.

This is important when analyzing long-term vs. short-term performance, since declines can have more of a visceral impact in the shorter time window.

Now apply these tenets to the radio industry and you can understand why its stocks may be performing so poorly. Even though many of these companies are turning decent profits, most future indicators show some uncertainty at best, ranging to downright scary long-term prospects (as presented in research discussed here last issue).

Meanwhile, the industry’s digital investments are not yet paying off, and a few key regulatory decisions remain undecided.

Perhaps most troubling to investors is that the advertising business, which drives radio’s profitability, is considering a major overhaul that could redirect its emphasis away from traditional venues like radio.

Righting the ship

Clearly if the industry is to survive in the corporate marketplace, it needs to reverse these trends; and the sooner the better. This is especially true at the station level, where the problem seems most acute.

How can this be done?

One way to do this involves advice that this column and others throughout the industry have repeatedly given of late:

  1. Strengthen the station or group brand, with emphasis on the local market identity;
  2. Differentiate the station from its competitors, again with local competitors most clearly in mind; and
  3. Establish a strong online presence, primarily to serve (you guessed it) the local audience.

Alone, however, these may not be enough to have the desired market impact. Some bold moves may be required.

For this, radio companies will have to get beyond the usual quarter-to-quarter analysis and make long-term strategic commitments to new investment and growth.

This may mean that the specifics of monetizing these investments to the last strategic detail may have to come later. Don’t be afraid of making a few digital mistakes (everyone does). If you wait for the comfort that you’ve got it all figured out before moving, it will either be too late, or you will never move at all.

Don’t think of this as imprudent. Approach it instead as taking the critical first steps on a long path, the exact end point of which may not yet be fully identified, but which has the goal of long-term profitability and corporate sustainability.

The path should be built with opportunity and expectation of course corrections, allowing fine tuning along the way as more is revealed through early experience. (Without starting down the path, you can’t learn where to go next.) This is the essence of all great discovery.

I recall similar, personal advice to me when I was thinking about starting a family but was worried that financial conditions weren’t quite suitable yet to support a child. A friend advised that if I stuck to that criterion I would end up old and childless, because conditions are never quite right, and no one ever feels that things are good enough to take that plunge without some trepidation.

You just have to make your best preparations and jump. I’m glad I did.

Similar counsel is held in the quote from Cicero, “More is lost from indecision than bad decisions.” It certainly applies here.

The final analysis to this issue will hinge on the answers to a few critical questions:

  • Is this just a short-term slide, to be followed by a gradual recovery, or is it the start of a long declining trend?
  • Is there anything the industry can do to reverse its rust-belt image in a shiny new media world?
  • Can the rare, asymmetrically positive tipping point be established by a big breakthrough?

It will take more than a few good responses to those queries by broadcasters to set the radio business back on a positive, long-term course. This won’t happen without some intrepid leadership, which the industry appears to need now more than ever.