Oh! Not substantial enough an answer for you?

Okay.

Absolutely not.

Alright, I’ll explain.

Terrestrial Radio is, without a doubt, suffering from an identity crisis. iPods, Satellite Radio, Online Radio, Pandora, Last.FM, et.al. are all conspiring to make the original Radio obsolete. Good luck. Won’t happen for a long, long time, and here’s why:

1. It’s in virtually every car on the road today. Sure, there’s the aforementioned Satellite Radio (stock price – about a dime right now), 1/8th inch stereo jacks for iPods, etc. Cassettes and CDs in the dashboard couldn’t kill Radio, so I’m not sure why people think an iPod jack could. Radio in the car is easy, it’s ubiquitious, and it’s well-branded. Until the economy sweeps all the cars from the highways, Radio is the media of choice for the motorist.

2. It’s free. Sure, commercials pay for it, but it doesn’t cost money to consume it. You don’t have to pay to download music, either in the form of currency or the threat of legal action associated with illegal downloads.

3. It’s local. Is that a huge thing today? Some say “yes,” some say “no,” but in difficult times, it will become more and more important, and make no mistake, we’re entering difficult times.

Will Terrestrial Radio continue on exactly as it is today? No, it won’t. Radio operators are working hard to move their brands to other delivery platforms, like podcasts, websites, and streaming. There will be a winnowing of the talent pool as tough economic times force operators to adjust (often downwards) the big paychecks of some talent, while using their shows on multiple platforms and in multiple markets.

There will also, most probably, be a shakeout of operators, returning more locals stations to local ownership. The “Mom and Pop” radio station may well return, and with it a more sane and reasonable business model.

But Terrestrial Radio is alive, and will remain so.

The Economy

Let’s face it. Times are tough. The government is admitting the U.S. (and rest of the world, mostly) is in recession and has been for a year. In truth, many wise people believe we’re in a second great depression, and that fact has already had a profound impact on the radio business, an industry that lives on advertising revenues. Businesses aren’t buying as much advertising as they did in the past, and even though radio is one of the most efficient and effective mediums available, there’s simply not that much money to go around. Even more ominous and important, is that businesses are generally paying for the advertising they purchased on credit from the radio stations much more slowly, or not at all. Collections are getting more and more difficult, and since most groups require their AEs (Advertising Executives – otherwise known as sales people) to do their own collections, those AEs have to spend more and more time collecting past-due bills, thus having less time to sell. Collect they must, though, because usually, no collection, no pay.

As with any business, when there’s less money coming in, less must go out in the form of expenses and employee compensation. There’s no long-term alternative to that, unless you’re the Government, and even they can only do that for so long before bankruptcy. So, as with many businesses in this current financially troubled climate, firings are inevitable.

The economic problems are putting a squeeze on the radio business more today than ever before because of the second factor:

Expansion

There are more people employed in the radio business than there were 25 years ago. Many, many more. The business has expanded greatly through deregulation that occurred in the 1980 and 90s. There was a time when in many markets, every radio station was profitable, even the lowest ranked stations. That’s because there was a very limited number of stations that had licenses granted by the FCC to operate in a given market.  In the 80s, the FCC approved Docket 80-90 that cut the required mileage between stations and created hundreds of new FM radio stations in the U.S. It also allowed stations in smaller towns to upgrade their power output and “move” to the bigger cities, allowing them access to a greater pool of ad revenues.

This allowed a flood of new owners into the business. It also created a huge amount of wealth for a small group of people who had no interest in running radio stations, but just wanted the quick buck they could extract from the system. One well-known (at the time) group made a killing buying small-town stations, moving them in to the bigger market and then selling to a bigger operator. They were able to start and buy radio stations where the big guys couldn’t, because the “front man” was in a minority class that gave him the inside track on license applications. This gentleman would attract money from non-minority investors, use his status to get the license, extract a percentage of ownership, a “consulting” fee for a set time period and then sell his ownership out, moving on to the next deal. I once worked for a company that competed with a station owned and operated by this man’s family, and as broadcasters they were horrible. They literally couldn’t keep the lights on – at one point, the station was off the air for 3 days because they didn’t pay their electric bill for the power to their transmitter. They made millions using their priviledged minority status, though.

When the FCC’s blunder, allowing almost unfettered growth in the number of radio stations operating in the U.S., began to seriously endanger the industry’s financial survival, the Commission relaxed the rules on the number of stations a company could own, and a “bubble” came into being, with companies using their access to vast amounts of credit to bid up the prices of radio stations far beyond what they could hope to support with ad sales. Stations that could expect to bill maybe $10 million in a year were being purchased for $70 million. You don’t have to be a financial expert to see that with a debt load that high, the only way the station can remain profitable is to grow their revenues and profits dramatically. Which some were able to do. Most however, couldn’t, and the companies that paid those extravagent price tags then had to hope to “find a greater fool” to take the stations off their hands at a nice profit.

Again, in many cases, they found such “fools.” All was good as long as the American economy continued to grow in leaps and bounds, but when things turned sour, it turned quickly. The big companies left holding the bag have had a difficult time. In recent months, many of those companies have had to fire talent, support personnel and managers. Radio stations are seldom owned in single operations these days, but mostly operated as “clusters” of up to 8 stations in a market. Over the past 5 years, the operators have worked hard to elminate redundant operations and people in the clusters, having Program Directors program one, two or sometimes even 3 or 4 stations at once. Traffic and continuity personnel now work for multiple stations, as do sales managers and AEs. But most of those efficiencies were wrung out of the operations before the economic downturn. Now, the operators are again going through their budgets with a fine-toothed comb, looking for big expense items that don’t earn enough money to pay for themselves. For the most part, that’s high-priced talent, whose elimination is the most visible, both to listeners and the industry.

All of the big companies are cutting on-air personnel, and chances are, more is coming. Reading the discussion boards on Radio-Info.com will keep radio fans and workers informed about the “scuttlebutt” inside the radio stations around the country. With companies like CBS, Entercom and Citadel (among others) already having cut big-name talent, the rumors have been flying this past week about Clear Channel and their rumored cuts. According to various industry sources, the company had corporate manager meetings in Dallas last week, where local managers were reportedly handed their budgets with (again, reportedly) the names of who stays and who goes. It’s hard to say if this is true, but it’s not outside the realm of possibility.

The biggest difficulty many people in the industry have, is truly understanding that radio is a business, and a business has to make money, or cease to exist. There’s plenty of blame to go around, but not nearly as much of it should be shouldered by the operators of the big radio companies than some on the front lines would like to believe. It’s easy to blame and call CEOs and managers out for incompetence, but not always warranted. As the above suggests, it’s a very complicated problem with much blame to go around. The situation radio is in today has roots that extend 25 years in the past.

It’s going to be a difficult time for those left in the radio business. Consumers have so many more choices for music, information and entertainment today. What radio and television had a virtual lock on just a few years ago, isn’t all under their control today. Many different technologies and companies are competing, not only for Radio’s listeners’ ears, but also for their ad revenue.

Expect change in 2009. Lots of it.

Like many businesses, in this challenging economic time, radio is currently going through a spate of layoffs. Revenues are down, for many in 2007 and for just about everyone in 2008. When the money starts drying up, the radio station has to start cutting. And that means sometimes, DJs must go.

10 years ago, all but the most expensive jocks were pretty safe, because the station always had to have somebody there to push the buttons that played the music, and more importantly, the commercials. Not so now. Almost every radio station in 2008 uses computers with big hard drives to play all the audio, even the between-the-songs DJ patter. Except for most morning shows, most DJs are pre-recorded and often from another city entirely, known in the industry as “voice tracking.” So, when budget cuts need to be made, it’s often the DJ who pays the price. In most places, a regular “live” DJ can be replaced by a voice tracker for a quarter of what they paid the local DJ.

As for the big, expensive morning DJs, there a trend away from those, too. It used to be a station would give a new morning show at least 2 or 3 years to begin to get good ratings, paying them very well in the meantime. On the other hand, successful shows that had slid in the ratings often were still given a great deal of money because of their longevity, or the hope that they’ll be able to regain better numbers. Not so much anymore. Any show that’s not dominating it’s target demographic (women, men, 25-54, 18-34 age groups, etc.) can expect a pretty quick pink slip when times get tough, and they’re most certainly starting to get tough now.

Remember, Radio is a business, and businesses exist to make their owners money. Anything or anyone who doesn’t pull their weight often simply has to go.

Look for more of this in 2008.

Technorati : DJ, Radio

The RadioFan Blog is launching to provide another from-the-inside look at the industry, edited by a currently working radio programming executive. The opinions express here are his (or hers…okay, HIS) and do not in any way represent the opinions of the company he works for.

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