This is the first of a three-part series on the problems of traditional radio and the solutions.
Identifying the problem with traditional radio is easy — its approach to gathering the majority of listening multitudes is outdated. This revelation is openly known to many broadcasters and the basic solutions have been acknowledged; however, many wishing to perform a correction are being restricted by financial woes, confused interpretation, and shortsightedness. Radio’s issues are not complex. Short-term solutions are standing in the way of progression. However, before the sound and the future of radio can be addressed, the industry must regain its footing.
Radio and Wall Street
During the '90s, radio morphed into a Wall Street banker mentality.The once creative medium became staid and dull. The “Peter Principle” gave birth to massive air shift syndication, voice tracking (modern variation on automation), consolidation, promotional confusion, no training for the future, rushed personnel advancements, and converted a product once balanced between business and art into a store item found on shelves. Companies with various formats housed under one roof, it is “Food Court Radio.”
Whenever a manufacturer has to raise product prices and indicates a rise in operating costs, it is easy to understand. Radio’s only product is the airwaves — personnel costs are fixed, and promotional budgets are flexible. The sales department sells the on-air content. Therefore, why are people losing jobs? Is it old fashion greed, cost cutting to retain the same profits?
FCC and Financing
It all began when the Federal Communications Commission increased radio national group ownership to 12 AMs and 12 FMs per market. During the consolidation boom of the '90s, Congress passed the Telecommunications Act of 1996, dropping limits on the number of stations broadcasters could own nationwide. The size of companies grew and new sources of revenue became available. Large ownership groups became mega-sized and the financial world recognized the potential for millions. Radio groups learned new ways to finance acquisitions and build cash flow; using cash flow margins became a way to leverage debt. The banks and stations were seemingly on an endless honeymoon.
Combined with fewer government regulation on loans and lending, successes spawned more creative financing. Capitol venture firms decided to join the party with sources of equity. Large groups like Infinity, SFX Broadcasting, and Clear Channel became gigantic consolidated corporations and moved away from high yield bonds to bank loans and public equity markets. Soon investment banks like Merrill Lynch formed public partnerships and raised gazillions for radio investment. All of this led many to publicly traded companies on Wall Street, allowing less financing, and using stock as currency to purchase radio properties and other businesses. Advertising revenues soared through the '80s, '90s, and up to 2004.