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Home » Traditional Radio, Part One: Wall Street, Unemployment, The FCC, and Financing

Traditional Radio, Part One: Wall Street, Unemployment, The FCC, and Financing

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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the problem with traditional radio is easy — its approach to gathering the majority of listening multitudes is outdated.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.

Cash and Credit

Radio surrendered to institutions of high finance and abandoned the business of growing the product. Meanwhile, the economy slowed down, audiences grew older, new media (blogging, video blogging, podcasts, cell phones, Internet radio) created a change in listener usage, and advertising revenues began to decline. The housing industry, credit lending, and stock market are in a spin; thus radio stock values are in the tank. Consumer media usage has changed and traditional radio has suffered. Companies with cash flow problems once used stock to leverage as currency; it is no longer an option due to low Wall Street stock prices. Radio companies Citadel, Cumulus, Entercom, Radio One, Regent, and Spanish Broadcast Systems are all trading for less than dollar a share.

Like for many others, cash is a problem for radio; there are balloon payment obligations, debt restructuring, and loans needing refinancing. Financial institutions recognize radio’s lack of growth potential and access to financing has become more costly. The bills keep coming and revenues are significantly down; therefore radio groups are cutting expenses by eliminating announcers and other personnel. It is a matter of not enough cash, too much debt, and collective financial survival. Individual station performance, good or bad, is not part of the equation.

Consolidated radio is attempting to keep the doors open, and unfortunately is providing a product that has little to do with what consumers want. Why pay one jock at 100 stations if a nationally syndicated show can replace all those personalities. Sounds heartless, but it is cash flow. Unless the syndication is within a company, there will also be an inventory problem, so look for the most inexpensive form of syndication, RSVTS, real simple voice tracking syndication. The game is about survival and not radio presentation or compelling listener content.

The industry is in a difficult situation. Properties were originally purchased at inflated prices; therefore selling would provide cash, but at huge losses. Recently Lew Dickey, CEO of Cumulus, said, “I think there’s going to be a pretty big shakeout and I think that half the companies in business today will be gone within 36 months.” He is probably correct; there will be a reconfiguration of consolidation, and several will follow the example of Clear Channel and return to private ownership.

The next series installment will address bottoming out, rebuilding, new media, and listening generations.

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About Radio Coach Sam Weaver