Radio in the New Millenium: Forward into the Past?

The radio theater troupe Firesign Theater coined the line "Forward into the past". It appeared on their first record album, then re-appeared on a later album entitled "Nick Danger, Third Eye"( a take-off on the old radio drama series "Nick Carter, Private Eye.") It's kind of like "Back to the Future"--a return to the past, as seen through the eyes of the present. And that's exactly where radio is headed. To get a better look at where the medium is going, both commercially and artisticly, we need to take a glance back over our shoulder and see how it got here. Just where is radio now, anyway?

The Way We Were
Radio grew its legs in the 1920's--when the nation had abandoned gas lights for electricity, horse-drawn carriages for automobiles...and a trip to the opera for a comfortable gathering at home, around the Atwater-Kent. Radio distinguished itself as more than mere entertainment early in the game. It proved itself a valuable informational tool when KDKA-AM in Pittsburgh, Pennsylvania broadcast the first election returns in 1920. America came to trust and to love the voices that poured out of the box and into its living rooms--from war correspondents to beloved actors, to even Presidents of the United States.

The watchful eye of government quietly policed this new and powerful medium. It was radio that gave rise to the Federal Communications Commission (FCC). The commission established a detailed set of policies and regulations governing whom may apply for licenses, how stations may operate...and even how many broadcast properties a given operator could own.

All this regulation may have seemed onerous for an invention that, in retrospect, looks about like tin cans tied together with string. But perhaps the regulators had more foresight than we gave them credit for. What would happen when the nation was criss-crossed with tins cans? Wouldn't some of those "strings" get tangled? Indeed, they have.

Until recently, broadcast properties operated under an old regulation known as "the duopoly law." Simply put, it stated that no single operator was allowed to own more than one AM and one FM license in the same market. The "founding fathers of radio" had two concerns here. First, no one should have sole control over the flow of news and information. Second, no one should have an unfair competitive advantage to gain revenue. A few of those regulators are quietly twisting and turning in their graves today.

You can put politics aside here; it doesn't matter which party holds a majority in Congress, or even which one controls the White House. Perhaps the regulators were too busy castigating the Howard Sterns of the world, purging the airwaves of so-called "indecency" to pay attention to a much more threatening menace.

While they rattled their obscenity sabers, the Commission repealed the duopoly law. A dragon has escaped, and now terrorizes the land, threatening the principles of both journalistic integrity and free enterprise in broadcasting.

When radio was in the crawling stage, we only had indvidually owned and operated stations, first in major cities, then dotting the land in small towns. In its adolescence, small chains of stations began to appear. Then came graduation day. Radio networks were born, feeding common programming to independent stations, nationwide.

Even those of us with a mercenary bent--the career advertising salespeople, were trained by gurus like Jason jennings, Chris Lytle and Irwin Pollak to engage in client-centered selling. Our job was to drive the advertiser's business--to use the resources and the power of our stations to solve marketing problems. For years, as an advertising medium, radio was the stepchild of television and newspapers. Radio people had to work harder to get a piece of the pie--any sized piece. All that changed when the duopoly law was slain by the dragon of greed. Who benefitted? The public? The on-air talent? The sponsors? Truly, none of the above.

The Way We Are
With the repeal of the duopoly law (and the revised Telecommunications Act of 1996) came the beast of consolidation. In the 1990's, radio stations became commodities. Where successful operators once dominated their markets by hiring the best air talent, by devising the most exciting programming, by executing the most ingenious promotions, in the age of consolidation, companies win simply through acquistions. What's wrong with that, you ask?

Ever since the 1980's, when stations in markets of all sizes became extremely ratings-sensitive, the radio industry stifled creativity. "Format stagnation" set in, as Program Directors were afraid to "step out of the box" and do anything differently on the airwaves, for fear of loss of ratings. (Loss of ratings, they were told by sales management, would most assuredly translate into loss of revenue.)

The stage was set. Programmers gravitated to a few safe "uptrending" formats; station groups swallowed up their former competitors; broadcast operators achieved economies of scale and cost efficiencies by carrying syndicated programming, instead of hiring strong local talent. At first blush, it look like broadcasters just made good business decisions, right? Let's dig deeper.

A broadcast license is an awesome responsibility. It grants the operator a vast bank account of public trust. There is an expectation of more than just good fiscal management here. You, the broadcaster, have the wizard's magic wand. You get to tell the public the story of life in America. Oh yeah, we forgot about that part. You see, in a deregulated atmosphere, someone also decided to relieve the broadcasters of their former responsibilities to dedicate a fixed amount of time to public service. Today, it's all but voluntary. Is that so bad?

Maybe not, but here's the rub. Deregulation has slashed both sides of the microphone. Both the flow of information and revenue are concentrated in so few hands today. Do pay attention to that man behind the curtain. For example, New York is the number one radio market in America (based on population). In New York, both all-news stations are owned by one company--along with the all-sports station and several music stations.

The way we are is at the mercy of two giants that each control hundreds of radio stations. Worse yet, in a given marketplace, either one of those two companies will sometimes control nearly all of the top rated stations. The potential to dictate advertising rates is dangerously close. At one time, rates were controlled by the marketplace--either supply and demand, or higher ratings. In the era of consolidated ownership, an operator of a broadcast "supergroup" can effectively block advertisers from appyling competitive pressure. Ad agencies and media buying services fall prey to a near monopoly.

In one camp, we have Westinghouse, CBS, Infinity and Viacom all merged into one entity. Across town, Jacor, Premiere, AM/FM and Clear Channel have consolidated into another group. The goverment ruled the Bell System and Microsoft to be monopolies. We have a close second here.

There is another casualty at issue in the consolidation of radio station ownership. What about service? Many of the consolidated properties are part of publicly traded companies. With acquistions come huge debt service. The pressure for profitability and return-on-investment to shareholders is enormous. As a result, the pressure to sell more advertising at even higher rates has reached gargantuan proportions. This trend has turned radio advertising salespeople, long known for their marketing skill and training, into mere "inventory managers." Management only cares about reaching so-called "budgets", or sales quotas. Never mind what the client wants--or even needs--just sell them whatever we have...and get more for it than they paid the last time.

The Way it Will Be
Here's a prediction for you. While a few Goliath broadcasters have their backs arrogantly turned, a young David warms up his slingshot. Just one surprise, though--it's a hi-tech David. The old guard will sustain a series of blows that could change the way radio sounds--and sells.

Recently, the second of two companies began to deliver radio programming by satellite. What's so new and different about that? Many stations receive syndicated programs by satellite. Here's the difference. These companies are offering more than a new delivery
system. They're offering a whole new medium. Sirius Satellite Network launched, with XM Satellite Radio close behind in 2001. So what?

Here's what. Sirius and XM are doing what satellite TV did. They're each creating a whole new band of radio, complete with 100 channels of programming--programming that ignores what terrestrial radio programmers have anointed as popular formats. Suddenly, someone will superserve the underserved groups in the population. For example, XM will offer the first ever true Spanish language national network, Asian language programming available everywhere, the same big band music that has practically disappeared from the AM and FM bands.

Won't satellite radio turn into another boondoggle, like Quadrophonic or AM stereo? Not likely. You see, some of the best minds and the biggest money are behind satellite radio. Even though there is a small subscription cost (ten dollars a month), consumer resistance is highly unlikely when you consider the variety of programming, promised clarity of reception, ability to capture data on an LCD display (like the phone number at the end of a commercial, or a song title).

This is serious stuff. Content providers to XM Satellite Radio will include everyone from "USA Today" to Bloomberg Business News to CNN to the BBC. One hundred state-of-the art studios were constructed in Washington, D.C. XM's sales representatives even did the unheard of in radio. They even guaranteed charter advertisers that at least 338,000 sets would be in use the first year--or they will credit future orders for the shortfall. Okay, you've got my attention. So what does this mean to the rest of the radio world?

Brace yourselves, you in the ivory towers of big consolidated radio. Here's what will happen. In a few short years, satellite radio will cut into terrestrial radio's audience listening shares the way cable TV viewership cut into network television's audience shares. The public, starved for alternative programming, will embrace the new technology. Terrestrial radio (AM and FM stations) will experience a softening of demand for advertising, as advertisers discover the new medium. As a result, traditional broadcasters will be forced to lower--or at least stop raising rates. Their revenues will decline--or fail to keep pace with the rising expectations of management.

Ultimately, large chain broadcast operators will not achieve the profitability projected when they acquired the properties. Further pressure will result, as interest rates rise and they experience difficulty meeting debt service on their loans. Property valuations will decline, and broadcast stocks will then drop. Ultimately, the radio "supergroups" will collapse. Alas, has anyone thought of selling "air time futures?"

Author’s Note: Since this article was written, Clear Channel Communications has divested over 400 radio stations; CBS has sold off over 200 radio stations, and ABC sold all of its radio stations…as predicted eight years ago.

Barry H. Cohen, a 32 year veteran broadcast advertising professional, is the Managing Member of Adlab Media Communications, LLC in Clifton, NJ. He is the author of the book, 10 Ways to Screw Up an Ad Campaign (Adams Media, Sept, 2006, and co-author of Startup Smarts (Adams Media, 2010)