Guy Wire is the pseudonym of a veteran broadcast engineer.
We have all heard the hype about radio needing to be live and local to
compete with satellite, Pandora and all the other new options coming out of the
cloud. However, at least two of the largest group owners are pushing a contrary
model. Except for their largest markets, live and local is apparently not
succeeding for Clear Channel and Cumulus.
At the core of their new strategy is a move to “nationalize” the
programming and overall operations. They won’t call it that, and actually say
it’s a better way to save and improve radio’s appeal. These are the primary
• Homogenized formats for all markets, planned and managed by
corporate and regional team leaders;
voice-tracking across most markets;
• Syndicating the
most popular shows across multiple markets;
• Elimination of most
local station personalities;
• Fully centralized
automated delivery systems and support functions for all stations.
It’s really no surprise these two and a few other group
owners have been steadily moving down this road. They’re heavily leveraged and
compelled to show their lenders they are doing everything humanly possible to
reduce expenses and maximize revenue to remain solvent.
THE TRIED AND TRUE
While all radio owners have had to cut expenses and
tighten their belts to keep their companies profitable, most are not adopting a
nationalized or corporate mandated operational template for all their owned
stations. These owners are committed to the importance of the tried and true,
live and local formula as radio’s key advantage in the multi-media war of
attracting and holding audiences.
Distant voice-tracking by talent not
familiar with local names, places, popular events and important issues gets
exposed rather quickly. In particular, late-breaking news stories with heavy
local impact are always best covered by real people in real time who are on the
These owners also know that their stations have to earn their place in
their communities as respected contributors to the overall health and welfare
of those communities. It is critically important to gain the support of their
local area businesses for advertising revenue. They hire the best managers and
PDs they can find and let them do their jobs.
THE BATTLE OF VISION
What we have shaping up is a battle of two very different
operating philosophies. Which one will better allow radio as a business to
survive and prosper in the future?
On one hand, we have a highly indebted group committed to the idea that
central planning and control is the best way to survive and succeed. On the
other hand, we have another group that champions the importance of local
service and control while reducing or carrying minimal debt to remain successful
and grow. Some owners will cherry-pick and blend the methods they like best
from both groups.
Companies that are highly-leveraged and
betting on their one-size-fits-almost-all approach to management are really in
a race against time. Some are staying afloat with financing that could be
labeled funny money. Their debt, much of which was acquired when valuations
were grossly inflated, simply gets restructured and refinanced over and over
with the assistance of private equity firms.
Some investors do lose money, but the big ones get
protection and incentives to stay the course. Sadly, the CEOs and upper
managers get paid every time the debt is rolled over. They keep promising
better performance is just around the corner. Everybody buys in and they all
keep kicking the can down the road together.
The game stays alive with business as usual as long as
interest rates stay low and the bankers remain willing partners. If and when
inflation returns and rates spike up dramatically, the game could end rather
As new media players continue to chip away at radio’s traditional base
and profitability, radio station valuations will probably continue to slowly
erode. At some point, the Wall Street bankers and venture capital groups will run
out of patience and want to cut their losses.
The petition to move Nassau into Chapter 7 liquidation by
Goldman Sachs last May is a good example. The accumulated debt in excess of
$200 million simply became too large for primary lender Goldman Sachs to accept
the eventual risk. The group of approximately 50 stations was largely
liquidated in a court-run auction at a small fraction of its book value. Other
distressed groups may face similar proceedings in efforts to bring debts in
line with the underlying value of their stations.
Breaking up debt-ridden groups and selling off the assets in pieces is
usually the best way the debt holders can move on to more promising investment
opportunities. Owners unburdened by heavy debt who want to stay in the business
and grow will be the logical buyers of such stations when prices fall to
attractive enough levels.
Unless of course, and perish the thought, there
is some kind of government bailout that comes to their rescue. It’s ironic that
the companies pushing the nationalized model are saying it’s the best way to
actually make local radio better.
Where the nationalization approach is ascendant, the original
programming and local management decisions have been judged as “not good
enough” by others sitting many thousands of miles away. Where else do we see
this kind of thinking being promoted?
One size certainly doesn’t fit all in the changing landscape of making
radio succeed and survive. Our monkey-see, monkey-do business is just one of
many in this country coping with a similar metamorphosis. Will more of the
monkeys see and do like some of the so-called leaders of our industry are
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archive under the Columns tab at radioworld.com.
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