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Radio's Next Big Disruption

Great companies understand that change for the sake of change is important, and that to grow and remain relevant, they need to always have a strong, compelling value proposition. Great companies cannibalize themselves before their competitors eat them up.

Revolutions in business don't happen with incremental change or by making slightly better products. They happen by upsetting the status quo, even though it's working and productive. Revolutionary businesses seek ways to deliver their product to customers in better ways, and work to disrupt costs to make their offer more attractive.

What, then, can cannibalize and disrupt our industry? What might a major player like Clear Channel or Cumulus do to dramatically alter its business? After all, cost cuts can't go much deeper under the status quo. Yet these big companies need to remain competitive and relevant to the needs of the market, and need to be where customers want them to be. They must change the game and grow profits.

I've identified the following areas that could disrupt our industry, might (arguably) make it stronger, and could make it more predictable for clients:

Changing Sales

Think about this area for a moment. It's high-turnover, high-cost (with commissions a major cost of doing business), management-intensive, and management-reliant, and it's hard to get 6,000 people trained and delivering consistent messaging and performance. The best sellers are being seduced by pharmaceuticals and Google. Sales are impacted by things like mood, attitude, and environment. So how could you change radio sales? One way would be to outsource sales to someone already doing it.

Who, not in radio, is calling on the same customers and already has those relationships? Who can do a better job? Who could leverage what they already have to create more sales by combining radio with their own offerings? Perhaps it's another radio group -- though that's unlikely. Perhaps it's local cable or television sellers, maybe it's other vendors calling on the same people, maybe it's a company like Google that's hiring sellers anyway and is seeking radio relationships to joint-venture on Google local. Outsourcing and collaboration could be a brilliant move.

Another way would be to create an automated sales environment. If a system could be developed that made buying as easy as responding to an e-mail or clicking within an app, it could be magical. Of course, we're all trained to believethat sellers make things happen, and they do. But what if you could prove automation would work as well in sales as it has on air? It works for Southwest Airlines, Geico, and Google, and automation brings better yield management, and thus lower prices for customers. With seller commissions eliminated, some of the savings could be passed on to local businesses that could save on their advertising buys, and the rest of the savings goes right to the bottom line. Even if total revenues dropped, there'd be a lot of saved commissions to make up the difference. Radio would be easier to buy -- you could buy it online in the middle of the night, if you wanted to -- and there's a very real possibility customers would be happier.

Eliminating Local Staffing

Buildings and office space are expensive. People are expensive. What if one of the big companies decided it no longer needed local program directors, local sales managers, local traffic, billing and accounting, even reception? Who would be left? One must have local engineering support and someone to care for the public file -- and it could be the same person. If a company like Cumulus or Clear Channel decided to become a true national network, decided to abandon local advertising in exchange for eliminating all local staff, including expensive management, it might still be cash-positive selling national only, and local with automated sales systems. And what can't be eliminated can be outsourced. Plus imagine the cost savings in real estate, desks, studios, and paper clips.

The End of Local Programming

If you considered all the stations and signals inside a company like Clear Channel or Cumulus, you would probably come up with no more than 30 or 40 variations on formats. Local talent is costly, and indications from the Ryan Seacrest experiment seem to show that strong national talent that's syndicated doesn't hurt ratings or business. Even if it did, the cost savings probably outweigh the losses. So why not eliminate local talent and have the best talent for each format doing all the shifts, feeding direct to the transmitter? No local payroll, no local studios, no local production, no expensive mornings shows, and huge cost savings on talent, technical support, and rent. Cumulus is already outsourcing much of its production to Benztown, an independent producer, and has consolidated much of its accounting.

Digital Revolution

It's logical that radio companies will make dramatic moves in digital in the coming months as well. The recent move by Katz to become a deeper digital rep house is probably an indicator that Clear Channel -- which of course owns Katz -- will make bigger commitments to other digital plays that aren't necessarily audio alone. Cumulus, for instance, has devoted a building and a couple of hundred employees to SweetJack, its coupon service. It's also in the magazine business. Smart firms will realize there is no such thing as a "radio business" anymore, and media is becoming all media combined. Advertisers want one solution that gives them exposure to all areas.

Don't Shoot the Messenger

Before you think I'm in favor of this, please know that I have a love and passion for strong local radio, for strong radio sales organizations, and for excellent programming. But I'm also a realist, and I tend to see where things are going. Though I have no indications that any radio company would have the guts to be quite as disruptive as I'm suggesting, my guess is that some or all of this will happen at Clear Channel or Cumulus soon. It's a logical next step, it dramatically alters the picture for radio, and it cuts tremendous costs and makes a giant, debt-laden firm strong.It could either be wildly successful or a miserable failure. Though I suspect any reader in a position to be affected by this is fuming at the prospect, it could very possibly become a reality -- and would be disruptive and a game-changer.

Radio in Three Years

I believe there will be two kinds of radio companies. Those that take the path described above (if one does it successfully, the other big guns are likely to follow, though they will follow late) and those that continue on the path of deep localism. Consolidation will continue, and you'll see companies like Clear Channel and Cumulus become bigger (or possibly even become one) and you'll see smaller independent firms like Larry Wilson's Alpha or Ginny Morris' Hubbard expand, acquire more stations (maybe Cox?), which will push the advantage of strong localism.

What Should You Do?

Though this may not bode well for the bulk of my friends employed within this industry, the only job security is to try to anticipate how to become one of the talents who'll becomes nationally syndicated, or work to get an early foot in the door at one of the companies that will embrace localism. The rest could find themselves seeking alternative employment.

Will this scenario happen? I've been wrong before, though I feel strongly this almost has to happen. When it does happen, everyone will think it's about budget cuts and won't recognize that it's a deep strategic change. Keep your eyes and your mind open.

P.S. It will be interesting if this strategy is discussed as a possibility at our upcoming Forecast conference, November 28 at the Harvard Club in New York. All the group heads will be there, and perhaps panel moderator Rita Cosby -- the award-winning journalist formerly with Fox News -- will explore the probability. As always, we've turned down numerous requests by press to cover Forecast, to encourage frank and open answers from the group heads.

The Impact Of Political Paralysis

Depression set in as I started listening to conference calls from radio companies this quarter. Business is either flat or off -- way off. Most CEOs shared their reasoning on why the third quarter was so weak, but Ed Christian at Saga said what others probably wanted to say: "I have no idea why it's off." The flat quarter was simply unexpected.

Last year at our Forecast conference, all the group heads predicted a boom in advertising as a result of political spending. That didn't happen, and now everyone is scratching their heads. On top of that, regular business is off, which also has everyone wondering what happened. Though some stations (especially political Talk radio) saw added spending, the expected broad spending did not occur.

My belief is that political spending in radio was down for three reasons:

Swing state focus: National campaigns understand that politics at the national level is to a large degree predictable -- for example, California is always going to vote Democratic, and Texas is always going to vote Republican. The money, it appears, went to the swing states, like Wisconsin, Ohio, and Florida.

Glut of television inventory: Sad to say, but candidates often select television over radio, and only increase their spending in radio when TV is sold out. Because there was a glut of inventory in the television industry, those candidates needing more airtime were not forced to shift to radio.

Stealth media is more important than ever: Many were surprised at the outcome of the national election because the polls were extremely tight in the final days, and several appeared to be favoring the Republican nominee. Though the Obama campaign did all the usual, visible things, they also spent a tremendous amount of money on the invisible. They masterfully executed an Internet strategy and a data strategy that weren't easily understood or accounted for by the media and pollsters. More and more candidates are spending enormous amounts of campaign money on "stealth" Internet campaigns.

That may explain why political spending shifted away from radio. But why is non-political down?

It's easy to blame it on the economy, which of course is part of the problem. But that's been a problem for years now. So why the sudden drop in spending? I call it "political paralysis."

In the months before an election, there is naturally a dramatic increase in political rhetoric in the media. As each party demonizes the other and works to increase the level of fear about what will happen if their candidate is not elected, business owners start to take notice. When their fear increases, their spending decreases. A month after the election, things go back to normal.

In the 2010 election, I saw it in one of my other businesses. About four months before the election, the rhetoric was high and advertisers stopped spending, but they didn't say why. We started asking and they all said, "We've decided to wait to see the outcome of the election before we spend any money." This was happening with both Democratic- and Republican-leaning advertisers. Their fear and uncertainty paralyzed them.

Before this election, we were ready with a strategy to lock up business further in advance and to offer answers that helped advertisers overcome their paralysis -- though we still saw some effects, especially in the last 30 days before the election.

My guess is that local radio advertisers were holding back until they were certain of what was going to happen. Even though half didn't see their candidate win, they will soon realize that life goes on, and business needs to advertise.

I also believe other advertisers want to avoid the noise. When political ads dominate the airwaves, advertisers don't want to be on the air for fear of not standing out. More ads mean more clutter. I personally got so tired of the political ads that I stopped watching television until the election was over.

Are there other reasons radio is off? Probably. But I think you'll find these are the biggest drivers of the reductions in this past quarter. At this stage, the most important thing you can do is get face-to-face with advertisers, get them back in the game, have answers ready to overcome their concerns if they are smarting about the outcome of the election, and make them understand that if they fear their business will go backward, it's more important than ever to increase visibility to get more customers in the door.

Also: Mark your calendars, and in the future, put your political paralysis strategy into play long before the campaigning begins.

Radio will be back. Though we can analyze it to death or wonder if there is some other reason we suddenly experienced a drop, understand that life goes on after elections and this temporary setback will end. Christmas is upon us, and advertisers need to play catch-up for those customers they lost by not advertising in the last quarter. I suspect radio will rebound to normal levels in the fourth quarter.

 

The Pittman Factor

 

Almost two years ago, when it was announced that Bob Pittman would be the new head of Clear Channel, I was thrilled. My exuberance wasn't about Clear Channel getting Bob as its leader, it was about radio feeling the halo effect of Pittman's magic. And my belief in that magic was based on his past performance.

I believed that if Bob Pittman, known as a digital genius because of his tenure at AOL Time Warner, was seen to be embracing radio in the midst of a digital world, radio would garner great benefits from his enthusiasm and evangelism. I've known Bob since the 1970s and its clear that he never touches something unless he knows he can win big.

It's popular to criticize Clear Channel. You know the story: big business, impossible debt, deep cuts, and laid-off employees who are hurting. Just by joining the company, Bob Pittman became part of what some in our industry like to consider the "Evil Empire." Some say he can't win, working as he is with the company's debt burden and the directors at Bain Capital and T.H. Lee. Others say Pittman is basically the same type as his predecessors, Mark and Lowry Mays. Time will tell. But if I were a betting man, I'd bet on Pittman pulling Clear Channel out of its downward spiral and turning its negatives into positives.

A Whole-Industry Approach
I learned decades ago that Bob Pittman is unstoppable. I never truly understood his approach and why he almost always succeeds until I realized that, unlike most CEOs who take on the task of righting a company in trouble, Bob isn't only interested in fixing the company he works for. He is interested in fixing the industry – and, now, in fixing radio.

Others might keep their plans close to the vest while competitors flounder, but I honestly believe Pittman knows and understands that unless he can motivate change throughout the radio industry, he cannot accomplish his goals at Clear Channel. In other words: Clear Channel cannot succeed alone.

A lot of people in radio have said the industry must be united for change and improvement, but few seem to actually do anything to make it happen. Rather than simply pronouncing "We have to work together" as a PR ploy, Pittman is quietly orchestrating change throughout the industry.

Can We Trust Pittman's Leadership?
What if Bob Pittman sees a radio landscape you and I cannot yet see? Are we willing to trust his instincts and experience and follow the path he wants to develop for all of radio? Make no mistake: His goal is to build up Clear Channel. But without change throughout the industry, Clear Channel won't hit its goals. That's why Bob has to convince you to change your thinking. But can we trust his instincts?

Frankly, I don’t think we have a choice. Clear Channel is radio's biggest company, Pittman is the first Wall Street CEO to bring major clout as he joins radio, and the world is watching. He has managed to get the Wall Street Journal and others to track his plans. Who else in radio has been able to get people to pay attention and believe we can really change?

The Pittman Plan
Why is Bob Pittman the co-chairman of our Forecast conference, set for November 28 in New York? You guessed it: He needs you in order to change radio. I think you'll want to hear his updated vision for radio and find out what he believes are the strategic and tactical issues we all need to employ to bring radio to the next level. If Pittman can accomplish what he plans to accomplish, we as an industry will be transformed and taken to a new level of professionalism, excellence and competitiveness.

Is It All Hype?
Over the past 20-plus years, I've interviewed every major executive in the radio industry. I've heard every possible story, every bit of hype, all the lies, some of the truths, and an endless stream of platitudes. Though nearly everyone says "building a better industry together" or "our success is based on our employees," I can smell when they don't mean it.

Either Pittman has sandbagged me, or he truly does believe radio needs to change as an entire industry for us to have a solid and viable future – a future with more revenues than any time in our rich history.

One Of Our Strongest Agendas Yet
Knowing Bob's plans for significant change in radio, and the need to freshly address several issues, I asked him to chair this year's Forecast conference. And you'll find the entire Forecast agenda to be filled with some of the greatest minds in advertising and radio. This isn't the year to miss Forecast. Bob has tapped his Rolodex and opened new doors, and this year's agenda is particularly powerful.

Co-chairing Forecast with Pittman is Bill Koenigsberg, founder, President, and CEO of Horizon Media. Bill is highly respected for his insights on media and marketing trends, and he's made Horizon the largest and fastest-growing independent media agency in the world, with billing of $3.8 billion. 

Our Big Concern
We have a limit of 200 attendees to the Forecast conference, and it sells out almost every year. This year, when word that Bob would be chair got out, we started seeing registrations from people who have never before attended. We suspect this year will be a sellout as well, and we cannot accept walk-up attendance once we've sold out. The Harvard club is strict about keeping our numbers to 200 people.

Also, this year our conference is early, on November 28, which we think will increase attendance. So our concern is going to be seating. Please reserve your place now by phoning 561-655-8778, or click here to register online.

Eric Rhoads

PS: Critics will say this is just more Clear Channel posturing. Others will say radio cannot change and has a dim future. But I have always believed that with the right leadership, radio could far surpass the revenue crumbs it has always received. I think Pittman stands the best chance anyone could of leading our industry in the right direction, helping us clearly see where our focus should lie and how we can elevate all of our people to a higher level of competence and success.

If you're running a radio station or radio company in any size market, if you're an investor in radio, if you're a CFO or in the financial sector, this may be the most significant one-day event you can attend to see radio grow and have a strong 2013. I hope you'll consider attending.