It's NOT Wall Street's Fault Edition

Good Morning,

This week I attended the Radio Ink "Outlook 2006" conference in NYC. This was a look at the state of radio business for the next twelve months. The full day sessions featured panels from economists, media planners, analysts, bankers, and of course, radio group heads. (Kudos to Eric Rhoads on a fine day.)

This is NOT a review of that day. I'll leave that to others. I do however, want to focus on one particular presentation made by my friend Victor Miller of Bear Stearns. Vic began his presentation with the following statement. It may not be his exact words, but it's close. I added a few more. You'll get the idea.

Vic said, "It's time to stop blaming Wall Street for radio's poor performance."

Wall Street did not tell radio operators to buy hundreds of stations at inflated prices.

Wall Street did not tell radio to run 20 commercials an hour.

Wall Street did not tell radio to lower the average unit rate, offer no charges, or provide "value added" to each order. PS, value added means "free" in many stations.

Wall Street did not tell radio to take penis pump ads, three simultaneous remotes, or any car dealer spot that yells "we won't be undersold" at levels far greater than the station processing can handle.

Wall Street did not tell radio to hire card readers, rock jox, shock jox, sophomoric untrained jox, no jox, or programmers that load 10 commercials in a row on one side of the hour.

Wall Street did not tell radio to cut marketing and research.

Wall Street did not tell radio to eliminate local staff.

Wall Street did not tell radio to create "less is more."

Wall Street did not tell radio to play the same stale music over and over.

Wall Street did not delay the HD rollout, resist new technology, resist PPM, the diary, or streaming.

Wall Street did not invent XM, I-Pods, The Internet, Broadband, or anything else taking listening away from broadcast radio.

Victor is right! No one on Wall Street put a gun to our collective heads and MADE US do it this way!

We trained Wall Street, the bankers, our own CFO's, and each other to think this way. When these companies went public, they had to submit a business plan. (I know, I was there at least four times) The business plan projected earnings for years into the future. (usually three to five.)

Wall Street loves growth. We submitted numbers that projected growth over the upcoming years. We created those numbers. Wall Street didn't tell us what to write. Wall Street didn't tell us to pay 22 times cash flow for a radio station. We gave them what they wanted to see. We wanted to please them. Why? Because if they like us, they will buy our stock, the price will go up, and our net worth will rise with it. WE did it!

Take a look at the proxy report of any public company. Look at the number of shares each radio executive currently holds. It's a lot of shares. If running one extra commercial across hundreds of stations 24 hours a day seven days a week for a year will raise earnings, it will raise the price of the stock. If you own a lot of stock, your personal fortune will rise too!

Pretty simple math.

If you sell a spot for $1.00, you pay commission, run the station, and keep what's left after taxes. It may be anywhere between twenty and fifty cents. Your company may vary.

If you CUT expenses by $1.00, you keep the whole dollar. (seems easier to cut, eh?)

Money. It's always about the money! It's the family fortune we're talking about here. (in many radio companies, it really is!) This is America. It's the way it works.

But let's get something straight. They only respond to the numbers WE SEND THEM! If you tell the Wall Street people you are going to sell so many spots, they believe you. When you don't do what you said you would, they hammer your stock, and the family fortune.

Perhaps it's time to be honest with ourselves. We know this business of radio needs an infusion of talent, smart management, significant marketing, research, and a relentless will to win!

The operation of radio companies will have to change. We can't do it the way we did in 1999. Those days are gone forever.

But let's make sure we have the people to do it. And let's understand it's going to cost money. More money than we are used to spending in radio. The game has changed. We don't control the ears anymore. There are more choices. Consumers are taking their ears elsewhere. And we have the most to lose.

Streaming our brands over the millions of computers will help. Podcasting our programming, writing compelling commercial copy, being more visible locally, and thinking differently about our content will help too! We can do it right now. How many people in a typical radio cluster are devoted solely to this new technology? (I'll be surprised if it's more than one person)

And HD Radio? Ok, fine, we get the auto people to add radios to the cars, convince companies to make radio sets for less than $100, and flood our own airwaves with compelling copy to move them to the band. Would anyone like to take a guess as to the number of HDradio sets will be in the market by 2010? (hint, it won't match the current number of I-Pods.*)

Here's the good news! We already have a box in every home, office and car in this country. To the envy of everyone else! Verizon, Apple, XM, Sirius, and others would love to be in our position.

The bad news? There is a perception we play too many commercials, repeat songs & formats over and over, are "old school," and not in tune with young people.

Wall Street didn't do it. We did! And WE CAN FIX IT!

We need a "management" format change. The old format is not working. It's going to cost money. Then we need to tell Wall Street what we're doing about it, take our lumps, and get on with it!

Sometimes I think we're in denial. Consumers, advertisers, even our employees are telling us something. They hear it everyday. If we admit it, address it, and fix it, Wall Street will respond.

Jeff Smulyan (Emmis) has the right idea. Start lowering the revenue expectations, and start addressing the listener experience. At Wednesday morning's conclave of Wall Street analysts at the UBS Warburg Global Media Conference in New York he said,

"I don’t think we’ve marketed ourselves well."

You got that right Jeff!

"If broadcasters focus first and foremost on delivering compelling content, most of the other challenges can be handled—including the latest onslaught of technological challengers that are vying for a share of a radio listeners' time."

Correct!

"I think we’ve been very stale."

That's what I'm talkin' about!

Creative programming must become fashionable again. Today's managers are going to become more aware of content. It will be more than lowering the spot load. It will be about putting more quality programming on the air, and better commercial copy. It will require attracting the best people, paying them well, and letting them take chances. The new competition is changing the reference point. Therefore, we must get smarter at content. Then we have to tell them, and tell then a- lot! (the listeners AND our investors)

The listeners will be expecting it. Wall Street should too!

When it comes to the family fortune, do we really have a choice?

Regards,

Fig

* Apple projects 36 million I-Pods by the end of 2005. Forrester research projects 10 million HD radios in use by 2010.