Google Schmoogle -- Radio Is a Relationship Business

The readers of this space could have saved The Mighty Google lots of time and money.

Google in its infinite wisdom about all things sales, thought they could automate radio selling and eliminate lots of expenses -- like sales people and the expenses they incur including health benefits.

Sounds like Google's plan was made in heaven for a bunch of radio consolidators who still can't tell local radio from Ryan Seacrest.

So, when first I went nuts about this outrage -- on day one -- most of you agreed that even Google can't force a square peg into a round hole.

Translated that means: even though Google can sell search advertising like a commodity, radio can only be sold as on a relationship basis.

Now, you knew that -- and I knew that -- but some consolidators got to fantasizing about a radio station without salespeople and Google was their inspiration.

Well, Google finally pulled the plug on automated radio sales yesterday. They are going to put their Google Radio Automation venture on the block. Of course, they are blaming the recession. Surprise.

And with the death of Google Radio Automation is the demise of Audio Ads and AdSense that I have often called AdNonsense.

What Google does not mention in their mea culpa news release is one small little piece of history which documents their purchase of dMarc several years ago.

You see, dMarc connects advertisers directly to radio stations through its automated advertising platform making it easier to handle the sales process, scheduling, delivery and reporting of radio advertising, enabling advertisers to more efficiently purchase and track their campaigns. For radio people dMarc's technology automatically scheduled and placed advertising.

The promise was costs go down. Sales go up.

Greedy consolidators were frothing at the mouth over the thought of this.

For that technology Google forked over $102 million to Chad and Ryan Steelberg who have since been living large in Newport Beach, CA. Google was obligated to make additional contingent cash payments from time to time over the subsequent three years.

I've heard word that there was a dispute over this additional compensation, but needless to say the Steelberg's sold at the right time. Had it all worked out, the Steelberg's could have made an additional $1.136 billion over that three-year time period. Yes, billion with a "b".

Let's get real.

You knew it would flop.

I said it would flop publicly.

Radio CEOs slopped it up as the answer to local radio without being local or employing anyone local and Google splurged for relative chump change of $102 million to buy the technology. Remember how they hid their motives: "we just using Google to sell unsold inventory".


Now, they'll eat it.

See what I mean?

We knew it would fail and they didn't because they want radio to be a commodity.

We want it to be a local broadcast service -- with personalities, news and real live people making a living and paying taxes to their local communities.

There is the disconnect.

And to only reflect on Google's automated radio sales mistake would be an exercise in writing ancient history if it weren't for the fact that history repeats itself for a good reason.

No one ever seems to learn from it.

And, it's happening again.

Lee & Bain are hell bent to make Clear Channel stations Repeater Radio -- with national content, regionalized sales and management and as much automation as they can get away with.

Citadel's Fagreed Suleman is pleasuring himself at the thought of radio without people -- he's a bean counter, you've got to love the number zero on the expense side of the ledger.

As an aside, I got an awful thought yesterday when I heard Fagreed was going to personally be responsible for 21 Citadel stations from now on. That means Fagreed has to talk management with the likes of KGO, San Francisco GM Mickey Luckoff who actually knows how to run a successful franchise. What a mismatch.

No good can come from this.

Someone is going to tell someone else to shove their radio station where the sun don't shine.

Back to reality.

Tricky Lew Dickey is exterminating local radio stations by keeping the morning show and annihilating everything else. He's been methodical about it. He wants local sales to be overseen by corporate.

Now, that's a real winner.

Dickey is just another radio guy who hasn't earned the right to tell people who already know how to do their jobs how to do their jobs. It's like A-Rod telling Deepak Chopra how to purify his mind and body.

Entercom is content with freezing wages while their stations are in the dumpster and what they're missing is -- you guessed it -- local sales.

Oh, sorry -- I don't know what came over me -- that's all the recession's fault. I forgot.

CBS is entwined with Viacom CEO Sumner Redstone's financial problems. You can buy the CBS Phoenix stations, if you want them. Or make a deal on some others. CBS is the only company to contribute a "comp" for radio station prices in recent history when it sold its Denver trio to Wilks. The comparable on that sale was about six times cash flow -- a new low.

Radio One is worth every bit of the 28 cents the stock market says it is -- no growth, no innovation, no answers.

Regent is 13 cents -- a small market company that should be hiring triple the salespeople to ride out the recession. It isn't.

Emmis is 36 cents and it can't escape its large market curse -- as big markets go, so goes Emmis' revenue.

Clear Channel is readying phase two of its Spring Break Bash where more employees will be escorted to the door and sent on their way to watch MTV's Spring Break in real time.

It's easy to predict the next year of radio with senseless moves like the ones radio execs are making.

1. Bankruptcies or at the very least, a tighter leash from companies holding debt that radio groups can't repay.

2. Continued declines in station revenue as cost cutting has converged with sales and programming. This is all radio has to sell and if you nationalize local radio and then take more bodies off the street, you figure what chance radio has to rebound.

3. Even if the recession subsides, radio revenue will not rebound to the same degree. Remember, radio had been fighting to equal revenue figures or modestly project one or two points more before the recession.

4. As many as one-third of all remaining radio people could be out of work by Christmas as groups are unable to pay debt service that they ran up by buying stations at unrealistic multiples. I'll tell you the real multiple if you want to know it -- three times.

Three times cash flow is the new 14 times from Wall Street's good old radio days.

And some stations may sell for less. Some will sell for more -- but not much more because radio is a local service (licensed by the government not Wall Street) and supported by local advertisers.

No station was ever worth five times cash flow except in the buyer and sellers dreams -- and you know what kind of nocturnal dreams they were.

Here's how you value a radio station from now on:

It is worth the amount of goodwill and passion that it generates to consistently encourage the audience to listen with loyalty and consider supporting the stations advertisers.

Funny, before consolidation started artificially hoisting prices to unheard of heights, WLS, WABC, KABC, KGO -- were nice profitable businesses for ABC Radio.

Were they worth more than three times the revenue they made -- probably not.

It took a sucker to come along and spend approximately $2.7 billion for 21 ABC radio stations and associated businesses.

That sucker was Fagreed Suleman and Citadel Broadcasting.

Sucker? Read on.

As part of the transactions, Disney retained $1.35 billion of cash, representing all of the proceeds of the debt that ABC Radio Holdings incurred prior to the spin-off.

Disney danced off into the future having profited from radio's best years and Citadel stock is now worth - give or take a penny -- 15 cents a share.

So here it is.

Radio is a local service.

It works best staffed and sold by local people. (Google found this out, but radio CEOs are still fantasizing).

Any future value of radio in a digital age is directly related to transitioning solid and successful radio brands to new media.

Growth can only come from innovation, technology and understanding the one thing radio refuses to grasp -- generational media.

Financially, a radio station is worth what it is producing in revenue or possibly as much as three times that cash flow for a willing and eager buyer.

If you agree with radio's new math, then you can understand why group owners are cutting expenses they never had a right to own based on a figment of Wall Street's imagination.

By the way, I have an exciting idea on how Lee & Bain could save Clear Channel by doing one simple thing that shopping mall owners know how to do. Should I tell them?

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