The Domino Effect of Radio and Records

What came first, the decline of radio or the decline of the music industry?

And what will come next?

The music business began its decline around the turn of the century when Napster tweaked the egos of the major labels. The labels overreacted by suing the pants off those kids and eventually put Napster out of business.

In hindsight, the label execs should have swallowed their pride and bought Napster out, harnessed the technology and prevented the filesharing and pirating movement from turning into a revolution before they owned a piece of it.

The radio industry's decline arguably started around 2002 even though signs of strain were seen as early as when the Internet bubble burst at the end of the century. Because radio was always able to pump out free cash flow, the industry either grew slightly or leveled off year after year.

It wasn't until the economy started pinching earnings that radio began its demise because owners were not able to pay the debt on their loan facilities. For awhile, consolidators were able to sneak in another refinance or two by accepting even less favorable conditions. In effect, they robbed Peter to pay Paul.

The downgrading of radio programming was an expected consequence of downsizing and it couldn't have come at a worse time.

Is it a coincidence, then, that the decline of these two great industries occurred almost simultaneously?

I started to ponder this when the surprising announcement came not long ago that the trade publication Radio & Records was going to cease operating. The term parent company Nielsen used made to wipe out both industries newspaper of record -- "business decision" -- said it all.

After all, if the record industry was in decline and the radio industry was experiencing tough times, where does that leave Radio & Records? For that matter where did it leave radio and records -- (small "r"s)?

Greedy radio consolidators full of themselves helped ruin the previously fine relationship they had with the music business when consolidators tried to fleece the labels for what I call legal payola. This is different from traditional payola where labels were pumping money into the stations and to their employees to gain increased airplay.

And radio did this when the labels began to get down on their luck.

Suddenly with consolidation, Clear Channel and Cumulus, Radio One and Done and others tried to set up a system where the labels were forced to pay corporate -- not the stations -- an annual stipend (often in the millions of dollars) for direct access to their program directors.

Needless to say this is when radio stations actually had real, live, breathing program directors.

The sham was that the whole deal wasn't really payola because the labels may have earned access to their PDs but they were not buying airplay or favoritism (wink/wink). Instead, the labels got a few hours advanced notice of which new songs each station was going to add -- that's a mere few hours before legitimate publications like R&R were going to make them public anyway.

Boy, now that's really worth millions of dollars a year!

Whatever it was, it sure ended fast at all consolidated groups once former New York Attorney General Eliot Spitzer went after radio groups and record labels for payola. A number of them plea bargained and paid fines.

Amazing, wasn't it -- that this corporate payola disappeared faster than a live morning show on Citadel.

What's more relevant, I think, is that the radio industry turned on its "partner" -- the music industry.


Randy Michaels and his buddies at Clear Channel had a nice relationship with "independent" promoters and some labels didn't like it.

Meanwhile, the very audience that buys music -- the next generation -- kept slipping away. After all, it's pretty tough to listen to a radio station if you're into music discovery (as Gen Y is) when the stations add only a few songs a week.

The labels were no better.

They were off suing their customers instead of finding and developing new acts. For them it was lawyers gone wild and it is still that way today.

Now the labels are this close to winning repeal of radio's performance tax exemption -- meaning money losing radio stations could have to start paying more rights fees with passage of the legislation. The vote count is close -- no solace to broadcasters.

And the music industry is now crying that radio has been blacklisting some of its artists -- you know the ones that have publicly supported repeal.

No, no, no -- radio wouldn't blacklist a recording artist, would they Lew Dickey and the Dixie Chicks?

Meanwhile, the hits don't keep on coming and radio's listeners continue to disperse to the Internet, cell phones (texting), iPods and social networking -- the things they like that radio and music execs don't like to think of as competition for them.

Clear Channel, Cumulus and Citadel are teetering on the brink of bankruptcy.

Some lenders may take more ownership and forgive more debt because they, frankly, don't want to repossess the stations. Others will be just as happy to let radio consolidators be in violation of their loan covenants and send them off to bankruptcy court. What is scary is that the Evil Empire has tried to bully its lenders into more favorable terms and the lenders thus far have told them to go pound sand.

So, is the decline of corporately held and operated radio a result of the decline of the music industry and vice versa?

When the labels churn out fewer new acts and stations start fooling with the discovery process while charging "admission" for access to decision makers, it can't help.

But the next generation continues to embrace the variety and diversity of music on the web thus challenging the once sacred and powerful grip radio and the labels had on audiences.

Before the Internet (and Gen Y), you had to listen to radio to discover music. Just remember all those gold records on the wall in a program director's office.

But while radio was consolidating and labels were obsessing over being robbed by pirates of the Internet, they both lost control of their businesses.

Neither could see what to do with the advent of new technology.

The iPod caught them both flat-footed.

Streaming was never embraced to its potential -- radio owners deciding instead to repurpose what they already had on-the-air online.

Mobile never meant text messaging to them -- it meant "Walkman" or transistor radios.

They both -- radio and record labels -- missed the massive sociological changes taking place and still to this day don't comprehend new technology.

To me the decline of the music industry coincided with the decline of radio and may have happened anyway even if owners did not consolidate.

If I'm right about this -- it may be the single most unnecessary tragedy of this industry.

Earlier I asked, what will come next?

If the fate of one entertainment industry is tied to another, what could happen as a result in these uncertain times:

1. The service companies in radio have been bravely fighting the good fight against consolidation for 13 years now, but the jig may be up. Radio consolidators buy nothing they don't absolutely need. Hell, Cumulus even let one of its stations go silent recently because they didn't think they needed engineering backup for such emergencies. But, studios, equipment, some types of programming, consultation services, even Arbitron -- who needs it when the business has been transformed into Repeater Radio?

2. Speaking of Arbitron -- they stand to lose the most as contracts expire. People Meter technology isn't cheap and radio groups will find fewer reasons to rationalize the expense. Citadel's WABC in New York only carries a precious few hours of local programming daily -- and that's in the biggest market in the world. Who needs ratings? Don Imus doesn't get ratings anyway so why pay big bucks to find out what advertisers already know.

3. Radio and music trade publications could die off. Who would have thought we could lose a great one like R&R? Now the industry is left with many writers who embraced the establishment talking up radio's associations and pushing hard to spin HD radio. Boy, am I glad I sold Inside Radio when I did. It makes me want to kiss Randy Michaels on the lips for making it possible. Okay, maybe I'm not that grateful.

4. HD radio is deader than Citadel's stock price. Ironically, the radio establishment pumped up this phony audience enhancement and wasted tons of money over the years. In the end, radio is giving the finger to the very concept that it touted as the future of radio. And you know consolidators, they value cutting expenses over the future.

5. The music industry has no friends. Its fight with radio now is personal because of attempts to repeal radio's performance tax exemption when radio needs it the most. It's kind of like stepping on someones throat when they are trying to breath. Without friends, the labels are left with trying to crawl into bed with new media. There is evidence they are up to their old ways again especially if you look at how they convinced eMusic (the legal downloading service) to raise prices and cut the number of downloads their 500,000 paying members get each month. As one of my former USC students commented recently: "They now want to decrease my plan to 50 downloads a month for the $19.99. There will be no legacy plans honored. We are all being shafted by the move to a major label. I guess I should finish out my downloads for the month and leave. Then maybe they'll learn not to shaft legacy users". The labels continue to be their own worst enemy.

6. New media is proceeding along without the labels and without radio. The labels refuse to make it affordable for Internet streamers to play their music without going broke and radio companies are in no significant way aligned with Apple, applications, mobile content, podcasting, social networking or even simple streaming of content other than what's already on their air. In other words, radio and the labels have missed the digital revolution.

7. The decline of radio and the music industry also prevents both from transforming themselves into audio with pictures and text. The scariest complication from their coincidental decline is that the consumer now demands entertainment when they want it -- they see it, hear it and read it at will. This renders traditional broadcasting and music CDs antiquated as each year produces another generation of Gen Y consumers coming of age.

Talking with my industry friends I sense a real feeling of loss over the demise of Radio & Records. I share that sadness.

There is no doubt that this feeling stems from R&R's accomplishment of super serving the radio and record industries for 36 years.

But it could also mean that if Radio & Records could be left to die, what is to become of the "radio" and "records" in the R&R masthead?

For those of you who would prefer to get Jerry's daily posts by email for free, please click here. IMPORTANT: Service doesn't start until you verify an email from "Feedburner" immediately after you sign up (may have to check your filtered mail).

Thanks for forwarding my pieces to your friends and linking to your websites and boards.