There is no doubt that all businesses are affected by this long and bumpy recession, but lately radio operators have been posting pretty nice profits by and large.
We are half way through another difficult year, and something very interesting is going on.
Radio operators are profiting as a residue of years of financial cutbacks – lower operating expenses giving them exactly what they were looking for.
But the windfall is primarily coming from national business and while this is good, it creates a big question mark about where radio is going to get the local revenue to make up for years of losses.
Analysts are saying companies like Cumulus are doing better in their big markets where Cumulus Media Partners operates a privately-held group of stations. Their public company on the other hand, Cumulus Media, is the small and medium market division that has been pillaged by management to make it a virtual repeater radio operation with strategic decisions handed down from Atlanta headquarters.
In the small market Cumulus entity, growth is not nearly so dramatic – basically flat -- as CEO Lew Dickey said in an analysts call last week.
Everyone had predicted an up year but perhaps you’ve noticed the blowback on how “up” the year will actually be. Again, the industry can blame the recession, but at Apple even AT&T and faulty iPhones cannot stop growth – to the hell with the economy as an excuse.
What’s worth investigating is the detrimental effects that are now surfacing related to the non-localization of radio.
Radio companies can point to all the positive signs they see such as strong national business, expected political advertising this fall and a digital surge but local sales revenue is not in their projections.
What is happening is that firing local personalities removes a reason for local businesses to reduce or walk away from their radio schedules. In other words, it is easier to cut radio from local ad budgets when that radio is not a popular personality who may have been entrenched in a local market.
But just as devastating is the widespread extermination of local sales staffs at a time when local radio stations actually need more salespeople to get more businesses to come back and spend. Radio CEOs traded that away for the short-term profits that they are now posting.
In essence, there is no one home to sell radio advertising and lure local businesses back – or better yet, to help local businesses through the recession with affordable advertising solutions.
To make matters worse, the powers that be at these leading radio companies have seen fit to cut sales commissions (Clear Channel and Citadel come to mind), take business away to avoid paying commissions (Cumulus) and offering a disincentive to professional salespeople that they don’t need at a time like this (all of the big consolidators). It’s hard enough to overcome a recession but to overcome a company-imposed recession based on lower compensation – now that’s the wrong strategy at the wrong time.
Plus, strategies like dictating from headquarters what accounts local salespeople should be pursuing are proving to be misdirected. Top management is so far removed from the street that all they can see is health care and financial accounts so they want to redirect what is left of their local sales forces to these “growth” categories.
Obviously, none of this has worked if you study the earnings reports that are coming out lately. That’s why even analysts, the lap dogs of the investment banking industry, are asking, “what’s up with that?”
Wells Fargo Analyst Marci Ryvicker’s first question on the recent Cumulus second quarter conference call was all about the company not mentioning its local sales revenue situation. Lew Dickey and CFO J.P. Hannan came off like they swallowed their tongues.
Their obsession with firing talent and salespeople have led to this predictable result. You do remember, we predicted it -- yes?
But let’s not dwell on the consolidators’ playbooks. There is a solution.
1. Hire three times the local salespeople you now have – that’s right, the ones with experience that are sitting on the sidelines. Don’t look now but Saga and Cox and the generally good operators have been doing this – cherry picking experienced professionals. The more qualified salespeople, the more local sales. Done. Of course, I’m getting carried away because consolidators may have to give up the short-term profits they now bragging about – the ones delivered by cutting expenses.
2. Put an outstanding sales manager in charge (or let the one you already have) make the decisions on the ground and let him or her direct the local sales force to pursue the best prospects. It’s nice that corporate loves more health care money but things sure look different from the street level. Go with the street.
3. Sell local solutions that also include new content for mobile and Internet – that industry is growing right through the recession. Just streaming a terrestrial station is like leaving money on the table. You need to create new, additional content.
So there you have it.
Do these three things and local sales revenue will go up – right now, in the middle of this awful economic downturn.
Smaller companies interested in operating instead of leveraging debt are doing the three important local sales strategies mentioned above. But what makes headlines is when the handful of consolidators who control America’s best radio real estate can’t successfully operate, they opt for short-term solutions and then cover their mistakes by purchasing more debt.
Remember that new Cumulus company that Lew Dickey kicked off with great fanfare? You know, the one with $1 billion in capital it hadn’t and still hasn’t raised.
Ostensibly, the mirage company was created to buy radio stations and groups, but as I said then and reiterate now, they haven’t purchased one single station.
You know why?
The majority of any money they raise will go to buying down the massive debt that they continue to amass.
Mark my words.
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