RADIO DAYS FADE; NET TURNS UP VOLUME Earnings take hit; new formats pose threat Leon Lazaroff – Chicago Tribune Not long ago, the radio industry was enjoying something of a renaissance.
Station valuations were high, buyers were everywhere and every radio operator, it seemed, wanted an edgy personality, whether it be Howard Stern or Rush Limbaugh.
Even advertisers liked the medium.
Now, Stern is bolting for satellite, the Federal Communications Commission is cracking down on radio content, and everything from the Internet to iPods is threatening to steal its audience.
Nowhere was that more painfully outlined last week than at the nation's second-biggest owner of radio stations, Viacom Inc. The company, whose stations include WBBM-AM 780 and WXRT-FM 93.1 among others in Chicago, took a whopping $18.44 billion charge to write down the value of its radio and outdoor advertising holdings.
Viacom is hardly alone.
"Radio is maturing, just like newspapers," said Kit Spring, a media analyst at Denver-based Stifel, Nicolaus & Co. "It still has many advantages--it's free and it's everywhere. But for the past 30 years, it grew at an average of 7 percent [annually]."
Radio advertising sales rose by just 2 percent during the first 11 months of last year, said the Radio Advertising Bureau, an industry group. This came as total advertising spending in all media in 2004 jumped 7.4 percent, according to media buyer Universal McCann. In contrast, Universal McCann said advertising sales for cable television and the Internet increased last year by 12 percent and 25 percent respectively, reinforcing their image as advertising's hottest venues.
A reputation for too many commercial interruptions and stale programming are among radio's chief problems. Advertisers are steadily moving money historically spent on radio into cable TV.
But the Internet and new technologies like digital music players are potentially more dangerous.
Last year, Clear Channel Communications Inc.'s radio business lagged even a sluggish industry. The nation's biggest radio operator, with 1,200 stations, including seven in Chicago, reported Friday that radio revenue was flat in the fourth quarter, and up only 2 percent for the year.
Such low growth rates frustrate investors in radio, said Peter Mirsky, a media analyst at Oppenheimer & Co.
Having watched radio advertising fail to increase significantly in a year of unprecedented political spending, a summer Olympics and a gradually improving economy, Mirsky said investors have come to expect that radio is likely to be mired in the low-single digits for years to come.
"Going into 2004, everyone talked about how radio would have such a great year, especially when compared to '03 and the beginning of the war in Iraq," he said. "Since it didn't happen, people are talking about a prolonged slump." Typical of other radio company stocks that fell in 2004, Clear Channel's share price dropped 29 percent last year. On Friday, the stock closed at $32.75 a share.
Even as traditional radio trailed the gains made in 2004 by other media, John Hogan, Clear Channel Radio's chief executive, argues that radio still offers advertisers a cost-effective means to reach a large audience.
According to the Radio Advertising Bureau, 74 percent of consumers listen to the radio every day and the industry has sold nearly $20 billion of advertising for several years running.
"If we can give listeners more of what they come to radio for, then we're going to get more of them to listen longer," Hogan said. "And if we're able to generate better results for advertisers, then they'll pay more. It's a simple, straightforward value proposition."
To grab a larger slice of the overall advertising pie for itself and radio in general, Clear Channel launched a companywide initiative in mid-December called "Less is More." By cutting its advertising and in-house promotions by an average of 19 percent across all its stations, Hogan said the airwaves would be rid of some of the clutter that alienates listeners and marketers.
Since 1993, radio listening time has dropped from an average of 23 hours and 15 minutes per week to about 20 hours per week in 2004, according to industry monitor Arbitron Inc.
Natalie Swed Stone, national director for radio investment at media buyer OMD, applauds the "Less is More" campaign. Given the options of digital cable TV and an increasingly popular Internet, marketers, she said, have become alarmed that their product messages are getting lost in commercial blocks that routinely run as long as 10 minutes on Clear Channel and other stations.
"Radio broadcasters are responding to change and trying to remain relevant," Stone said. "But there's a lot of competition out there for people's time, and advertisers see that."
The outlook for Clear Channel and the radio industry wasn't always so grim.
Buying spree boosted revenue
Taking full advantage of the 1996 Telecommunications Act, Clear Channel Chairman L. Lowry Mays and his sons Mark and Randall, borrowed millions of dollars in the late 1990s to acquire hundreds of radio stations. The law removed a cap that limited total nationwide ownership to 40 stations and not more than two stations per market.
As the economy boomed, strong advertising demand drove Clear Channel's radio revenues from $217.2 million in 1996 to $3.4 billion for 2001. While the industry enjoyed a renaissance recalling its golden years in the 1920s, Clear Channel amassed the largest radio empire in U.S. history. Moreover, its acquisition of a string of concert promotion groups and performance halls made it the country's largest producer of live entertainment.
Largely because of its size, Clear Channel emerged as the symbol of the many changes that altered broadcast radio following the consolidation in the late '90s.
Media critics regularly point to Clear Channel to illustrate how concentrated ownership produces too many radio stations playing the same songs. The proliferation of nationally syndicated talk shows is often cited as evidence that consolidation weakens the local touch that historically bonded radio to its listeners. And Clear Channel's use of "voice-tracking," a cost-cutting measure whereby a disc jockey claims to be in a city where he or she is not, is another mark against the company.
Shock jock Stern's October announcement that he would leave terrestrial radio at the end of 2005 for Sirius Satellite Radio seemed to epitomize the view that radio has lost its pizazz.
"Since terrestrial radio consolidated in order to create economies of operation and run their radio groups from afar, there has at times been less emphasis on local programming and local input from listeners," said Dave Beasing of Jacobs Media, an industry consultant group.
Hogan disputes such a portrait, pointing to new formats such as progressive talk, Christian and gospel music as well as "alternative gold," which spotlights a wider array of rock music, as proof that the industry is responding to wider listener tastes. Charges of homogeneity in programming are "really overblown," he said , adding "people have more choice than they've ever had before."
Nonetheless, concern about the future of radio prompted Clear Channel in January to join with Entercom Communications Corp., Infinity Broadcasting Corp., Emmis Communications Corp., Radio One Inc. and Bonneville International Corp. in a multimillion-dollar public relations campaign to promote the industry.
Size, Hogan said, is not one of Clear Channel's problems.
Unlike Viacom Inc.'s Infinity Broadcasting Corp., the country's No. 3 radio operator with 180 stations, Clear Channel has no plans to sell a large number of its stations and may be in the market to buy some of Infinity's holdings, Hogan said.
Viacom, which owns CBS, announced last fall that its overall marketing plans would work better by owning only radio stations in the largest markets.
Clear Channel adjusts pricing
Advertisers, meanwhile, are said to be taking a firm line in negotiating with Clear Channel over its "Less is More" rates. For a 30-second spot, the company has set a price of 75 percent of the cost of a 60-second commercial. In exchange for the premium, advertisers are given the chance to lead off a group of ads or run their message alone between programming segments.
But advertisers, said industry observers, are pushing for prices around 60 percent of a 60-second ad when agreeing to buy a 30-second spot. As a result, Oppenheimer's Mirsky remains skeptical that "Less is More" can generate the higher radio advertising prices the radio industry and Clear Channel need if they are to end four years of sluggish growth.
"Buyers understand that there is some benefit to `Less is More,'" Mirsky said. "The question is, how much more is `less' really worth?" |