Clear Channel, the largest owner of radio stations in America, handed out pink slips by the hundreds this week including, in Hawaii, Mike Buck, Kutmaster Spaz and Jimmy the Geek. In Honolulu and many mainland cities, people lost their jobs who had been on the air for decades.
When radio people discuss Clear Channel they often act like the company is the death star and its leaders evil. The truth is that the company is acting out of desperation, under the compulsion of financial challenges that are the direct result of expanding rapidly with borrowed money.
In 1970 when I broke into radio at the age of 17, a company could not own more than five television stations, five FM stations, or seven AM stations. This created a financial incentive to own stations in large cities and develop them for maximum commercial revenue.
Now a company can own as many stations as it wants provided it does not reach too high a percentage of the audience in any given market. Several companies own hundreds of stations. The new financial incentive is on the cost side: to grow ever larger and attain economies of scale.
Several companies competed to grow fastest and did leveraged buyouts. That's where you buy a company with borrowed money, intending to repay the lender with profits from the newly acquired business. Clear Channel leveraged and expanded and borrowed and leverage and expanded until it was bigger than anyone else - and staggering under billions in debt.
Just as Countrywide Financial loan salesmen convinced themselves, and then their patsy customers, that home prices would soar forever, so did Clear Channel and its rivals project ever-rising ad revenues. Oops! We had a recession! And the recovery is really slow! And some radio ad revenue has been permanently captured by the Internet! Maybe we'd better redo the numbers.
Once these conditions became apparent, there was nothing Clear Channel managers could do but figure out how to survive it, and that meant identifying really major cost cuts. And in radio, the single greatest cost-reduction is achieved by doing more "turnkey" program from networks and syndication and less local programming.
In 1970, radio stations were required to have at least one person on duty at all times, and virtually all stations had news departments, so networks existed mainly to cover world news and were expected to get this over with in five minutes so stations could return to local programming and local commercials. But over the ensuing years, the rules were relaxed, until stations were allowed to do almost nothing but play music, and could operate at night with no one at all on the premise. Now it made economic sense to take programming from satellite.
Major radio groups like Clear Channel invented new forms of networking - for example, if you had a really good air personality in Cleveland and owned stations in Toledo, Cincinnati and Columbus, you could put him on stations in all those markets save three other salaries. The layoffs done this week by the company will mean much more extensive use of this sort of thing.
Is this a good idea in the long run? They pretty much had to do this now. But what about the long run?
You can probably figure out the answer if you have Sirius or have ever rented a car that has it. Satellites can provide you with more jukeboxes than local radio stations can hope to offer. There is nothing Clear Channel - or its competitors - can do in the business of national talk hosts or disc jockeys playing music that can't be done better by Sirius. In the long run, the future of radio is going to be local, local, and local.
I do think some of the current experimentation with using talent from other markets will be adpted to provide economical support for local programming. For example, someone who does voices can supply "bits" for local morning shows in dozens or hundreds of markets. In some states it may be possible for a news operation or a matrix of talk shows to be based in several markets, sharing programming. It will be impossible to do local radio without higher cost, so the owner can't be a leveraged, debt-ridden company. Therefore, I think this will take off only after Clear Channel has been obliged by its own economic circumstances to spin off some of its lower-performing stations to local interests.
A few broadcasters read this blog: any contrary predictions?