This Week

I've mentioned before the two sided problem facing radio: SHORT and LONG term. By Short term, I mean operating at maximum profitability. By Long term I mean growing the value of your asset.

For Velocity, solving the short term problem has always been easy. We're good at it. We're one of the best. We've been operating radio stations optimally for the last 12 years. Renda Broadcasting was a great classroom for running efficient efficient radio stations. A solid and consistent outperformer. Velocity has had that covered since we opened our doors for business.

The harder part was finding solutions to the LONG TERM problem Radio faces. To help in that process, we compiled a Board of Advisors which I announced last week. I wanted to find 5 people who know Radio, worked in Radio, understood Radio, but were Masters in their own fields: Finance, Merging Media, Marketing. Fields that were exerting pressures onto Radio. I wanted to find a bunch of outsiders who understand the pressures that radio is facing so I could dissect those pressures. I wanted to find Wernher von Braun. I wanted to find Darius Kasparaitis. I wanted to find Frank Abagnale. I wanted to find people that know about the pressures on Radio and can deliver a unique and different perspective. I want to 'get in my enemy's head'! And through discussions and strategy sessions with this crew over the last few months, the gravity of our situation has become clear.

Our problem is systemic. Our problem is obsolescence. And trying to solving these problems with OPERATIONAL solutions (sell more, push interactive, cut expenses) is like trying to solve a hardware problem with software. Then numbers are scary. History is scary. And the SOLUTIONS require guts and risk, something we're short on in our weakened state.

But Hope Springs Eternal, doesn't it?

I want you to keep an eye on something this week. This week begins earnings results for several groups, and this week, you’re going to see some ugly numbers. Like every industry, these are not fun times to be reporting earnings. Here's what I want you to keep an eye on: As the Earnings reports come out, will companies acknowledge the necessity for major changes? Will things be bad enough to motivate CEOs.

The first public company that DOES acknowledge this will be held in high esteem by our industry.

-TR

Velocity Radio Management

Some Housekeeping, and then let’s get to work…

Where have I been?
I’ve been silent for the last few weeks. I thought it was the right thing to do. No drama, just a respectful decision.

Why form Velocity Radio Management?
To Protect & Grow the Value of Radio Stations. No more complicated than that. We’re all watching other industries getting annihilated because they fail to change their business model. I saw a leadership vacuum in our industry. Velocity is an Agent of Change. Radio values have gone from 20x multiples to a no-bid situation. I’ll concede that the no-bid is based on the current economic climate. So let’s fast forward to 2011, 2013. What’s the multiple then? Back to 20x? 15x? Double digits? People with a lot more data than you and me say single digits. I think Radio can do better than this.

Why leave RBC?
The same reason my Grandfather came to America in 1923: Opportunity. Because there’s demand for Velocity Radio Management. I got my first client in my first week and things are cooking along nicely. I didn’t want to sacrifice performance at either job, so I left RBC: The most difficult decision I’ve ever made.

SO LET'S GET TO WORK...
There once was an industry that had a lock on a specific type of entertainment, news and information. It penetrated homes and work alike. Although it was portable and personal it was limited to a geographic area and competition was limited. It happily coexisted with other media, even when television came along.

Along came the Internet and in a short time, consumers started going elsewhere for content. They started sampling new and different outlets from around the country…and around the globe.

Demand changed. Revenues took a beating. Egos and expenses didn’t react, not fast enough anyway: Delivery methods changed, new revenue streams were introduced…but it was too late.Stock Values plummeted. The industry collapsed.

Of course, I’m talking about Newsprint……….What did you think I was talking about??

Let’s take stock in these two industries:

The Good News:
- We’re slightly more insulated than Newsprint. Streaming audio is more difficult to reproduce than text.
- Radio’s model isn’t broken. To make $1.00, it costs us $0.90. ($0.80 if we’re good) The Newspaper model is broken: To make $1.00, it costs them $1.10.

The Bad News
- We’re over leveraged, and when you combine that with this economy, we're in trouble. Most radio companies are profitable, but every quarter, we have to pay ‘The Man’. And after we pay that, we’re sometime in worse shape than Newsprint.

Similarities are there, but there is an opportunity for a different future for Radio than Newsprint. Our assets can survive this economy and this new technological ‘threat’. The product won’t be exactly the same, the delivery will be different, the facilities will change dramatically…but the value of the asset will still be there.

In the coming weeks, I’ll discuss how we’re going to get there.

It’s good to be back.

-TR

Control Your Expenses

You’re a pilot flying @ 36,000ft. No parachute. You have two major problems:

1)   There’s another plane careening towards you and unless you do something about it IMMEDIATELY, you’re going to hit it. Worse yet, each of your actions (steep dive, fuel dump, pulling up) come at the expense of your long term goal: Landing this plane safely on the ground.

2)   You are out of fuel above mountainous terrain.

This describes many of you reading this.
Short Term Problems: The looming bank. Survival.
Long Term Problems: Listeners & Clients defecting to new media.

So let’s get past this major obstacle in front of us. If we don’t do that, we’ll never have the opportunity to land this thing. If we can accomplish both goals with the same strategic move, great, but our singular goal right now is to avoid this collision. If you don’t stay within your covenants, if you don’t make your scheduled payment to ‘The Man’, it’s all over. There will be no opportunity for a landing. The impact @ 36,000ft will break you up and there will be no plane left to land.

Many Terrestrial Radio critics are out there suggesting glorious changes we should make to our radio stations: “Invest in this. Buy that. Hire a format Guru to create specifically targeted formats to reach specific listeners meeting this Psychographic criteria.” This reminds me of a few years ago: I had broken my finger playing roller hockey. It looked wrong and clearly needed medical attention. As I was leaving the rink, a nice kind woman starting giving me advice on what to do with it. “I work at WholeFoods in the Personal Care section”, she said. “You should use their soy wraps, curd foams, natural dressings, antioxidants, blah blah blah.”… All with the confidence of a surgeon. I was baffled by how CONVINCED she was, even though she had no clue. (I love WholeFoods, I’m in there twice a week getting takeout, etc.)

Now I probably don’t recognize the full benefits the soy humus wrap, I’ll concede that. But WholeFoods lady must concede that she doesn’t really comprehend the gravity of this situation. Nor do Terrestrial Radio critics: We’re dealing with big numbers, big responsibility, lots of people’s jobs, lots of listeners, and a lot of money.

Terrestrial Radio Station C-Levels: If you need to cut to avoid that oncoming plane, you cut all you need to cut. If you have to cut jobs or salaries by 10% to save the other 90% of the jobs, you do it. If you need to make some short term sacrifices for long term survival, you do it! And anyone that tells you different hasn't been in your situation and definitely isn’t in that same plane as you.

Remember, in this example, we were cruising at 36,000ft. You’ve got to use this altitude to your advantage. In 2002, when the bubble burst, there was no cushion for all the dot-coms. You have a cushion, and unfortunately, you’re going to have to burn through a lot of it in the next 2 to 3 quarters. The alterative is no alternative: A mid-air collision. You owe it to your shareholders, your listeners, and your clients to be here after the economic downturn passes.

About This Blog

To the many people who picked up on this blog from Inside Radio, welcome. Big thanks to Mike Kinosian for the mention. If you’re new, I encourage you scroll down to the bottom and read from the bottom up to the most recent.

Today in Terrestrial Radio, you & I are fighting a battle on 2 fronts: Short Term & Long Term.
Short Term: Difficult economic times. Some companies won’t make it through the next 6 months.
Long Term: Threats from emerging technology. If your company gets through the next 6 months, how will you retain your assets’ value over the next 10 years?

There are lots of voices out there commenting on our industry:
- Some make good points (including INSIDE MUSIC MEDIA!)
- Others make noise with limited reality associated with their observations.
Based on what I read, I thought it was time to create a place where Terrestrial Radio Station Owners & Operators could read about these topics BY one of us, FOR us…so I created this blog.

Know this: You are not alone in this fight! Use this blog as a source for all of this information, without the now-standard kick in the teeth. I will be your watchdog. Remember, I’ve got a vested interest. (scroll down to my first post)

Also, know this: I’ll give it to you straight. I’ve done what you’ve done, sold what you’ve sold, managed what you’ve managed. I also fear what you fear and know that we have to attack our problems. When I have bad news, I will deliver it. (again, see my first post)

Bookmark this page…
Subscribe to my posts by adding ‘TowerstoBrands’ to Google…
Follow me on Twitter…

I will keep you in the know so that your company can survive in the short term, and our industry can succeed in the long term.

 

Tony Renda

The Framework

PROBLEMS
In my first 3 posts, I tried to inject a lot of reality into our situation:

1) You need to be aware of your surroundings and not bury your head in the sand.
2) You need to expect the worst. The absolute worst. Your listeners are starting to wander off. And rightfully so. Lots of cool options out there.
3) The revenue is starting to wander off. Efficient, measurable options out there, but more importantly, it’s where the people are going, for whatever reason.
4) No magic bullet. Google Audio is adios. Newmark’s supply-side Bid4spots.com is a KILLER model, especially in this economy, but it won’t replace the revenue fast enough.

Is that everything? I’d say we’re only halfway there. You’re already facing major problems in the very near term:

5) You have huge debt that you must service. You borrowed money to purchase your stations @ 16-17x multiples and they are currently valued @, what, 6-7x multiples? You projected the stations’ earnings based on the on a history of success in running radio stations, and you projected upward economic mobility for the country and your industry. Now, things aren’t upwardly mobile. If things continue like they are, one of four things will happen with your company:
A: Break your covenants, pay very significant penalties.
B: Miss a payment, pay very very significant penalties.
C: File bankruptcy; Go through a painful WorkOut session.
D: Sell your company at an undervalued amount. (see multiples above)

These are all of the current problems facing radio stations. We’ve got both short and long term problems and we’ve got to fix them both at the same time.

  

SOLUTIONS
With this full disclosure, with all of our problems identified, we can now begin to move forward. So, now to the question: How to fix them? More specifically, How to fix them BOTH AT THE SAME TIME. The solutions seem diametrically opposed to one another, don’t they?

- You want to put out a compelling product with excellent content: An innovative format with great talent in touch with the local community, but you need to cut costs.

- You want to grow your sales staff and create opportunity, but you have AEs who are costing you 25%, 35%, 45% of sale and you can’t afford that.

Many of you are in the same boat: You have made changes that, in the long run, will hurt you, but are NECESSARY for short term survival. This is business, and you’ve had to make these difficult decisions.

Since we’re taking stock of liabilities, let’s also take a quick look at your assets:
1) Great, recognizable brands.
2) Portable. Free.
3) Effective marketing solution: Your station moves traffic, sells cars, and puts butts in seats.
4) Terrestrial Radio is a very profitable business. Especially when compared to other media.

This is our landscape. These are your challenges.
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And here is the framework of your solutions in its simplest form:

1) Grow Your Mindshare
 a) Become a bigger part of your listeners’ lives.
 b) Other.

2) Grow Your Revenue
a) Become a bigger part of your clients’ marketing needs.
b) Drive revenue from every possible angle.
c) Strategically manage your inventory.
d) Other.

3) Control Your Expenses

This is the framework on which I'll expand. Everything will always come back to this model, to these three major points. Everything we do…short term, long term, offline, online…will get dropped into this outline.

As we build this outline and create a complicated construct of marketing ideas, revenue streams and expense mangement, we will see opportunity and risk and we'll need to go after both to survive and succeed.

Tony

Google Audio and Your Short Term Survival

I loved Google Audio Ads and the initial technology that dMarc created. What an amazing Idea: Technology that allows you to drop in spots after a music log is complete. The value wasn't the tons of money they would bring, the value was that they could fill in the gaps that we couldn't. 

Think of it like a commercial airplane: Once that door is closed, and the plane begins taxiing away from the gate, it's over! No more passengers. An empty seat is a missed opportunity. Not with the Google Audio! Their product was the equivalent to dropping in passengers on the taxiway before the flight took off. In this example:

- The airline gets paid less for those seats, but that's OK, it's 'found money'.
- Those passengers that were ‘dropped in’ at the last minute were OK with it: They knew the terms and conditions and because the rates were so low, they were OK with joining a flight at the last minute. Seemed like a pretty good system!

 But it wasn't. According to Google's Official Blog, “we haven't had the impact we hoped for."

 Now they are turning their eye to the future: They will explore Online Streaming Audio…so let’s talk about TargetSpot.

I love TargetSpot and have for a long time. I especially compliment them on their ability to establish themselves as the standard on the CLIENT side. If you stream Audio, you need to be with TargetSpot.

So, how does this impact them? When Google comes into your space does that make you happy?
- Yahoo would say NO.
- I’m sure MapQuest isn’t a big fan of Google Maps. (Poor MapQuest.)
- Microsoft can't be too excited about ‘Google Documents’.

I’ll tell you who IS happy that Google moved into their space:

-       dMarc.

-       DoubleClick.

-       YouTube.

-       And a whole bunch of other companies that Google Purchased. There’s a list of them here.

This is every VC’s dream or nightmare: Google Moves into your space. We’re all going to witness either a long painful battle between Google & TargetSpot, or we’re going to see a sale. My money’s on the sale. With the work that CEO Doug Perlson's team has done over the last bunch of years, Google HAS to consider making a bid. TargetSpot is too entrenched NOT to make an offer. 
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So, to Terrestrial Radio Station Company owners, what does this mean to you? I'll tell you what it means to me:

1) I'm going to miss all of that Google Audio money. It was nice. Yes it was cheap, but it was different and BECAUSE it was different, I could sleep at night with those rates.

 2) Looming over us was that question: "What happens a year from now when the local car dealer discovers Google Audio and decides to use it as a means to buy my station?" No longer an issue.

3) This is yet another indication of where things are going. I loved the attention we got as an industry when Google bought dMarc. You thought “Wow, Google! The coolest of the cool is interested in Terrestrial Radio! See? We’ve still got it!” It was a little glamorous, wasn’t it?

Now they’re gone and as excited as you were when they started, you should be doubly disappointed now: There is no magic technology that will drive your revenue. Worse yet, there will be none. That was the last train out. You must survive in the short run by driving traffic to local direct business. Period. Control what you can control.

I grew up in Pittsburgh. When the Steel mills went away, many that were laid off were in denial. “Something will come back! This is _____________!” (Fill in your once-vibrant suburb in the Mon Valley) Nothing came around for them, and nothing’s coming around for us.

Consider this: If neither Katz nor Interep nor Google has (have?) developed a simple system to purchase commoditized radio by now, when will they? I can buy an $89 airline ticket online, but there is no system for buying radio spots! Google was the most recent hope for that ‘magic bullet’. Assume it will never happen.

Local direct is how you will make your bank payment and how you will stay within your covenants. Changing your product from a radio station to a brand is the other.

Second Post: Taking stock

You need to recognize 2 things:

1) This asset you have is very powerful.
- You already know this.
- You’ve seen it drive traffic.
- You’ve run a client's ad for a month and the copy was attention grabbing and it increased sales: They re-signed for 13 weeks.
- You’ve been at a local business packed with people, the local owner and you are standing there while a jock is announcing someone’s name, giving something away, and you have that tangible PROUD  feeling of success.

Terrestrial Radio drives foot traffic.
Terrestrial Radio still drives music consumption.
Terrestrial Radio is a very profitable business. Not bankrupt like Sirius XM. Not losing money like on-line broadcasters. (Competing media would KILL to have your advertising revenue and profits, and they're going after your clients.)

…But this is today!

  

2) This asset’s value won’t last forever. Not in its current state. Won’t happen!
- Listeners are harder to reach and need more personal interaction.
- Advertisers want accuracy and accountability in their advertising, and the PPM is still the exception, not the rule.

So what’s your company’s plan to come out on the other side of this digital revolution with your asset intact? Not the short term, the long term. 2014. What about 2019? What will the value of your company be then? What actions will you have taken to remain competitive?

Time to strategize on HOW TO HOLD ON TO THOSE ASSETS. Time to build the plan.

RBC's plan is solid. I'm proud of the steps we've taken. I'll share these plans as we go, but before I lay it out there, you've got to accept the reality above. Sharing this info before that would be pointless. 

Tony