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January 5, 2009: Respected longtime industry exec Mark Hubbard has written up his outlook on "The Future of Radio," and he begins by saying, "I must admit to some strong positive bias at the outset." Hubbard points out that he worked in radio for more than 20 years and says, "I loved every minute of the experience, and I especially like 'radio people' as energetic, creative, and aggressive business competitors. I want this industry and my friends to succeed. Keep this in mind as you read on. I still have rose-colored glasses on."

But Hubbard goes on to say that radio "has never been more challenged" and is "no longer a growth industry." He also believes the product heard over the air is no long compelling -- "even personality radio is boring," he writes. Hubbard concludes, "It's time to worry about the food coming out of the radio kitchen."

Here's the whole piece:

Some of my friends have asked me to do an overview of my thoughts on the state of over-the-air radio in the U.S. I must admit to some strong positive bias at the outset. I toiled and prospered in this industry for over two decades. I loved every minute of the experience and I especially like "radio people" as energetic, creative and aggressive business competitors. I want this industry and my friends to succeed. Keep this in mind as you read on. I still have rose-colored glasses on.

Commercial radio has never been more challenged since its creation in the 1920’s. Sure, TV came along and tilted the game board. But there is much more going on today that is fundamentally threatening. The business is no longer a growth industry. It can be a good cash flow business for small and medium-sized entrepreneurs – if there were stations available to be owned in attractive markets and the rules of the game resembled those from 1975. Neither of these conditions exists today. Large public companies will never revive the quality and content of programming that would be required for a media revolution.

Here’s what I see:

1. Young people (those under 25) are no longer listening to radio with any loyalty or regularity. I do informal surveys with my college classes. It is rare when more that 20% have even listened to a radio in a given day. The iPods and MP3 players abound. Phones have become music outlets. This game is over. The genie isn’t going back into the bottle. So, the radio audience isn’t being replenished.

2. Those adults who are comfortable with AM and FM will probably hang on to old habits for the remainder of their lives. However, even here there is erosion. Satellite radio is a viable commercial product – especially to a generation of listeners who are fatigued by commercials and just want to hear background music. The merger of Sirius and XM created an unnecessary concentrated competitor with real audience numbers. It was a mistake for the industry not to fight and stop the merger. So, even more listeners are leaking off the top side of the demographics. The industry is being squeezed from both sides, high and low.

3. The People Meter will be a disaster for radio. We lived for years on imprecise Arbitron numbers, but we all knew that this system was over-estimating the audience. Again, I’ve been conducting mini-surveys in my college classes over the years and I can tell you that people report their "feelings" not their actual behavior. Feelings were easier to exploit. Actual audited numbers were the death of Internet banner ads. Look for perfect information to remove the last vestiges of the creative glow of inefficiency that radio has enjoyed for years.

4. Public policy is likely to further strain the best case for radio. If you increase the gas tax (many states are trying this now that gas is temporarily at $1.65 per gallon) fewer people will use cars for shopping, dining, entertainment and vacations. That will hurt all of these prime candidates of advertisers for local radio. People will be able to wait longer to replace cars, and we all know how critical the automotive business is to the top line. Then add to this that all people will actually spend less time in cars – and you have lower net radio listening. Remember, cars are just radios with wheels. None of this is positive

The other thing to watch. Increases in taxes and fees (especially the Capital Gains Tax) will be more burdensome for small business and entrepreneurs. Radio needs to be local to survive. Small businesses will be the hardest hit by this. What do businesses cut first when they are under stress? Hint, not taxes - they aren’t elective.

5. The financial underpinnings of the industry have been severely stressed. There is no leverage left in the system so that companies can buy and sell things. This is a great time to buy, but only if you have cash and don’t need financing. All-equity deals are only done at low multiples. If you need funding, forget it. So, there are sellers everywhere, but not many buyers. This isn’t good for sellers or for holders needing refinancing. This hangover of supply without demand is likely to persist until owners start taking haircuts. That won’t be good. The only positive here is that Clear Channel got benchmarked as a valuation before the crash. That is the only floor left for the industry.

6. The last point is somewhat like my opening. The product on radio today isn’t very compelling (except for play-by-play sports for the person that can’t get to a television). The industry completely missed the media revolution and could have been at the hub of the wheel (if it hadn’t been asleep at it). Even personality radio is boring. I can hardly listen to Rush anymore – and I’m a conservative Republican. It’s time to worry about the food coming out of the radio kitchen.

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