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Radio's Next Big Disruption

11-15-2012

Great companies understand that change for the sake of change is important, and that to grow and remain relevant, they need to always have a strong, compelling value proposition. Great companies cannibalize themselves before their competitors eat them up.

Revolutions in business don't happen with incremental change or by making slightly better products. They happen by upsetting the status quo, even though it's working and productive. Revolutionary businesses seek ways to deliver their product to customers in better ways, and work to disrupt costs to make their offer more attractive.
 
What, then, can cannibalize and disrupt our industry? What might a major player like Clear Channel or Cumulus do to dramatically alter its business? After all, cost cuts can't go much deeper under the status quo. Yet these big companies need to remain competitive and relevant to the needs of the market, and need to be where customers want them to be. They must change the game and grow profits.
 
I've identified the following areas that could disrupt our industry, might (arguably) make it stronger, and could make it more predictable for clients:
 
Changing Sales
Think about this area for a moment. It's high-turnover, high-cost (with commissions a major cost of doing business), management-intensive, and management-reliant, and it's hard to get 6,000 people trained and delivering consistent messaging and performance. The best sellers are being seduced by pharmaceuticals and Google. Sales are impacted by things like mood, attitude, and environment. So how could you change radio sales?
 
One way would be to outsource sales to someone already doing it. Who, not in radio, is calling on the same customers and already has those relationships? Who can do a better job? Who could leverage what they already have to create more sales by combining radio with their own offerings? Perhaps it's another radio group -- though that's unlikely. Perhaps it's local cable or television sellers, maybe it's other vendors calling on the same people, maybe it's a company like Google that's hiring sellers anyway and is seeking radio relationships to joint-venture on Google local. Outsourcing and collaboration could be a brilliant move.
 
Another way would be to create an automated sales environment. If a system could be developed that made buying as easy as responding to an e-mail or clicking within an app, it could be magical. Of course, we're all trained to believe that sellers make things happen, and they do. But what if you could prove automation would work as well in sales as it has on air? It works for Southwest Airlines, Geico, and Google, and automation brings better yield management, and thus lower prices for customers. With seller commissions eliminated, some of the savings could be passed on to local businesses that could save on their advertising buys, and the rest of the savings goes right to the bottom line. Even if total revenues dropped, there'd be a lot of saved commissions to make up the difference. Radio would be easier to buy -- you could buy it online in the middle of the night, if you wanted to -- and there's a very real possibility customers would be happier.
 
Eliminating Local Staffing
Buildings and office space are expensive. People are expensive. What if one of the big companies decided it no longer needed local program directors, local sales managers, local traffic, billing and accounting, even reception? Who would be left? One must have local engineering support and someone to care for the public file -- and it could be the same person. If a company like Cumulus or Clear Channel decided to become a true national network, decided to abandon local advertising in exchange for eliminating all local staff, including expensive management, it might still be cash-positive selling national only, and local with automated sales systems. And what can't be eliminated can be outsourced. Plus imagine the cost savings in real estate, desks, studios, and paper clips.
 
The End of Local Programming
If you considered all the stations and signals inside a company like Clear Channel or Cumulus, you would probably come up with no more than 30 or 40 variations on formats. Local talent is costly, and indications from the Ryan Seacrest experiment seem to show that strong national talent that's syndicated doesn't hurt ratings or business. Even if  it did, the cost savings probably outweigh the losses. So why not eliminate local talent and have the best talent for each format doing all the shifts, feeding direct to the transmitter? No local payroll, no local studios, no local production, no expensive mornings shows, and huge cost savings on talent, technical support, and rent. Cumulus is already outsourcing much of its production to Benztown, an independent producer, and has consolidated much of its accounting.
 
Digital Revolution

It's logical that radio companies will make dramatic moves in digital in the coming months as well. The recent move by Katz to become a deeper digital rep house is probably an indicator that Clear Channel -- which of course owns Katz -- will make bigger commitments to other digital plays that aren't necessarily audio alone. Cumulus, for instance, has devoted a building and a couple of hundred employees to SmartJack, its coupon service. It's also in the magazine business. Smart firms will realize there is no such thing as a "radio business" anymore, and media is becoming all media combined. Advertisers want one solution that gives them exposure to all areas.
 
Don't Shoot the Messenger
Before you think I'm in favor of this, please know that I have a love and passion for strong local radio, for strong radio sales organizations, and for excellent programming. But I'm also a realist, and I tend to see where things are going. Though I have no indications that any radio company would have the guts to be quite as disruptive as I'm suggesting, my guess is that some or all of this will happen at Clear Channel or Cumulus soon.

It's a logical next step, it dramatically alters the picture for radio, and it cuts tremendous costs and makes a giant, debt-laden firm strong. It could either be wildly successful or a miserable failure. Though I suspect any reader in a position to be affected by this is fuming at the prospect, it could very possibly become a reality -- and would be disruptive and a game-changer.
 
Radio in Three Years
I believe there will be two kinds of radio companies. Those that take the path described above (if one does it successfully, the other big guns are likely to follow, though they will follow late) and those that continue on the path of deep localism. Consolidation will continue, and you'll see companies like Clear Channel and Cumulus become bigger (or possibly even become one) and you'll see smaller independent firms like Larry Wilson's Alpha or Ginny Morris' Hubbard expand, acquire more stations (maybe Cox?), which will push the advantage of strong localism.
 
What Should You Do?
Though this may not bode well for the bulk of my friends employed within this industry, the only job security is to try to anticipate how to become one of the talents who'll becomes nationally syndicated, or work to get an early foot in the door at one of the companies that will embrace localism. The rest could find themselves seeking alternative employment.
 
Will this scenario happen? I've been wrong before, though I feel strongly this almost has to happen. When it does happen, everyone will think it's about budget cuts and won't recognize that it's a deep strategic change. Keep your eyes and your mind open.

Eric Rhoads

P.S. It will be interesting if this strategy is discussed as a possibility at our upcoming Forecast conference, November 28 at the Harvard Club in New York. All the group heads will be there, and perhaps panel moderator Rita Cosby -- the award-winning journalist formerly with Fox News -- will explore the probability. As always, we've turned down numerous requests by press to cover Forecast, to encourage frank and open answers from the group heads.




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(11/17/2012 1:01:39 PM)
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- Change

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