The USA radio experience

Today, ex-Aussie radio boss Richard Burns gives us a fascinating insight into the US radio industry and asks ‘Is this USA model a good one or is the Australian model better?’……

When I was working in the Australian radio industry, the USA always seemed like a place to look to for inspiration – those great stations like KIIS in LA, Z100 in New York, KFRC San Fran and a host of other metro stations; some of which had informal ideas sharing with the great Aussie stations.

But the USA is a country of great contrasts in every way and is a nation built on your personal ability and drive to achieve. You want to own a radio station? Sure! You don’t need millions upon millions of dollars to buy one – hey, there’s around 10,000 radio stations in the U.S.A. All you need is some cash, US citizenship and you’re off to the races!

Australian metro radio and US metro radio are similar. Very professional and representative of the capital required to get into the game and get a return on the investment. But get outside the top 150 market size and truly big, nah, gaping, differences between US and Australian radio occurs. In the USA the same FCC rules for market competition apply to all markets – massive and minuscule alike. If there is the space and you can have 20 stations in LA then you can, in theory at least, have 20 stations in a smaller market. There’s good and bad news here. The kind of good news for the listeners is there can be a wide choice of formats, with one owner being able to control 50% of the available stations. The bad news is many of the formats in the smaller markets are off the bird and you end up with 2 or 3 of the stations in the markets providing varying degrees of local programming.

The reality is that the market cannot support (economically) as many stations as you can get the FCC to license. It’s meant to create competition, and it does. It’s also meant to create diversity, and it does, sort of. It depends on what you want to achieve out of ‘diversity’. If you want a wide choice of music formats and don’t care if they are local or have local relevance beyond saying they are licensed to a town, then that’s what you have. If you expect to achieve diversity in local news, information and be a part of the community, then you might be disappointed with the outcome.

Imagine a market the size of Cairns with 18 local commercial signals with around 6 or so operators? What would that look like to a listener? Let me show you. The formats in an actual market the size of Cairns looks like this –

  • HOT country
  • Country (hits and memories)
  • Classic Country
  • News Talk (conservative)
  • CHR
  • Rhythmic CHR
  • Adult Hits
  • Hot AC
  • Urban AC
  • AC
  • Classic Rock
  • Modern Rock
  • Hip Hop
  • Sports (ESPN and FOX sports affiliates)
  • Classic Hits
  • Oldies
  • Full service (like the old days in Australia regional markets when a station broadcast a bit of everything)
  • Gospel

With all that competition, something has got to give. The market I am using here as an example has a revenue base of $5m per annum. How can all 19 stations survive? Cost cutting, multitasking, formats off the bird and some crappy radio. Some of these stations are worth millions of dollars and others are $200k or less. In a market like this, serious radio owners don’t want  to own one station (that would be economic suicide) but some people are happy to do that. Own one station and ‘play radio stations’ – Mom and Pop stations is what they are called here. The morning guy is the owner/general manager. He gets off the air and goes and sells some ads and the rest of the day is off the bird or automated. They won’t have standby transmitters, generators or any of the things in even the smallest Australia stations are considered ‘standard’. You see, when you need very little money to buy a station, stations are sold to people with very little money.

But that’s where the opportunity comes if you have the drive, ambition and ability to make something really good of a station and it happens. You hear stories of a guy buying a broken down station somewhere, literally living and sleeping at the station, doing contra for meals to keep his costs down and making something good and using it as a foundation to go forward a build something. This is the very opportunity that the Australian system does not allow for. But to allow for it means you have to be prepared for different kinds of radio. You still have the kind of stations that we expect in Australia but there’s also a different economic class of stations all co-existing. Could an Australian market like Cairns support a whole lot more stations? Not if regulators, through scarcity of license allocations, keep the entry price high and if the expectation is that every station needs to look like a HOT-FM.

On the other hand, if true diversity is the aim, then the answer is YES. No-one thinks for a minute that a market like Cairns could support 20 stations like HOT-FM, SEA-FM, 4CA and ZINC-FM and it’s certainly not possible at the license costs. But is it possible that doubling the amount of stations in markets of that size is a great thing for the listeners, the advertisers, the owners and the health of the industry itself? Maybe. The USA allows for an operator to have up to 50% of the available stations in a market and frankly that creates the best radio for the market, the widest choice of listeners, maximum revenue generation for the stations and some really inventive operational models.

The USA model with cheap licenses (by Australian standards) driven by licenses that are handed out like confetti, means that formats don’t have to gravitate toward the biggest demographic group.

Operators with multiple stations in a market provide a broad format offering. Let’s look at a specific market of 125,000 people.

Operator 1 has 5 stations – a CHR, Hot AC, Hot Country, Classic Rock and Gospel station. Their big station is the Hot Country and the others hang off it.

Operator 2 has 4 stations – a Classic Hits, Conservative Talk, Urban AC, ESPN Sports station – their big station is the Urban AC.

Operator 3 has 2 stations – an Oldies and a Classic Country – the Oldies being the money generator.

Operator 4 has 2 stations – an AC and Fox Sports. The AC is the revenue generator.

Then you have the solo operators. There’s a Hip Hop station, a Classic Country and five – count ‘em – five Christian stations individually owned. So what kind of radio does this market get beyond the broad format choices? In the multiple station operations the air talent works multiple formats – live on one station and voice tracked on the others. Local news is a serious endeavour in only one ownership group and the others are really rip and read services. Local news of any type is only heard on 5 stations in the market. National news is only heard on 3. Local sports news is heard on 7 of the stations and live sports game calls are heard on 5 of the stations. So let’s slice and dice this to see what really happening by looking at the ratings of the top ten stations.

#1 Urban AC (Operator 2)
#2 Hot Country  (Operator 1)
#3 Hot AC (Operator 1)
#4 Conservative Talk (Operator 2)
#5 CHR (Operator 1)
#6 Oldies (Operator 3)
#7 Classic Rock (Operator 1)
#8 Classic Hits (Operator 2)
#9 ESPN sport  (Operator 2)
#10 AC (Operator 4)

Now you can see how this is working. Operator 1 has the most stations in the top ten – driven by success of the Hot Country at #2. Operator 1 has 4 stations in the top ten.

Operator 2 has 4 stations in the top ten too –but lower ratings for the cluster overall.

Operators 3 & 4 have a station each.

So to put some flesh on the bone, the number 1 operator has a 32 share and the number 2 operator has a 27 share. The radio they deliver from their big stations in each of their clusters is good, relevant, promotionally active and engaged with the audience they serve. The other stations in the clusters are not their focus but they do serve an audience, generate revenue and defray operational costs of the ‘big’ stations in their clusters. Without the smaller stations, the big stations in each cluster could not provide the level of service they do and still be profitable.

So looking though my Aussie eyes living in the USA, the question becomes, ‘Is this USA model a good one or is the Australian model better?’

Australian radio has a lot to be very proud of. The professionalism is truly world class. The regional USA operations’ professionalism, by Australian standards, is ‘patchy’ but you can only do so much when you have so many competitors. So here’s my take on it. The US system does work to provide diversity of programming and ownership. What it does not do is provide for quality radio from all operators but the market itself creates one or two station clusters that do. The others could (in theory) do it, but it’s not economically viable so their contribution to diversity in the market is purely format based.

What that does is serve the listeners and that’s good for radio as an industry. A hybrid of the two systems might best serve the listeners, the advertisers, the industry and radio ownership diversity. If done appropriately, it could increase revenues without adding much to the cost base.

Richard can be contacted here.

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