RADIO INDUSTRY FINANCES

RADIO INDUSTRY FINANCES

Radio industry finances are rather simplistic in that the primary revenue source for radio stations comes from the sale of local advertising. In the larger markets some revenues are derived from the sale of regional and na- tional spot advertising. Another category of advertising is network adver- tising—time sold by radio networks and programs in national syndication (e.g., Rush Limbaugh, Dr. Laura, Howard Stern). Table 10.2 illustrates trends in the radio advertising for selected years of analysis.

The data in Table 10.2 indicate the importance of the local advertising market for radio. Historically, the radio industry derives approximately 75% to 80% of total revenues from the sale of local advertising. Radio is also

Top 10 Radio Groups, Ranked by 2001 Revenue

Number Stations Revenues Group

(Millions) Clear Channel Communications

Owned

$3,527 Infinity Radio (Viacom)

$2,355 Cox Radio

79 $452 ABC Radio (Disney)

54 $436 Entercom

96 $423 Citadel Communications

$349 Radio One

62 $301 Emmis Communications

23 $295 Hispanic Broadcating Corporation

49 $254 Susquehanna Radio Corporation

33 $235 Note. Adapted from Fratrick (2001).

TABLE 10.2

Radio Advertising Revenues (In Millions of Dollars)

Network Total 1980

Year Local

919 18,369 Note. Adapted from Radio revenue. Available online at www.rab.com.

very sensitive to macro and microeconomic conditions. For example, ad- vertising flourished from 1995 to 2000 reflecting a strong and vibrant econ- omy, but fell dramatically in 2001 with an economic downturn coupled

10. THE ECONOMICS OF RADIO

with the terrorist attacks on September 11, 2001, that further hampered business activity.

The radio industry wants to transform the Internet into a new source of revenues, but no successful business model has been developed to date. Further, potential copyright fees for playing music online (discussed later in this chapter) has tempered enthusiasm for the Internet, with many sta- tions no longer streaming live content on the Web but instead using their Web sites for promotion, marketing, and research purposes.

One new revenue stream that has emerged in recent years is the rise of nontraditional revenue (NTR), primarily found in the larger markets. NTR can come in many forms, but the primary manifestations have been via sponsorships, contests, live remotes, and other solicitations from area busi- nesses. For example, a station may hold a dance or other public event in the community, and invite businesses to serve as cosponsors by paying a fee. Such events can potentially draw crowds in to the thousands, offering many opportunities for crosspromotion and marketing with other business partners. Although NTR is not a revenue category that compares equally with advertising, it can generate extra revenues and promotion for local ra- dio stations.

In terms of expenses, personnel represent the greatest expense category 3 for radio stations in terms of salaries and benefits. Other cost centers in- clude sales and marketing, programming, and general and administrative expenses. As mentioned earlier, consolidation has actually improved the economics of the radio industry by eliminating excess staff and creating greater efficiencies. The result is that profit margins for radio stations are very strong, ranging from a low of 40% in smaller markets to as much as 60% in medium and larger markets (Albarran, 2002).

One controversial technique that has emerged to control expenses is voice tracking (see Mathews, 2002). This technique is actually very simple to enact with the available technology in the industry. Voice tracking works as follows: A popular radio personality simply records the voice tracks for an entire air shift for another “sister” station a group owns (typically in an- other market). The tracks are stored electronically on a server, and net- worked to another station where an entire 4- to 6-hour shift can be assembled and stored on a computer hard drive in a manner of minutes. The end result is the station receiving the voice tracks can eliminate an air personality, saving thousands of dollars in salary and benefits.

There are of course drawbacks to voice tracking. The “tracked” person- ality is never able to make any appearances outside his or her local market, and it certainly limits the spontaneity and creativity that has always at- tracted radio audiences. Voice tracking is also seen as a denigration of the historic public service responsibilities of the radio industry. The techniques and technology are so good many audience members cannot distinguish

ALBARRAN

when a shift is being voice tracked. It is difficult to predict if voice tracking will become a national phenomenon, or a short-lived experiment. Voice tracking is one of the newer programming innovations that give radio man- agers an opportunity to improve revenues.