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Hot Tip: Small Market Radio – Buy!

Sometimes you have to hand it to the financial press, there’s nothing like a little money to make them believe in old fashioned values, like localism, again.

Any keen observer of the commercial radio landscape knows that right now the nation’s largest radio station owners are certainly not making money. But, as the Wall Street Journal’s “Heard on the Street” column points out, smaller owners focused on smaller markets ain’t doing so bad.

As the Journal’s Martin Peers reports,

Average revenue at stations in markets below the top 50 fell 6.6% last year compared with around 9% for bigger stations, BIA [Financial Network] estimates. It projects smaller stations will continue outperforming through 2013.

Peers chalks up the disparity to the suffocating debt that the likes of Clear Channel and Citadel Broadcasting took on to go on their post-1996 buying spree party; he even calls the current fall in fortunes a “hangover.” By comparison smaller market stations were less costly to vacuum up.

Peers points to Grosse Pointe Farms, MI based Saga Communications as one of these small market broadcasters, with 89 stations mostly in places like Des Moines, IA, Columbus, OH and Champaign, IL. Because I lived down in Champaign, home to the University of Illinois, for fourteen years, I’m quite familiar with Saga. In the six years or so following the 1996 Telecommunications Act the company acquired four FM stations in the market of roughly 150,000 metro. While stations in the number 220 market in the country (according to Arbitron) are cheaper than in Chicago, New York or LA, I was stunned when back in 2000 Saga paid a hefty $7 million for one of the top rated FMs in Champaign.

Five years ago Saga’s first quarter results of a 17.7% reduction in net operating revenue wouldn’t be such good news. But compared to Clear Channel, which became a penny stock before going private equity, it sounds like the party might be on again.

The Journal’s piece on small market stations was pretty slight by any measure. But that didn’t stop the Gerson Lerhman Group from posting their own analysis of the piece that’s only 33 words shorter. But Gerson Lehrman’s Alan Albarran takes the small market station cheerleading much further, writing,

The fact is small market stations are deeply involved in their communities–they focus on localism.

Travel across small markets and listen to radio stations, and you will hear local news, high school sports, farm and agriculture reports (where appropriate), discussion of community events, and other things you won’t hear among big groups in big markets who focus on boring and repetitive playlists followed by several minutes of commercial “stop sets” as the industry refers to them. They don’t have any news or much traffic and weather information aside from drive time and do little to engage the local audiences. It’s one of the main reasons why younger audiences gave up on radio years ago and switched to iPods and Internet radio.

Whoa! Stop the presses! So the market analyst is saying that radio is meant to focus on local service, and that big radio lost the iPod generation because it left localism behind? Who’re they talking to, Michael Copps and the Prometheus Radio Project?

Now, having lived in one of these small markets during the great consolidation rush of the last thirteen years I’m wondering what idyllic old-timey stations Albarran has been listening to. At least half of the stations in Champaign primarily air syndicated programming and voice-tracking most of the day. Saga, actually, fairs a little better, with live local morning shows on its two highest rated Champaign stations that do feature local news, weather and sports updates.

Yet, we cannot ignore that what Saga did in small markets like Champaign isn’t a hell of a lot different than what Clear Channel did in markets of all sizes across the country. Both companies came into markets and bought as many stations as they could, then consolidated their operations to cut costs. By any estimate Saga was not nearly as brutal as Clear Channel, but the effect is that the two stations added to Saga’s arsenal during my Champaign tenure (WCFF, formerly WKIO & WXTT, formerly WXLS) no longer have nearly the amount of local programming and service they did before. In fact Saga moved WXTT from the smaller city of Danville 40 miles east of Champaign to the suburb of Savoy which borders Champaign to the south, effectively depriving the more economically depressed city of a station that once provided local service targeted to the Danville area.

I, for one, hold out hope that the inevitable post-consolidation sell-off results in some commercial stations falling back into the hands of true local owners–not just smaller consolidators. Localism is about ownership, not just programming. Listening to the stations owned by these smaller consolidators shows that it’s not like 1996 never happened. Localism has taken a hit everywhere.

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