California
residents like myself follow real estate as if it were sport more than
business. With 20-plus percent gains yearly, a small home purchased
after the Northridge earthquake of 1994 for $300,000 in a top West Los
Angeles neighborhood can easily be worth $1,750,000 today. Even homes
bought more recently can see increases in the seven figure range, while
the homeowners laugh over a perfectly chilled glass of Central Coast
viognier about how they locked their interest rates for 30 years at
five percent. They know what they own and that while there is a lot of
talk of a real estate “bubble,” there will more than likely be a small
correction to the U.S. real estate market, concluding in an end to the
past few years of insanity.
One place where real estate
isn’t booming is the terrestrial radio business. Other than the
effervescent world of dotcoms in the late 1990s into 2000, no sector
boomed harder than radio. Powered by industry deregulation in 1996,
along with easily accessible capital companies like Clear Channel and
Infinity, not to mention every other smaller group, bought up every
radio station they could. To this day, Clear Channel owns over 1,200
radio stations with creative deals that reportedly allow them to run as
many as 800 more that they “warehouse,” waiting for their friends on
Capitol Hill and in the White House to add to the number of stations
one company can own via additional deregulation. While they wait,
listeners are tuning out by the hundreds of thousands for all sorts of
new technologies and various social reasons.
Infinity owns fewer stations that Clear Channel, but their properties
are considered by industry analysts to be the most premium positions on
the dial. They own properties in big cities with even bigger signals
that historically have brought in even bigger revenues. Make no
mistake, things are far from perfect for both of radio’s superpowers,
which also translates into trouble for the mid-sized and smaller radio
groups. In the world of Infinity, Howard Stern is the anchor and he has
been saying his long goodbye to terrestrial radio on most major
Infinity FM talk stations and many of their classic rock properties
across America. As Stern is slowly saying farewell, he is either subtly
or blatantly suggesting that Infinity’s highly sought-after male
demographic should follow him to Sirius satellite radio for his January
2006 satellite debut. Infinity’s problems with Stern leaving actually
go deeper than what you see on the surface. With their Wall Street
darling and bean-counting leader Mel Karmazin now the CEO of Sirius,
the programming brain trust at Infinity is testing wannabe replacements
that range from Adam Carolla, the sarcastic host of Loveline, to former
Van Halen frontman David Lee Roth. Despite being uniquely talented,
both will fail to fill Stern’s shoes. Infinity needs something exciting
and new (like the Love Boat, but for radio) to replace Stern. But much
like the rest of the terrestrial radio industry, Infinity corporately
fears change and will likely try unsuccessfully to replace the King of
All Media with a Stern knock-off. Check Infinity’s recent track record
and you will see a programming group that made their “hot” new format
to be an arrogant new concept called Jack, which sounds just like
listening to someone’s iPod on shuffle. Listening to someone else’s
iPod is about as comfortable as wearing someone else’s underwear, a
criticism supported by the ratings. While programmers are calling Jack
a success, its ratings are flat in many major markets, including Los
Angeles and New York, where Jack stations replaced the historically
successful “Arrow” format and the incredibly successful WCBS oldies
format in New York.
The Technological Competition
In the days of terrestrial radio when Mel Karmazin and Randy Michaels
walked the Earth as gods of media and business, there was no end to the
increases in billing that could come from these new media
conglomerates. Less than five years after dinosaurs walked this same
Earth, Karmazin has reinvented himself to run the number two satellite
network and Michaels is long gone from his role as radio’s leading man.
What remains is a whole new landscape that should scare the living hell
out of the people who run what is left of traditional terrestrial
radio.
Generation X and, more emphatically, Generation Y don’t like radio.
They get their information from the Internet. They read blogs and
websites for information. Unlike their Baby Boomer parents, they don’t
associate with a local radio station or format. They find videogames,
MP3s on their iPods and instant messaging much more compelling. They
don’t feel terribly loyal to artists and/or record labels and why
should they? The RIAA has been suing their contemporaries with John Doe
cases that only make today’s college kids want to steal music even more.
Satellite radio reaches in the neighborhood of seven million users to
date and the technology isn’t really that entrenched with most
automakers. In coming years, millions of cars from makers ranging from
Mitsubishi to Mercedes Benz will be selling all of their cars equipped
with satellite radios. In five years, satellite radio will be as
prevalent in new cars as a terrestrial radio tuner and people will bury
the satellite radio fees into their lease or purchase payments to make
the investment into commercial-free radio a painless one.
But satellite radio isn’t the real threat to terrestrial radio. While
satellite radio beats the hell out of terrestrial radio in terms of
programming (consider how many more channels there are and how many
more niches they can hit on one feed), it is the fledgling Internet
radio that will ultimately put the final nail in radio’s coffin.
Forward-looking cities like San Francisco and Philadelphia are
installing city-wide wi-fi networks that can be used in homes as easily
as they can be in mobile devices, ranging from Blackberries to iPods to
car audio systems. This means that if you want to listen to anything
from Top 40 hits to heavy metal from the Alaskan tundra to trippy
electronic music from pill-popping freaks in Amsterdam, all you need to
do is point whatever tuner you may have at that Internet radio station.
Another extremely powerful new competitor for radio is the cell phone.
Back in the 1990s, when the Wall Street darlings that ran terrestrial
radio groups were buying up FM stations for eight-figure prices, they
didn’t factor in that cell phones would become so inexpensive that you
might choose to chat with a friend over listening to some soulless,
pre-programmed classic rock format that plays the same song in 29
different cities at the same time.
California
residents like myself follow real estate as if it were sport more than
business. With 20-plus percent gains yearly, a small home purchased
after the Northridge earthquake of 1994 for $300,000 in a top West Los
Angeles neighborhood can easily be worth $1,750,000 today. Even homes
bought more recently can see increases in the seven figure range, while
the homeowners laugh over a perfectly chilled glass of Central Coast
viognier about how they locked their interest rates for 30 years at
five percent. They know what they own and that while there is a lot of
talk of a real estate “bubble,” there will more than likely be a small
correction to the U.S. real estate market, concluding in an end to the
past few years of insanity.
