October 27, 2009
Despite the tumultuous economic climate, Lew Dickey remains firmly committed in the traditional strengths of radio. Raised in a family that owned stations in Toledo, Dickey's first venture into the business was as a consultant, launching Stratford Research. Eager to learn more on the business side, Dickey enrolled in Harvard and got an MBA, only to return to the family as the Dickey Brothers Broadcasting Company bought WCNN and WALR/Atlanta, then WQQK and WVOL-A/Nashville. Soon after consolidation hit, he helped launch Cumulus Media and the buying spree began. While the blowback from the current economic meltdown has taken some of the wind out of radio's sails, Dickey continues to be a strong supporter of corporate radio and its revenue growth potential.
Obviously, 2009 has been a tough year. How long do you feel the slump will last?
I'm an optimistic person by nature, I certainly hope we're coming out of this great recession; we're seeing signs of stabilization, which is the most important thing in this country, as well as Europe and Asia. Obviously, that's the first step before you have true recovery. We're still very concerned about consumer, who represents approximately70% of the GDP in our country. There's still the painful process of de-leveraging, which still has a ways to go with the consumer. Savings rates have gone from negative to 5% of income as we move to the most rapid deleveraging of the consumer since World War II; it's just a question of how long it takes for the de-leveraging to work itself out.
Additionally, incomes aren't growing right now due to the tough labor markets with unemployment approaching 10%, consequently with wages not growing, the only way for the consumer to de-leverage is to spend less. As consumers spend less, we don't see the growth engine we had in the past, when people used their homes like ATMs to buy another car, boat or put in a new kitchen. It'll be a while before consumer spending comes roaring back. Realistically, we're now experiencing more of a new normal. As more things stabilize, we should start to expect a modicum of growth sometime next year
What's the key to a turnaround-the economy rebounding overall, radio placing more emphasis in online revenue, HD growth ... or can the traditional spot revenue make a sizable comeback?
I truly believe that radio, as an advertising medium, is perhaps more relevant today than it has been in quite some time. It's the last great reach medium out there today; we reach 9.5 out of 10 Americans every week, and there's real value in the ability of our medium to do that so we're not looking beyond radio in the near term. Of course, we have to utilize online and digital, but I feel we have a helluva business in the core business in terrestrial radio, offering our valued advertisers access to the people who consume it each week. We just have to do a much better job, as a medium, of monetizing the listenership we have.
My quarrel with our industry has been our inability to fully monetize our audience. We're delivering 9.5 out of 10 Americans each week; I think we can do a much better job of monetizing them. I believe that the radio industry has done a terrific job programming and marketing, and delivering compelling content to the listeners, who still vote with their fingers on the dial. The fact is, we have more people listening to radio than ever before in our 100-year history as a medium, and we're doing it in the face of onslaught of satellite radio and 170 million iPods, a 97% penetration of cell phones, as well as the growth of Internet radio.
That speaks volumes about what the people in this industry have done to make our product relevant and compelling and frankly, I don't think the hard-working and creative people in our industry who are responsible for this get nearly enough credit.
You have to continue to evolve to maintain that kind of success, so I give tremendous kudos to our industry for developing compelling content. I don't think this business has any relevancy issues, or efficacy issues. Our 30- and 60-second commercial announcements are highly effective in persuading our listeners to buy goods and services. In short, radio works. We've shown how we can mobilize our communities; we've got to do a much better job of monetizing. It all begins our industry truly understanding and appreciating the value of what we have.
To be sure, none of this should diminish the value of HD and online; we just shouldn't be so quick to look past at what we have; our core business which reaches 95%+ of the U.S. population each and every week. We've got so much upside in our core business in terms of doing a better job of monetizing what we have and maximizing our business opportunities. I continue to be very focused ensuring that our sales organization understands the true value of our product. It's an area where every company can sharpen its focus in the face of declining rates. We can't forsake the main idea, that we have a very, very valuable medium, and we can do a much better job of monetizing our business and maximizing the true business opportunity we have to help local advertisers grow their business.
How exactly does Cumulus optimize that monetization, and rejuvenate traditional revenue growth in tough economic times?
In our business, there are two primary revenue streams. The first is transactional business, which represents more than half our revenue. We refer to it as "default-demand" business because it represents more of a wholesale sales model where agencies or buying services buy from us in bulk and re-sell to the end user. I believe that we've got to do a much better job of negotiating this important stream of revenue, because it makes up the majority of the revenue generated at in the top-50 markets ... and we are a fixed inventory business. To do that, we have to price our spots for value instead of price them for a share of the business.
I've been consistent in my position that the three dirty words in this business are "price for share." Monetizing our business through a "price for share" mentality has created the wholesale business model where we offer up our product in bulk at very cheap prices on a commodity basis to re-sellers, the agencies, who go out and act as middle men with the end client. This has created a situation that has moved all pricing leverage to the buyers, consequently radio sale staffs have become price takers, not price setters. In short, there has not been a "bid and ask" as in most well-functioning markets, but rather a bid and an acceptance. The resulting impact on pricing is negative.
This has caused a vicious cycle of downward pressure on rates. When you have a business model with a fixed inventory, such as radio's 12 spots per hour, you can't sustain growth by continuously lowering your prices. When you have downward price pressure on fixed-inventory business, you have a flawed business.
When it comes to transactional business, we have abdicated our position as price setters and have become price takers. We need to set our rates and negotiate with individual buyers with a healthy give-and-take based upon a variety of different criteria. When agencies put a bid in, often times other radio companies take that price as gospel and accept it. There's no healthy give-and-take ... and that is a shortcoming of today's radio sales organizations.
I don't know of too many other product/consumer relationships where the consumer simply sets the price at will and the seller of the product/producer simply adopts a passive stance and accepts whatever consumer throws at it. I don't know too many models that would work like that. We have to price our product appropriately and sell its true value.
But when the demand for advertising is as soft as it seems today, doesn't that tempt one station's sales staff to undercut a rival to get the deal, because any spot revenue is better than no revenue?
This is where you begin the process. Somebody has to act as the leader. What we have to see are stations and groups stepping up and acting like leaders in pricing in terms of setting prices, not just taking prices. You have to sell value, -- and not just plead for share and be quick to give away the store. In short, it takes real discipline, but the trend can be reversed.
Why doesn't Cumulus take the lead on this?
We're working very hard at it. The thing is, we don't have a leadership position in all of our markets. Wherever we do have the heft in the market, we're pushing very hard to change behavior. Look, we're in the early innings of this process; we're certainly not hitting on 8 cylinders. We have identified the problem and we're working diligently to solve it. But we can't do it alone; we need other radio groups with leadership positions to step up and realize the value of our great medium - and act as price setters
Have you talked to John Hogan and other group heads about this?
No, because that could be construed as anti-competitive behavior, which is prohibited by the DOJ. All we can do is signal the marketplac, by setting an example and hoping others can follow. I can only talk about in public forums like this, and hope other people see the light.
How does one lead a leaner sales force to meet higher sales goals when there are fewer reps who have to manage their time between strengthening existing client relationships and looking for and developing new clients?
I would say the toughest thing to manage in an outside sales force is productivity, because people in essence are largely responsible for their own time for most of the week. It takes a lot of coaching; you have to provide structure and accountability to try and improve the level of productivity of each seller.
In essence, it's the realization that "time" is everyone's non-renewable resource. As a seller, the way you make money is by putting yourself in front of qualified buyers with a proposal to do business. The more often you can do that in the course of a week, a month and a year, the more business you will write ... it's really pretty simple. We have to help our people become better stewards of their own time ... to enable them to put themselves in the position to score more often.
Will the future of radio revenues be found online?
My biggest concern with online is that there an unlimited inventory -- and it's growing every minute. Because there are absolutely no barriers to entry to create a website, a blog ... to stream whatever you want ... and anybody can do it. When you have a marketplace that has ever-increasing and unlimited supply of inventory, common sense will tell you that pricing and rates are going have downward pressure. Consequently, we have seen very few business models in online media that are sustainable, profitable and interesting to us.
Furthermore, while we view online as an extremely important distribution channel for our content and marketing messages, we remain unconvinced as to its viability as sustainable business model. In short, it has destroyed far more value than it has created.
What's your opinion of HD Radio? Considering how much staff downsizing there has been in radio, how can stations even afford to hire the programmers to take the time and energy to develop compelling content for HD?
HID is promising technology whose time will come, but we need a critical mass of receivers before it can be viewed as viable. It was something of a chicken-or-egg situation between having the content vs. having the hardware and distribution. We have certainly answered that by having the vast majority of stations in the top-100 markets convert to HD, so the distribution is there. We need more receivers in the marketplace
Are you satisfied that there is enough unique content to attract new listeners or prompt current listeners to listen longer?
Before broadcasters invest a great deal of money in additional content, using the supplemental channels, we're going to have to see greater penetration of receivers in the marketplace. That's only prudent it in this day and age. That being said, HD is a superior technology will ultimately be embraced by the auto industry and the handheld devices, cell phones and mp3 players. When that occurs, then we get provide more content.
My recommendation for the HD rollout is that we need to pursue a barbell strategy, with cars on one end and portables/handhelds on the other. Unfortunately, the industry pursued tabletop radios, which was opposite of barbell strategy and has set us back three to five years.
What's your reaction to those who say that major markets have dozens of station already, and adding scores more of HD side channels could dilute the audience size of the terrestrial motherships?
I disagree with that. Does the fact that ESPN has four or five channels dilute its brand? If you use supplemental channels as a line extension of the mothership, you can create greater and closer bond with a particular community of listeners.
Every radio group has had to downsize staff over the past year or so. After the cuts Cumulus has made to stay afloat in these tough times, how do you and your executive management staff deal with the potential morale problems of having a leaner staff that has to work under more difficult conditions?
It's always unfortunate. Companies are big families, and times like this necessitate that you have to thin ranks and look for efficiencies. Its troublesome from the perspective of, one, you lose valuable members of the team, which is very difficult to do. Secondly, it makes those who are left bear the burden and brunt of additional responsibilities. It's difficult on both of those fronts. It's something that we do begrudgingly, but we know we have to, in essence, for the greater good of the enterprise.
In terms of morale, we try to be extremely communicative and open with our employees ... and bring them in on everything that's going on. We had a furlough earlier in Q2, where everyone took a one-week unpaid vacation, to save money and help the company meet its bank covenants. I was extremely impressed with the shared sacrifice and participation. Everyone stepped up to plate; they knew why we were doing it and they embraced it. It's something no one likes, but our people didn't grouse and complain, they pitched in and covered for each other for the greater good. It showed the resolve and commitment of our great team. We're extremely proud and impressed with what we saw during that time, as we kept our medium relevant.
A lot of radio's critics have come out of the closet during this time, claiming the actions of the major radio groups, from the early consolidation and the debt loads, to currently overworking its employees and demanding more results without equally more compensation, have exacerbated the situation. How does one respond to that?
The critics are certainly entitled to their opinions and there is no monopoly on good ideas. That being said, I believe that Radio needs to remain focused on its listeners by staying relevant and producing compelling content. The empirical data from Arbitron and Nielsen demonstrate conclusively that radio is as relevant today as it's ever been -- in the face of hundreds of new competitors for people's time. We have actually GAINED listeners while Time Spent Listening has only been marginally impacted due to the inevitable fragmentation from all of that competition.
The critics may say radio's a dinosaur that's no longer needed, but the listeners say otherwise. This medium is very dear to them and is still a big part of their lives on a daily basis. My hat is off to the programmers in the industry, producing extremely compelling content that has made our medium relevant and kept it relevant all these years
Yes, we will take some of our same content and put it online to monetize it; but it's not going to lead to the pot of gold many people hoped it would, simply because the online advertising world offers an unlimited supply of inventory, perpetuating an indefinite pricing challenge. Theoretically, online CPS' will continue to decline to the marginal cost of producing the impression.
A couple of small radio groups have already been taken over by lenders. Do you see other groups going under ... are you satisfied that Cumulus will stay clear of such problems ... and would Cumulus be interested in building its radio group with any new stations being put on the block?
We're not only seeing radio groups being taken over, but TV groups and newspaper companies as well; there will be plenty more to follow before the cycle is complete. Cumulus has successfully negotiated with our lenders that will enable us to play through the storm. With respect to how things play out going forward, this is a unique environment, with a greater emphasis put on operation more so than at any time in my 25 years in the business.
Lenders are looking for competence and cooperation, not "dealmakers" today. If you are a competent operator who understands how to manage the fixed costs of business and have a plan to drive top-line growth going forward, you'll be in an ideal position to both manage and acquire troubled concerns.
Now that PPM is in Atlanta and will be in other Cumulus markets in the near future, how has the way it monitors listenership impact the way Cumulus programs its stations?
Strategically, it has not had an impact. Tactically, a number of programmers across country are looking to be more precise with billboarding upcoming features within shows and trying to create more appointment-listening. We're being more time-specific and our team is employing a host of other tactics. We view the tactics people are employing, some with success and some not, but at the end of the day, we view the PPM as a coincidental methodology to measure listening, and if we produce compelling content, they'll stay with us and it will all bear out in the wash.
One important thing we have learned from the PPM, from a sales standpoint, is the fact that listeners do stay through commercial breaks. From my perspective, that's the most interesting outcome PPM has produced. There was always a concern that listeners habitually tune out of commercial breaks. Not necessarily so, which again speaks to the efficiency of our medium
At the same time, I am very concerned about the ethnic weighting issue and how it's resolved. It merits greater transparency and disclosure. It's been clear from day one that a coincidental form of measurement, such as the PPM, would yield different results than the diary, which relies on unaided recall. Yet when it did yield different results, there was a hue and cry from various interested communities. After the subsequent lawsuits and injunctions against Arbitron, we have witnessed, in essence, a "smoothing" of those numbers. Yet we have not seen a reason for the mitigation of the differences between the diary and PPM. I think that deserves to be looked at very closely.
The data should stand on its own, and should not be subject to manipulation to try and recreate a relationship of market share that existed with an entirely different form of survey. This concerns me greatly about the accuracy, reliability and integrity of the new PPM data.
Cumulus is an avid supporter of Nielsen's sticker diary. Do you see any problem trying to sell advertising on data that's refreshed only once a year?
It's a question of would we rather sell on unreliable data twice a year or much more reliable data once a year. When Arbitron put out two books a year in small markets before, it was not uncommon to see a Top 40 or Rock morning show go from a 20 share to 5 share in six months -- with no changes in the market. We know the consumption pattern didn't change that dramatically. So what do you tell that morning show ... that they're suddenly no good now? They weren't doing their jobs the same way they were when they had a 20 share? What do you tell the car dealer, that your spot is worth just $25 now when it was worth $100 six months ago? You can't run a business like that.
Would you be interested in an annual sticker diary for major markets?
Not in major markets. The sticker diary is a superior survey instrument to the current Arbitron diary. We're excited to have a sample that's dramatically higher ... more than two-fold statistically. It's that much higher because the increase sample sizes are from the difficult-to-reach demos, young men and women. That's good for advertisers and programmers.
What PPM does do, however, is show that people are listening to a far greater number of stations on a weekly basis than the diary showed in the past; this goes back to coincidental measurement vs. unaided recall. The sticker diary is a better bridge to coincidental listening, consequently you're seeing the number of listed stations going up, which matches more closely to the PPM than Arbitron's diary.
I'm not saying that the sticker diary can accurately monitor listening as well as the PPM, as long as PPM has a representative sample. I am saying the Nielsen diary sample is better than Arbitron's, so its data will come close to the PPM in accurately capturing consumption.
If Nielsen follows through with its plans and offers an electronic measurement, could Cumulus afford to have two monitors the way the labels have Mediabase and BDS for radio play measurement?
I'm not certain, but I believe Nielsen's objective is to create an electronic measurement in all of markets, doing diaries first for the small markets, and electronic measurement for the bigger ones. But its electronic devices will be a single source to measure not only radio, but TV and even outdoor, with its GPS capability.
While competition is good, and I think both companies will be around, it would be cost-prohibitive to subscribe to both.
Should the performance royalty bill ever become law, how would Cumulus react?
We see it as a tax on an industry that can simply not afford one. It would be devastating to an essential American industry for us to send significant amounts of money to foreign record labels. Remember, we began our conversation with how many radio groups are on the brink of bankruptcy. You tell me, could they ill afford another tax at this stage in the game?
Some have predicted a loss of up to 25% of all music stations to non-music formats. Could that, in essence, be Cumulus' response, too?
We would have to do a thorough analysis to evaluate everything at the appropriate time. As an industry we realize that this is such a grave and serious issue, broadcasters are fiercely united to the principle of saving free local radio and preventing a tax that could threaten its existence.