K-Mart Sucks

11/15/1996

“Who’s on first?”

“I don’t know.”

“He’s on second.”

“Who?”

“Who’s on first?”

“I don’t know.”

“He’s on second.”

“What?”

“Third base.”

It’s enough to drive even Abbott and Costello crazy.  Not their famous “Who’s On First” routine, made even more famous in the movie, Rainman, but who owns what radio stations and where will it all end.

It’s easier to count cards in Las Vegas.

Just in case you are interested, as of today (of course, by the time you read this column, it’s almost certain there will be more ownership changes) the total by ownership is as follows:

1. American Radio Systems (93)
2. Clear Channel (93)
3. Jacor (92)
4. SFX (82)
5. CBS (79)
6. Chancellor (53)
7. Evergreen (42)
8. Cox (41)
9. Gulfstar (41)
10. Paxson (40)

 

Those are definitely…definitely a lot of stations.  Of course, there are those who would attempt to point out that in many cases, the quantity of some acquisitions has affected the quality.  Some would say it’s K-Mart shopping at best.

With the absence of any real restrictions from the FCC, radio stations have become an entity to be bought, sold and traded like commodities of the market.  In most instances, the price for individual stations is so off the charts as to make even the bulls on Wall Street cringe.  If Mr. and Mrs. Smith were going to purchase a radio station and run it the rest of their lives, they couldn’t do it.  The dollars don’t make sense.  However, the worth of the station makes the sale dollars reasonable for the big companies.

Does that make sense?  Let me explain it to you in another way.  Remember when the Hunt brothers decided to capture the silver market back in the 1980s?  Silver had been bought and sold for about the same price for years.  The flux was negligible.  That’s how it is on Wall Street.  Too often, it isn’t what a company is worth that strikes the price, it’s what someone else wants to pay for it.  With the Hunt brothers buying and hoarding silver, the price suddenly went through the roof.  Why?  Because there wasn’t enough supply for the demand.

It’s the same with radio stations today.  There are a finite number of radio stations available in the United States.  It’s not like the furniture business, where you can just put up another store on the corner when you want.  Licenses are restricted.  There are only so many radio stations.  If you want to buy one, in 999 out of 1,000 instances, you have to find an existing license and purchase it from the owner.

Since the FCC hasn’t the ways and means to restrict the number of stations a particular entity owns, what keeps one company from buying every station in the country?  The Department of Justice.  And lately, the DOJ has been raising more than one eyebrow when glancing at the alarming number of stations controlled by one company.

Most of the stations being purchased are done so for one reason—so they can be polished, shined and sold again.  But let’s consider the possibilities should one of these companies make a decision to make a major impact on the business as a whole.

In the 1970s, the RKO chain ruled music radio.  The company owned the #1 station in most major markets.  For a record to make it into the top 10, the RKO chain had to add it.  That was pretty strong medicine from a company that owned 12 radio stations.  Twelve stations won’t even rank a company in the top 50 today.

But think about the possibility of one chain…let’s say, Jacor…deciding that every station in their chain would be programmed Top 40.  Impossible?  Not at all.  Think about the advantages of a chain of 92 radio stations programmed almost identically with chain adds and promotions. This could revolutionize the way our entire business is done.  If the RKO Group could be the 800-lb. gorilla with just 12 stations, think what this chain of 92 stations could do.  The possibilities are endless.

First of all, the promotion budget could be taken right off the ledger.  The promotions from record companies would be unbelievable.  The chain would own every Mainstream concert.  Forget owning them; the chain could go into the concert business.  Would producing their own records be far behind?

And what if, say, CBS, then decided that all of their stations should be Alternative? ARS might choose Crossover, Clear Channel Rock and Chancellor Country.  A music format could be dominated overnight and the commercial possibilities would be immense.

Since radio companies are looking into audience domination to ensure profits in individual markets, is it too great a leap to believe that these same companies might look into format similarities to up a market share?

Companies are looking to “own” a perception to make the quantum leap.  Kleenex for tissue paper, Xerox for copiers…you get the drift.  Would Jacor for Top 40 not be in the same mode and bring about the same profit shares?

You say it could never happen?  Ten years ago, one company owning 92 radio stations wasn’t a possibility either. That’s why the DOJ is interested.

If this does become a reality, three things would be certain:  Ed Stolz would still own one radio station, Bill Skull would be the happiest man in Maui and K-Mart would still suck!