Month: April 2012

Market Share

9/4/1998

This past week was a good time to be poor.  Rich people lost a ton of money in the stock market last week.  LPMs might have lost a couple of dollars.  Deejays didn’t lose a dime.

It’s almost funny that the last few Editorials I’ve written concern the stock market. Until a short time ago, those in the radio and record business didn’t pay any attention to Wall Street.  Most thought the stock market was a place to look at cattle.

Unfortunately, the decline of the stock market is going to have an effect on us “little” people.  We might never be on a first name basis with a stock broker, but when the river bursts through the dam, you can bet the slaves will be called out to haul sandbags.

If you’re naive enough to believe that a bleak market isn’t going to impact your life because you don’t own stocks, perhaps you would be interested in purchasing some ocean front property in Arizona I’ve been holding.  Or maybe those Florida radio stations I own a piece of.  (Actually, the land in Arizona might be a better deal.)

The stock market, and specifically the price of radio and record companies’ stocks, drives our destiny.  When record companies were owned by individuals and radio stations by broadcast companies, the market was no more reflective of earnings than the foreign policy.  All of that has changed, Virginia.  You were right.  There is no Santa Clause.

Record companies are now owned by public conglomerates.  The worth of the company is measured by the value of the stock.  When company executives are compensated with stock options, do you really believe the new superstar album is anticipated for the cutting edge music quality?

Hardly.

Company executives are bonused when the stock has reached a certain point.  They’re not thrilled when the tracking graph shows a sudden dip.

What does this mean for a record company employee?  Work harder, work faster.  These words are music to a worker bee’s ear.  A month ago, the stock market was going up and we were all heroes.  Backs were getting blisters from the pats.

Thirty days later, through no fault of our own, working just as hard as before, the stock market makes a “correction” and we’re all worthless.

In a bull market, revenue drives the car.  If you must spend more to make more, so be it.  In “bare” times, expenses are all that matters.  Record companies will be charged with cutting expenditures drastically in the fourth quarter to make the bottom line look healthier.  If you’re working for a record company, expect belt tightening measures.  Your T&E budget will be cut, if not suspended.  Promotions will be curtailed.  Fly-aways will be grounded like Northwestern.

However, the record companies will weather the storm.  Record company earnings are mostly consistent and weighted fairly against the stock’s price.  Radio, however, is an altogether different ballgame.

Everyone knows radio stocks are overvalued. The only reason radio stocks have risen in the past is on the assumption that another company would pay more for the group than the last one did.  It doesn’t  take a Harvard genies to figure that out.

There is a new equation now on the board.  As the price of owning radio stations has increased, the number of potential buyers has decreased.  Radio stations have been operated to generate revenue and make the stock more attractive to another buyer.  One could easily believe that if a station is billing $10 million and spending $8 million, the potential buyer could cover the purchase price by keeping the billing high and cutting costs.

Unfortunately, there’s only so much that can be cut.

Competent broadcasters, in the business for the long haul, can operate radio stations profitably.  But if the purchase price is ridiculously high, even the best broadcaster can’t cover the nut.  When radio stations are trading at 700 times earnings, as many are, it takes an awful lot of increased billing and an equal amount of cost cutting just to break even.  What radio station today isn’t running as lean as possible?

We’ve all predicted the bursting of the big bubble.  We know that at some point in the future, the price for radio stations will drop drastically.  In a bull market, bright colors are easily painted by the most incompetent artists.  When stocks take a major dip, reality bites and those teeth are sharp.

The following example might be over simplified, but it makes the point:  A radio station that cash flows $10 million is put on the market for $200 million.  (That’s 20 times cash flow.)  For that station to meet the interest payments (forget about increasing profits) it must increase the cash flow by 20%.  That’s a lot of additional billing and major cost cutting.  This is all right, as long as another buyer is will to cough up $300 million for the next purchase.

But what if there is no buyer?  Is the scenario much different from the one learned by many in the market last week?  When telling their broker to sell, the answer was chilling.

“To who?”

Straddle

StraddleMy latest book, “Straddle,” will be published in June and available for purchase in your favorite outlets. If you want an early edition, I have a limited number of copies I will be happy to autograph and send to you now. $10 (checks only) to Crysis Management, 10061 Riverside Drive, Suite 859, Toluca Lake CA 91602. Hope you enjoy it!

Pot It UP!

Pot It Up!

Radio lost a great talent this week. I lost a friend.

In an industry where engineers are nameless, faceless souls who, for the most part, never “got it,” Phil Lerza was a superstar. Programmers who couldn’t tell you who their own engineer was knew all about Phil. Lerza was the superstar who perfected the KFRC sound. And what a sound. Envied by programmers across the country, many tried, but none succeeded in duplicating the sound of the Big 610. In short, Phil Lerza “Got it.”

Unless you worked at KFRC, you have no idea how perfect the radio station was. The industry measured how many hours stations were off the air during any given year. KFRC measure that time in seconds. Quite simply, KFRC was never off the air. Duplicate control rooms, backup music carts, generators, compressors and all sorts of whistles and bells were just a part of the process. In the cocoon of the control room, you were wrapped in perfection. It just didn’t get any better.

And the one person who made the Starship run was Phil Lerza. No need to ask for Warp Speed, we were already there…and light years faster. Every person on the staff loved Phil Lerza. For what he did…and for who he was.

I always told Lerza he was God’s Chief Engineer…that if God had a radio station, Phil would be His engineer. I guess I was right. The Big Station in the sky needed tweaking and God called Lerza on the hotline. He’ll have it perfect for our arrival. And when we get there, he’ll give us that wry smile and say, “Bud, what took you so long? I’ve been waiting for you. Sit down and pot it up.”

We all have specific memories of Phil and I invite all of you to share your comments. All of his friends will see them and I’ll send them along to his family. Some of mine begin the tale…

I had problems with every engineer I worked with. None understood Top 40. All wanted a smooth sound…a straight line with no peaks. I wanted it to thump. In my first meeting with Phil, I told him I wanted the compression to hit me like a wave right in the chest. I explained by pounding on my chest. Instead of looking at me like I had three heads, Phil nodded and said, “I got it.” And he did. The compression increased within minutes.

Several weeks after my initial meeting, I called him into my office and said, “I want more compression.” Phil nodded quickly and said, “I’ll do it, but you won’t like it.” I tried not to show my aggravation. “Do it please,” I snapped. He nodded again and looked at me with those wide, inquisitive eyes. “OK.” The next day, I met with him again. With much chagrin, I asked that he back off on the compression. Without a hint of “I told you so,” he nodded and said, “OK.” I love the guy. After that, we had a continuing contest. Phil would tweak the sound without telling me. I would always know. I would come into his office and say, “You changed the settings, didn’t you?” He was always amazed that I knew. What he didn’t know was that he had a tell. His eyes always gave him away.

For years, I had wanted to create a mobile studio. I never understood why radio was confined to a control room. It would be so much better to meet our listeners without sacrificing our own environment. I had talked with engineers at other stations before and was rebuffed out of hand. “Can’t be done,” was the answer. Oh, call-ins could happen or occasional remote broadcasts where the jock would speak into a mic, but nothing that showed the excitement of the whole show. I brought up it up to Phil. “Great idea,” he said. “Let me think about it.” I figured this was a stall tactic. Three days later he was back. “I think we need to buy a Winnebago, tear it down and rebuild it to our specs. And I figured out a way we could do this moving, if you want. I’ll fly a plane over the mobile studio and rebroadcast the signal back to the station.” Say what? Who had a mobile studio at the time? Who had an engineer who wanted to do mobile broadcasting while moving? Who had an engineer with a pilot’s license who flew the plane that rebroadcast the signal? The KFRC Mobile Studio, nicknamed The Sturgeon, became history and legend.

I loved Phil for many reasons, but chief among those was his honesty. Two stories underline that. One of many consultants came through KFRC. I had a party at my house and the latest consultant was there. Phil asked, “Who’s the stiff?” I told him it was another consultant trying to impress us. I said, “He’s a good guy.” Phil looked at me and shook his head. “No he isn’t.” As usual, Phil was right.

In my first department head meeting, we gathered around the conference room table. Phil and I were on one side alone. GM Pat Norman said he wanted to focus our discussion that day on P&L. Phil leaned in close to me and said, “Let me make this easy for you. Those guys over there,” pointing to the two Sales Managers, “they’re P. You and I are L.”

And who could forget those wonderful remote broadcasts from Lake Tahoe? And the dinners we had at Beni Hana where we got the private room by ordering for an empty chair. We told the waiters it was our alcoholic colleague who was in the bathroom. Phil loved that. And when I dine at Beni Hana’s this weekend, there will be an empty chair for my friend Phil.

What are your memories?

500 Pound Gorilla

January 14th, 2000

For three years we’ve been trying to move the Network 40 Summer Games to another month.  Lake Tahoe is arguably one of the most beautiful places in the world, but in early June, it can get a little dicey.  The first year, it snowed the sunday after the The Games were completed.  The second year, it snowed three days before The Games began.  Last year there was a blizzard the week before The Games.  After three fantastic years, we managed to convince the people in Tahoe that record executives and radio programmers were nice people, would act accordingly and would bring no great harm to the environment or manmade structures. Last week, for the first time in history, South Lake Tahoe granted us a convention in August.  The most beautiful month in the world’s most beautiful place.  I was so excited that I prepared a wonderful soliloquy for The Network 40 Games IV (The Final Conflict) August 24-26 in Lake Tahoe. Nothing could be more important.

Then Ted Turner put his sex life in perspective, AOL and Time Warner merged and I decided to wait on the soliloquy.

Am I the only one who feels we’re out of control?  We’re spinning wildly into an Internet abyss where the future is so bright, we have to wear shades.  The only problem is we can’t really see.

That’s unnerving.

But it’s nothing to be afraid of it we have the talent to survive and prosper.  Years ago, I was taking my daughter through an amusement park.  She began crying because she was afraid to get on a ride. I told her she didn’t have to get on board if she was scared.  She frowned and scolded me.  “Dad, if you aren’t scared, it isn’t any fun.”

I’m having a blast.

The future of the Internet is now.  If there were any doubters, they all left the room this week.  AOL’s merger with Time Warner signals the end of the entertainment world as we know it.  A dream has become a reality and the only way to prevent it from becoming your personal nightmare is to strap yourself in, keep your arms and legs inside and enjoy the ride.

Bob Pittman, the innovative radio programmer and co-founder of MTV, is  one of the guiding hands that will steer this mothership into the millennium.  His counsel?  Forget radio and records as we know it.  There’s a new sheriff in town and his name is World Wide Web.

You can stop thinking about if records will be downloaded on the Internet.  Concentrate on when.  AOL, the company that petitioned against any particular concept of downloadable CDs, will now be leading the way in developing the technology and bringing it to the front page.

If I owned interest in a record store , I would get out now.  Retail outlets are in serious jeopardy.  AOL and Time Warner will lead the charge to toward online music purchasing and in the process, revolutionize the way we do business.  If you aren’t ready for the Internet, it doesn’t matter.  You can either ride the train or get run over.

And music isn’t the only part of our lives that will change.  The way we view and use television is going to change so drastically in the next couple years that the concept we now consider commonplace will be outdated before you can adjust the color.

No longer will you have to rush home for your favorite program.  You won’t have to remember to start the VCR. (Does any normal person really know how to get that flashing 12:00 off the LED?) All images will be stored by your Web TV.  Play back the whole thing or bits and Pieces whenever you have time.

Many see this merger as the initial hard step of the Internet actually affecting our lives in a tangible way.  Those who look at the computer as something to be afraid of will miss the boat.  How we use the information and services available will not affect our lives adversely, but will give us more time to enjoy life.  The computer and Internet access will allow us to use information and technology to make our lives better and less hectic…not more so.

If the rest of you think you’re safe, get ready.  This 500 pound gorilla is headed your way.  Your company will be sold by the end of the year.  Dot com companies that have been selling their future are now buying the real programming that makes that future a reality.  The time for the ostrich syndrome is over.  Pull your head out of your ass and get on board.  If you don’t know about it…find out.  You’ve got one choice: you can either be part of the future or part of the past…part of the solution or part of the problem.

It’s going to be an interesting year.  Now that I think about it, this is the perfect time to make your plans for the Network 40 Summer Games IV (The Final Conflict) August 24-26 in lake Tahoe.  This year, we’re really going to need it.

Are you scared? Then you’re having fun!