Radio 2002: Setting Priorities

By Ken and Kelly Orchard

This is a question that appears to be top of mind in the radio industry these days. We don’t claim to have all the answers, but we do attend a good deal of industry conferences, read all the broadcasting publications and Internet propaganda and carefully watch the Federal Communications Commission’s Website for changes and trends, especially for radio. Some of the headlines don’t come as a shock, especially in the economic climate of the aftermath of a horrendous trauma in the United States. While the stock market wavers, rising and falling almost minute by minute, we watch as companies like Enron and even Martha Stewart find nothing but trouble. We see the trends in the financial reporting of some of the major players in broadcasting. If their share drops one micro-cent on the New York Stock Exchange, investors scramble and ask: "Do the Major Group Owners know what they are doing?" Even newspapers report on the failings of the radio industry, but who can blame them, after all, newspaper is the most threatened for readership and advertising dollars in the age of electronic media: it only seems to make sense that they would attack radio and give the industry a negative view from the public’s perspective.

Apparently, radio is searching for answers as to how to survive the Internet, TV, XM Radio, and market-by-market competition. We’ve seen it first hand. We reported last month that we have been conducting multiple FCC Voluntary Inspections through the California Broadcasters Association. Clear Channel signed up to have all their stations in California inspected and this has created an onslaught of activity for Orchard Media Services. We wonder: will anyone else have seen as many broadcast facilities as the two of us by the end of 2002?

Of course, the primary concern for the radio industry is the financial ramifications. Revenues, profit shares, market shares, ratings and bottom line economics are the top priority of administration and managers.

We have seen a lot of consistency in programming, promotions, sales strategies and contesting. We even see consistency in internal documents, memos and forms. Heck, even company business cards have the look of "branding" the name of the Group Owner. What we don’t see is an effort to make FCC Compliance a priority, at least, not completely. FCC Compliance seems to be the item on manager’s "to do" list that carries over to the bottom of the list the next day, and the next, until something happens that forces their hand in to dealing with it. FCC Compliance, Public Files, EAS, Station Logs and Engineering are being severely ignored and often times we find it in complete disarray.

We have heard the arguments, and witnessed newcomers to radio comment that radio was de-regulated and the FCC isn’t issuing fines for such things as Public Files, EAS and Station Logs. On the contrary, just look at the FCC’s website and you’ll see that the Enforcement Bureau is active and issuing violations and forfeitures every month!

The following is a portion of Wisconsin Senator Russ Feingold’s statement on Market Concentration that was issued to the President just a few weeks ago:

You can see this statement in its entirety on the Senator’s website, and of course it has a great deal to do with the music industry, concerts and promotions, but the main theme that is being driven is this: Regulation by the FCC is going to continue. Anyone claiming that they don’t have to be concerned with issues of FCC compliance is completely misinformed.

The answer comes from some great people in this business. Serve the Community of License. Back to basics. Call out the old radio guys from the glory days of radio and find out how they achieved loyalty in listenership. This is the best and only way to raise advertising revenues. And the first step is to keep in mind that the social climate of New York differs greatly from that in California, Texas, Utah and Florida. And each market is different. The demographic climate in San Diego is completely different than that in Sacramento, Los Angeles and San Francisco. Radio needs to retrace its roots and become THE medium that specializes in serving the local community.

Lets look at the practice of buying radio stations. Lets present a hypothetical situation. Lets go out and buy three houses at the same time. I know even if you had the finances readily available, it would still be a difficult job. One would have to close escrow on all those houses. Realistically, you didn’t even have time to check them out thoroughly. As a buyer, I don’t even know if I got the washer and dryer with one and did somebody check on termites or is there a fence around the house where I thought my dog could run? And maybe I will have to get another type vehicle because I need to have a four wheel to get to one house. I guess we’d better hire some people to look into these matters.

Well you can see where we are going with this. Attempting to buy three houses at once is how some groups are buying radio stations today. The escrow comes too fast and you don’t have time to check out the inventory that comes with the sale of the station or where the location of the four translators that come with this purchase are, and of course the FCC compliance of these stations that you are buying.

A group owner of many stations had signed a letter of intent to buy three more stations and called and asked us to check into the compliance of these stations. We saw "Murphy’s Law" first hand: everything that could be wrong was wrong. I don’t even want to assume what the total of FCC fines that could have been issued to these stations for technical violations. Sure everything can be corrected, but its going to cost more money.

And of course the seller was just hoping to be able to sell without having to tell the buyer about these technical problems, and the buyer was so eager to buy that they signed a Local Market Agreement to take over the station right away after the intent letter had been signed. It is crucial for the person in charge of purchasing stations to remember: You aren’t just buying a license to broadcast; you are also buying (and therefore, inheriting) the past of an operational business – problems and all. Once you take over ownership, those problems are yours.

While that matter is still in the works we went to a very large market to check on some other stations. We went to visit the FM transmitter site to check to see if the transmitter was the same one that is listed in the inventory list for the sale of this station. The good news was it was the same one but I asked the engineer that took me up the site if he could raise the plate voltage on the remote control so I could check it with the reading on the transmitter. "Well I can’t do that," was his response. I asked him if we could look at the current reading. Again, he had to respond, "Well I can’t do that either."

Then I realized that there wasn’t a remote control unit on this transmitter. It had been running for over a year with no control of the transmitter. I know the engineers who have remote controls on their transmitters will laugh, and the other engineers that don’t have remote control will hopefully realize the FCC violation that this puts the station into. This FCC fine alone is about $7,000 minimum! Go to the FCC web site and do a search on rule 73.1400, which is the rule about "Transmission system monitoring and control", and research it for yourself. When you go to the FCC rule web site you can search all the FCC rules from 73.1 to 73.7000. Yes over 7000 rules that have fines with them.

The point is, while corporate is looking for ways to lower costs of operating radio stations, the fines and legal matters concerning FCC violations continue to plague stations across the country. The argument is: It costs more to pay the fines and the lawyers to answer the problems than it does to have it taken care of in the first place. So, if you are in the process of buying stations, selling stations, operating stations, or overseeing stations, one of the areas that you should be concentrating on is your FCC Compliance. As you can see, the FCC is not going to drop out and let radio just "do as they please", and our Senator from Wisconsin seems to be headed toward presenting legislation to re-regulate radio. Do you suppose it may be possible that formal documentation regarding serving the community will be a crucial component for keeping your license? (Duh!)

A comment we noted regarding the case of Martha Stewart’s potential insider trading problems, and of course the Enron scandal brought up this question: "Is this an example of the rich and powerful skirting the rules to get even richer at the expense of the public?" Do we want radio to receive the same reputation?

Our humble opinion: Through our travels, it is amazing what we have witnessed. And if our advice means anything at all, here it is: I we could forecast the future of the broadcast industry, we believe the only way that radio will survive and thrive is through education and training. Radio needs to go back to its roots. Implement management training programs that incorporate all aspects of broadcast operations and stop promoting managers strictly from the sales department. There are other ways to cut costs by avoiding fines. When radio stations once again answers the needs of the community each station serves, perhaps loyalty in listenership will come back and advertising revenues will rise. That’s just our humble opinion. We’d appreciate hearing yours, please feel free to email us, and perhaps we’ll use your comments in next months issue.

Avoid FCC fines. Orchard Media Services can help you with your FCC Compliance obligations. Call for rates on all services. OMS will come to your station. Soon we will be in Oregon and Washington, this summer we’ll be in the mid-West. We can perform a "mock" FCC Inspection; evaluate your Public Inspection Files, Political Files, Station Logs, EAS Compliance and other FCC rules and requirements. We will be working on inspecting stations in California for the next several months. Perhaps we’ll be in your market soon! We have worked with over 140 Radio and TV stations in the USA, and counting. Call Orchard Media Services for questions and information, at 760-243-4733 or via email @ PIFILE@aol.com.