Monday, April 28, 2008

"Indecision may or may not be my problem." Jimmy Buffett

"Culture is simply how one lives and is connected to history by habit." Le Roi Jones

"What I have crossed out I didn't like. What I haven't crossed out I'm dissatisfied with." Cecil B. De Mille


Today's image: Windy Desert by papa'rocket. Wonderful. Thanks for sharing.

Does radio clustering dampen station performance?
Are the economies of the cluster working against realization of asset potential?

Today, at least in major market radio, the performance of the cluster appears, more often than not, to count for more than individual station performance. Indeed the conventional wisdom seems to suggest that the cluster affords operators the ability to rationalize one or more failed or marginal niche performers than pre-cluster days. Economies of scale and the arithmetic of aggregation permit the ratings laggard to be kept around on a kind of artificial respiration so goes the argument but is any such bean counting enabled life support actually hurting the industry?

A stand alone posting a 1.5 share would likely be a cash user and not be allowed to survive, the prudent courses being fix it or/and sell it. That same failed station could be viable as part of a cluster and made to reach an accounting breakeven almost immediately. Has this cluster mindset created something of a plenary indulgence? The luxury of shifting focus and measures less and less on the individual station and more and more on the collective, the so-called portfolio. This argument reasons that cluster economics sanctions the value of each station's ratings delivery in additive terms only. The bottom line here is clusters do enjoy more rating point throw weight per avail. What's perhaps lost in accepting this mindset is realization of asset full potential. Further, the case can be made that there's a possible unintended consequence - we may be reducing the market value of avails (e.g., using our sick - or least popular - kid to bring in the buy or surrender to the enticement of selling for share).

What may have begun in practices of some major market duopoly operators has been exaggerated by clustering in the majors. It's considered acceptable to employ a second station as protector of the mother ship (i.e., a flanker) allowing that second station to post a modest, less than full potential performance. The reasoning being the 1.5 share of the second when added to the 3.5 of the franchise not only yields a 5 share but creates a realistic barrier to entry as well. Some have employed a "ratings robber" strategy, targeting a competitor with the purpose being to stunt or limit the competitor's performance. One improves performance in relative or comparative terms by hurting the other guy. Duopoly and clustering become zero sum games.

So what then of the somewhat popular suggestion that clustering has created, enabled more failed or marginal performers? Let's look at San Francisco. Comparing Spring 1991 v Spring 2007 Arbitron data, all stations posting 1.0 or better...

Number of stations: '91 - 31, '07 - 28
Mean share, 12+: '91 - 2.59, '07 - 2.40
Percentage of stations posting 1.0 - 1.9: '91 - 38.7%, '07 - 39.2%
Percentage of stations posting 1.0 - 2.9: '91 - 70.9%, '07 - 67.8%

One must concede, absent any discussion of share compression, the data has remained fairly stable. No cluster as evil smoking gun in evidence.

Getting down to the grits: Let's use one operator, CBS Radio, for purposes of illustration only. In the Spring 91 book KCBS delivered a 5.2, KRQR a 2.3, a collective 7.5 share. In the Spring 07 book, KCBS 3.9, KITS 1.6, KLLC 1.8, KMVQ 1.4, KFRC 0.9, a collective 9.6 share. The real economic power of clustering is, of course, in the avails; CBS has acquired 2.5 times as many since the Spring of 91 when CBS offered 48 hours of avails per day whereas today they offer 120 hours daily. Moreover, there's a new and growing abundance of avails today, a potential for wealth creation not around in the last century (e.g., HD Radio spectrum, online).

Would it be possible for any of these CBS FM stations to survive as a stand alone? This question brings us to the matter of asset potential. What is the potential in ratings, revenue and profit for each of these FM stations? How can any gap between performance and potential be closed? My sense is the CBS Radio team in San Francisco is giving it their best shot.

Some key questions on execution: Should we allow perfectly good full-market signals to deliver less than their full potential? Should we tolerate what could be reasonably judged to be continued failure without consequence or sense of urgency? And the list goes on. Should we adopt the jockless music format launch as best practice and the new default industry standard? Accept as demode market-changing (demo ranker reordering) ratings debuts by newly formatted stations? It all depends on how one defines success.

My thought is while the big questions have remained the same, the acceptable answers have changed. The cluster makes us do it or at least allows us to. My take is the cluster buys time for programmers, reducing the economic stress and pressures on near-term ratings performance. Further, the cluster may be exactly the safe harbor needed to spark genuine product innovation in the most competitive of markets like San Francisco. The cluster provides the blessing of precious development time, time a stand alone can ill afford (rare exceptions, outliers, do exist, Bonneville's entry into LA, format launch is one recent example). Accordingly, cluster management should step up and take a flyer. The risk management calculus has never been more favorable for bold innovation. To succeed sooner we must begin learning how to fail faster. Dare to emulate Lt. Col. Frank Slade and embrace the audacity of saying "I'm in the amazing business." Make something happen.

To be certain there are clear and present dangers here. Getting caught up in the inertia of complacency, accepting what is rather than demanding what could be. Giving in to the strategic trap of optimization, that is, wasting time trying to get better rather than discovering productive ways to get dramatically different. Saving our way to success (the losing game of reduced expectation) and in the process failing to make the disciplined investments required to compete for the future.

On balance, my suggestion is we are living in a new sweet spot for radio and all measured media; opportunity abounds! The only limitation is our imagination. Game on!

Congrats & cheers: Ann Compton, her WHCA team, C-SPAN, and Craig Ferguson on a very entertaining White House correspondents dinner. One of Ferguson's many memorable lines "Canada: the apartment above the party." Radio programming ace Lester St James joins Clear Channel, Omaha. BBC and Terry Jones for showing us how to effectively promote a media player - check it out via YouTube here. Brilliant!

Bonus: Amy Tan @ TED - Where does creativity hide?

5 comments:

Nick Hyland said...

Excellent in the extreme. Another myth crushed by common sense and clear thinking. Bravo.

denise said...

David, thank you, YOU are in the amazing business.

mfish said...

I was most recently the casualty of poor cluster management. Here's the clear and present danger.

Cluster thinking works well in a good economy...the strongest stations can carry the weaker. When the economy turns...there's no 'cushion' to support the weaker stations in the cluster and unless the demographic compatibiltity for all the stations are similar, combining ratings doesn't work.

The failure in the cluster mentality is that each station needs to be self sufficient and all too often, with the pressure to deliver a 'total' growth number by a GM, compromises are made.

This undermines the real business model. Too many concessions are made on inventory pricing, allocation of marketing resources and personnel.

mfish said...

I was most recently the casualty of poor cluster management. Here's the clear and present danger.

Cluster thinking works well in a good economy...the strongest stations can carry the weaker. When the economy turns...there's no 'cushion' to support the weaker stations in the cluster and unless the demographic compatibiltity for all the stations are similar, combining ratings doesn't work.

The failure in the cluster mentality is that each station needs to be self sufficient and all too often, with the pressure to deliver a 'total' growth number by a GM, compromises are made.

This undermines the real business model. Too many concessions are made on inventory pricing, allocation of marketing resources and personnel.

dave said...

Bravos, Michael! Excellent point. Thanks for the favor of your comment. My sense is sales needs a "new format." This is a leadership issue.