Dialing for Dollar$

Austin radio stations scramble to keep the money flowing in a strange new media world

Our intent is to stay competitive in this business 10 years from now. The landscape has changed.
<br>

 – Dusty Black, Clear Channel Communications
"Our intent is to stay competitive in this business 10 years from now. The landscape has changed."
– Dusty Black, Clear Channel Communications (Photo By Todd V. Wolfson)

Throw a nickel in the air in a crowded room and odds are it will hit someone who thinks Austin radio sucks. Take, for example, Ryan Goeller, a one-man focus group for Austin radio. He's 25, a graphic designer, reasonably hip, and enjoys a wide variety of music – all in all, a perfect candidate for decades of happy radio listening. Instead, when asked about radio he sounds vaguely annoyed. "About 75% of the time I listen to 93.3, which is just a really crappy hip-hop station," Goeller says. Given a choice, he'd rather listen to Internet radio or one of the college radio stations. "If I had a better CD player in my car," he shrugs, "I would never listen to radio."

When I mention this nagging perception – that radio sucks – to Dusty Black, who runs six stations in Austin for Clear Channel Communications, he doesn't sound worried. These cynical, CD-loving, Toby Keith-hating, iPod-toting malcontents are a "small minority," Black said. "Radio is as strong as it's ever been."

Yet, behind the scenes, these are tumultuous times for Austin radio. Under assaults ranging from satellite radio to the new, righteous, bullwhip-wielding FCC, Austin radio execs are reeling, trying to adjust to this strange new media world. Formats appear and disappear. Disc jockeys are on the air one day and gone the next. With corporate profits slipping, stations are jockeying for position, looking for that money train, creating an Austin radio dial with no oldies station, only one hip-hop station, two quasi-classic rock stations – and the hottest format in the biz is something called "Bob."

This week Clear Channel will launch an initiative in Austin that strikes to the very core of the radio industry. As part of a nationwide plan, Clear Channel will attempt to reduce the number of on-air commercials and self-promotional ads its stations air. At the very least, the move is an unusually blunt acknowledgment that listeners may not be enjoying those fun and wacky commercial blocks, which can fill as much as 23 minutes an hour on some Clear Channel stations.

That may fall into the "well, duh" category, but the concept of cutting the number of ads is radical thinking for the modern radio business. If nothing else, it suggests that Austin radio execs are, in fact, a tad worried that a generation is growing old thinking radio sucks. "We know we're going to take a hickey," and see a short-term drop in revenue, Clear Channel's Black said of the so-called "less-is-more" program. "But our intent is to stay competitive in this business 10 years from now. The landscape has changed."


Painting Landscapes

Everybody in radio these days is talking about the damn landscape. The popular storyline is that radio is doomed. Between satellite radio and the Internet and phones that can walk your dog, radio seems like an irritating dinosaur. Stock prices for the big public radio companies have plummeted, as Wall Street smirks at slumping advertising sales and the huge debt run up by the fast-growing radio companies. A few years ago, during the go-go days of the new millennium, shares of Clear Channel – by far the largest radio company in the United States with more than 1,200 stations – were trading around $90 a share; now they're closer to $30.

But radio is still a rocking business – at least on the local financial charts. Austin stations generated $82 million in ad revenue in 2003, down only a small fraction from the glory days of the dot-com boom, according to data compiled by the accounting firm of Miller, Kaplan, Arase & Co. Although national ad revenue is wallowing, local revenues are up. Austin is the 42nd largest market in the country in terms of population, but it is number 32 with a bullet on the revenue charts. "Radio is still a very, very profitable business," said John Hiatt, general manager of four Austin stations for Infinity Broadcasting, which is owned by Viacom, the media conglomerate.

Around the country, Austin is seen as a hot market, primarily because it is growing. Wall Street loves growth, and it's a rare commodity for radio companies these days. "Austin is hotter than hell," said Pat McNamara, an Austin rep for America Media Services, a station broker. "Anytime I hear a sniffle that a station may be available in Austin, people are all over it."

In many ways, Austin radio is healthier than it's ever been, radio executives insist. Although some may pine for the old days of doobie rock on KLBJ-FM and the alt.country of KOKE-FM, when commercial radio could occasionally produce outrageous moments of style and spontaneity, there are more radio signals available in Austin today than ever before, offering listeners more choices, radio executives argue. Spanish-language radio is also booming, serving a community that the radio industry generally ignored years ago. In September, Border Media Partners, a Houston-based company focusing on Hispanic radio, bought three Austin stations as part of a $70 million, seven-station package, proving that Austin radio still had that ka-ching buzz.

As a radio market, Austin is, for lack of a better word, weird. According to Arbitron's data, the region is 26% Hispanic but only 8% black, an unusual mix for a big city. Austin is also renowned as a strong city for public broadcasting; KUT-FM is routinely one of the top-rated stations in town, providing powerful competition for the commercial stations. "Austin is a very young, tech-savvy, fast-paced kind of market," said Tracy Arrington, senior media buyer for advertising firm GSD&M.

Into this mix toss KGSR-FM, the beloved, widely respected patron of what could best be described as Austin music. Dubbed one of "10 Stations That Don't Suck" by Rolling Stone magazine, KGSR is one of a kind, a completely unique station on the national radio scene, playing a blend of new and old folk, country and rock tailored to the community.

In that sense, KGSR is a freak of radio nature, an anomaly. Inside the industry, KGSR is bluntly classified as an "album adult alternative" or "Americana" format. Although it routinely finishes in the top five stations among listeners 25-54 – the key target demographic for most stations – KGSR, for all the adoration, rarely cracks the top 10 in overall listeners, trailing such ratings monsters as country station KASE-FM and the "soft rock" of KKMJ-FM, Majic 95.5. "KGSR's strength as a station is that it targets people in higher-end ZIP codes," said Ben Morris, partner in MQ&C Advertising.

KGSR is also the product of another generation, a legacy case. It was founded in 1990, when the station was owned by the family of former President Lyndon Baines Johnson. But in 2003, Emmis Communications of Indianapolis paid $105 million to purchase a 50.1% controlling interest in LBJ Broadcasting and its six stations, officially signaling the passing of the last significant family-owned radio company in Austin. Between them, the big three of Austin radio – Emmis, Clear Channel, and Infinity – now control 16 stations, officially marking this as a corporate radio town. "It used to be handshakes and lunch, now it's e-mails and phone calls," said Eileen Keller, president of Blitz Media Labs, an advertising agency.

Radio is still a very, very profitable business. 
<br>

– John Hiatt, Infinity Broadcasting
"Radio is still a very, very profitable business."
– John Hiatt, Infinity Broadcasting (Photo By Todd V. Wolfson)

Keller would probably fall into the group that pines for the old days of radio. She sees the radio dial packed with the Mix, Kiss, Majic, and Jammin' – tight formats targeting specific demographic groups, each a proven winner in other markets – and believes something is missing. "We're different than the rest of Texas," Keller said. "You can't just take formulas from some other place and think it will work here.

"We used to define and set standards for the rest of the country. Now we're just corporate mush."


Less x More = ?

On the door of his office in Emmis' Austin headquarters, KGSR program director Jody Denberg has a bumper sticker that reads, "Corporate Radio Sucks." "I don't consider myself part of corporate radio," he said. "Emmis doesn't really represent corporate radio to me." A few days earlier he had met top Emmis executives in person for the first time and was reassured of their support for the station. "They told me I'm the artist and I can keep on painting as long as I want," said Denberg, who has been with KGSR since the beginning. "Who expected to hear that?"

As corporate giants go, Emmis is a relatively small player, with only 25 U.S. radio stations, 16 television stations, and a menu of other media holdings, including Texas Monthly. Saddled by debt and what executives like to call the "challenging" advertising market, its stock price slid in the last year from $28 to about $18 a share, reinforcing the need for the Austin stations to perform.

In June, soon after the company reported a $75.8 million loss, due primarily to a $97 million charge for debt restructuring, Emmis lowered the budget axe on KLBJ-FM, the rock icon. Among the casualties were midday disc jockey Peg Simmons, who had been with the station for 22 years, and afternoon co-host Patty Lotz. Johnny Walker, voted Austin's best deejay five times in The Austin Chronicle's annual readers poll, was moved to part-time, and the station started prerecording his nightly show. Walker is now working part-time at a car dealership.

Scott Gillmore, Emmis' Austin manager, knows the KLBJ moves look bad, like a classic corporate radio cost-cutting move. But he says he doesn't feel budget pressure from the new corporate parent in Indianapolis. And he notes that Simmons is back working weekends at the station. "Honestly, it's not that different" from the LBJ days, said Gillmore, who was part of the team that launched KGSR in 1990. "The pressure has been to put the best product on the air."

Emmis owns two of the biggest hip-hop stations in the country – Power 106 in L.A. and HOT 97 in New York City – and soon after taking over the six stations in Austin it dropped the "contemporary hits" format from KXMG – which had already burned through country and jazz formats in recent years – and rechristened it KDHT-FM, Hot 93.3. The move was a bitch slap to Infinity's KQBT-FM, the Beat, which at the time dominated the so-called "urban" market in Austin. And then in August Emmis dumped Oldies 103.5 and its on-air staff – the only true oldies station in Austin – to make room for "Bob," a catchy new format which promises to play "anything," as long as "anything" was a hit sometime in the last four decades. Oldies are usually a decent moneymaker, but Emmis hopes Bob will appeal to a broader audience. "We feel like it can pull listeners from a lot of different places," Gillmore said.

All of the Big Three are tinkering with their formats, desperately trying to find the right combination of music and target demographic, and there is little patience for underperformers. In October, Clear Channel rechristened its classic rock station, 102.3, as "World Class Rock," promising a new direction that seemed to veer into KGSR's territory, featuring the likes of Norah Jones and Lucinda Williams. But tune in now and the station sounds like a solid classic rocker, with a playlist featuring a safe blend of Doors and Eagles hits. Like Bob, it is still jockless – both stations plan to add live disc jockeys in the next few weeks. "We're tweaking [the format]," Black said of 102.3, "expanding it more, trying to give it room to breathe."

In many ways, this game of format juggling is nothing new, but Austin insiders talk of a new urgency, a new push to maximize revenues in the short term – preferably by the next quarterly call with stock analysts. Historically, Clear Channel stations are charged with growing profit by 15% a year, Black says, a tough gig in a "flat" market.

In this climate, Austin media buyers speak of a new world of radio sales, full of really nice PowerPoint presentations, complicated packages, and nonstop attempts to raise ad rates. "There are a lot more presentations," Arrington said. Buyers say a typical 60-second ad these days may cost about $100 per rating point for a key demographic (that means, for example, a 60-second spot on a station with a three rating in the target demographic would cost $300), although prices typically slide when advertisers buy in bulk.

But it can be tough to negotiate with stations. "They know what the other stations are charging – they own them," Keller said. If an advertiser doesn't want to deal with Clear Channel for country KASE, for example, the primary alternative is country station KVET, which is also owned by Clear Channel – lovingly known within the industry as the "evil empire."

In the past, if a station couldn't get advertisers to agree to price increases, the alternative approach was to simply increase the number of commercials, which is why Clear Channel's new "less-is-more" concept is shaking the industry. It appears to acknowledge that there are so many ads on the air, commercial time is fast approaching the value of a candy bar. "Less is more" is based on the fairly extraordinary idea that Clear Channel stations will be able to generate more income even while cutting the number of spots by as much as 30% on some stations.

So far, Clear Channel's initiative has produced a general smirk from the local advertising community. In addition to reducing the number of ads, Clear Channel wants to drop 60-second spots in favor of 30 seconds, which means advertisers will have to produce extra, shorter ads. And Clear Channel is not simply charging half as much for a 30-second spot as for a 60-second ad; it is looking to simultaneously bump up the price of the 30-second spots.

Not surprisingly, advertisers are underwhelmed. "Our position as an agency has been that we are not going to accept a 100-percent increase in costs," said GSD&M's Arrington. Within the industry, many remain skeptical about how Clear Channel will implement the reductions. If the stations simply cut the number of ads on the midnight-to-2am shift on weak stations, and only slightly cut the number of valuable morning drive-time ads on popular stations, listeners – the theoretical beneficiaries of all this new air time – may not even notice.

If we have compelling product on the air we will be fine. 
<br>

– Scott Gillmore, Emmis Communications
"If we have compelling product on the air we will be fine."
– Scott Gillmore, Emmis Communications (Photo By Todd V. Wolfson)

Clear Channel's Black acknowledged there is "a lot of angst" in the market. But he makes it clear that nothing is set in stone and talks about "incentivizing" advertisers to participate. "This is a negotiated business," he said.

The big question, at this point, is whether or not the other companies will follow suit. "I think we all run too many commercials," Infinity's Hiatt said. But there has been little formal action from Clear Channel's competitors, who are clearly waiting to see what happens with the "less-is-more" plan. "They're talking the talk but they're not walking the walk," Black said.


Spinning the Dial

In August, Infinity did something that not long ago would have been considered insane within the industry – it actually dropped the profitable "Beat" (contemporary R&B) format. Although Hot 93.3 had grabbed a majority share of Austin's Snoop Dogg fans, raising real questions about whether there were enough "urban" people in Austin to support two R&B stations, the Beat was still successful and routinely finished among the area's top-rated stations.

"We were number one in 18-to-34 women and we flipped it," said Infinity's Hiatt, shaking his head, still incredulous. "But there was a motive within the company that made sense." That motive was Infinity's desire to find new outlets for an unhappy Howard Stern, their biggest star. So say good-bye to the Beat and hello to KOYT-FM, the Coyote, an all-comedy station with Stern as the morning show. Even the Austin American-Statesman's staid editorial board seemed shocked that Infinity would leave the town with only one hip-hop station. "While Austin's music scene continues to thrive, local radio stations could do a better job of accommodating it," they wrote. The ironic twist, of course, is that a few weeks later Stern announced he was jumping to satellite radio.

The last year has left the local industry wondering, what's next? "Those that still have their jobs are scared to death they're going to lose their jobs," said one veteran disc jockey. With Stern leaving, some wonder about the long-term prospects for the Coyote, which may be roadkill without him. Earlier this year Clear Channel announced plans to convert 25 of its stations around the country to Spanish-language, fueling speculation that Clear Channel's 102.3, "world class rock," is a likely candidate to turn into "world class Tejano."

Across the dial, stations are making moves that would have been unthinkable a few years ago. Emmis' big-tent approach with the new "Bob" format flies in the face of radio's unspoken rules, which dictate that stations go after carefully defined niches, spiced with catchy slogans like "The best hits of the Seventies and Eighties." "You would have looked like an idiot if you launched Bob five years ago," said Morris of MQ&C Advertising.

Morris, who has been following Austin radio for decades, believes the radio business is entering an era of massive "deconstruction." All the old concepts will be broken down. After years of playing the hits and nothing but the hits, now they will play more variety to appease schizoid iPod geeks. And the mantra of "more music, less talk," a standard catchphrase, will be replaced by a new-found love of personalities. "The old ways aren't going to work any more," Morris said. "Anybody can play 12-in-a-row country favorites."

Unfortunately for radio executives, the need to spice up their acts coincides with a new wave of puritanism, led by an FCC eager to make examples of any sinning stations. The public companies are particularly sensitive to the stigma of scandal, and all on-air personnel have been strictly warned about stepping over the imaginary fairy line created by the FCC's indecency stance. The local Infinity stations had to buy time-delay equipment and hire extra board ops to guard against any scandalous slip of the tongue after sister company CBS was slapped down for allowing Janet Jackson to expose her nipple during the Super Bowl halftime show.

As Stern's defection to satellite radio vividly illustrates, the FCC's crackdown positions commercial radio as the boring church picnic compared to the bacchanalia of satellite and the Internet. Before Stern, the XM satellite service signed "Opie and Anthony," who lost their jobs on New York radio for encouraging a couple to have sex in St. Patrick's Cathedral. By the end of the year, the two main satellite services expect to grow their base to more than 3.5 million subscribers, in part by offering consumers the smut they so clearly crave.

Broadcast radio executives tend to mock the idea of satellite radio. They refer to Sirius and XM as "paid subscription radio." They note that the satellite services are losing hundreds of millions of dollars a year. Last week Sirius' stock slid more than 20% after two analysts expressed skepticism about its valuation. "I'll be retired" by the time satellite has a real impact on commercial radio, Hiatt said. (See "My Satellite Radio Jones," p.35.)

Yet, radio executives seem to know the world has changed. Satellite radio is available in cars, traditionally the exclusive domain of commercial radio, one of the few industries to actually benefit from traffic jams. In the future, broadcast radio may require some "reinventing," Hiatt said. Digital radio, when it arrives some time in the next decade, will help, allowing broadcasters to offer a variety of programming over one frequency. Commercial radio will also provide a community focus the other formats can't match. "That's what will save us – the localism," Hiatt said.

This fall, Hiatt and Infinity attempted a mini-revolution, hoping to change the basic structure of commercial radio. The company refused to sign a new contract with Arbitron, citing the notoriously flawed diary system. It was a showdown over radio's lifeblood, a chance to create real change in the ratings system that shapes every element of the business. The boycott continued for weeks. Local Infinity staffers were forced to sign statements promising not to utter the name Arbitron. Advertising agencies talking to Infinity reps were warned to avoid any mention of the ratings, for fear of breaking Arbitron's confidentiality agreements.

But then, Infinity blinked. The company re-signed with Arbitron. Nothing changed. It was back to business as usual.


That Sucking Sound

As we discuss the future of radio, one local executive tells me about his recent conversation with a new convert to satellite radio. His friend raved that he now spends 90% of his time listening to satellite radio and only 10% to conventional radio. "See," a radio executive standing nearby responded triumphantly. "He still listens to radio."

Radio executives say they get it. "If we have compelling product on the air, we will be fine; if not, we lose," Gillmore said. Yet, despite all the big moves, there is little indication they are really sure how to make radio not suck. The Austin dial is still awash in perky deejays, syndicated shows, and tightly controlled playlists. But they do seem to accept that the days of easy money and three-banana daiquiri lunches are over.

"There is a realization that we have to look at this thing from a new perspective," Gillmore said. "Has radio gotten complacent? Yes. But I think there has been a huge wake-up call." end story

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