U.S. ECONOMY > American Industries > Media and Communications > The Business of Radio Broadcasting
The Business of Radio Broadcasting
By Richard Schroeder
It is only 8:30 on Monday morning, and Mary Kinney already has a busy day planned. Kinney, an American radio advertising executive, is preparing for a morning meeting at the local power company, which is using the radio station Kinney works for to run a promotional advertising display at a home and garden show.
Kinney has worked on the joint promotion for two months, planning prize giveaways and cooking demonstrations (the power company sells natural gas used in home ovens and stoves). In return, it will buy advertisements on her radio station, WMJQ, the largest FM station in the city of Buffalo, on the U.S.-Canadian border in New York State, about 640 kilometers northwest of New York City.
As soon as Kinney is finished at the power company, she will run to a meeting with executives of a Canadian bedding retailer that is about to open its first store in Buffalo, an industrial city in a metropolitan region of 1 million residents. Kinney has only two weeks to arrange a promotion for the grand opening, which will include a day of radio broadcasts from the store. She hopes to land a lucrative advertising contract with the bedding company.
While Kinney prepares for the day's appointments, her station is broadcasting rock music, interspersed with commercials for local furniture, food, and department stores, to some 250,000 listeners. Down the hall, WBEN, the largest AM radio broadcaster in Buffalo and WMJQ's sister station, is giving 200,000 or more listeners their morning ration of local, national, and international news, sports scores, weather forecasts, and reports from its own helicopter on local traffic tie-ups. Every three or four minutes, the station airs an advertisement, usually 60 seconds long, for a local bank, supermarket, car dealership, or insurance company.
The two stations broadcast round-the-clock, 365 days each year. Broadcasts reach listeners throughout the western half of New York State, northern Pennsylvania, and across the border into southern Ontario, Canada. The fuel that keeps the studios operating, maintains the radio towers, pays 50 employees, and provides a profit for the owner is advertising. Without the money paid by advertisers who use radio ads to sell goods and services, the station would not operate for five minutes.
"Ninety-eight percent of our revenue comes from advertising; that's what carries everything," says Larry Levite, president and owner of Algonquin Communications, which operates the two stations.
"We are an unusual type of business in that we have two sets of clients," he adds. "Without the advertisers, you are out of business; without the listeners, you are out of business. So we have to take care of both of them and keep both happy. Sometimes it goes in two different directions: What keeps one set happy does not keep the others happy. Some listeners do not like commercials, but without commercials, I could not provide the other services that listeners want. Without commercials, I could not have a 24-hour news department or contests and games. The advertisers pay for that."
Neither side comes out on top in this equation, Levite says. Because Algonquin's stations compete with other radio outlets, television stations, and newspapers for business from advertisers, it has to show that its stations have large and loyal groups of listeners who tune in and listen to the commercials. That means the stations work hard to provide programming that listeners want and enjoy, Levite says. Although there are no government restrictions on the amount of advertising the stations can carry, they have to present plenty of popular programming in order to keep listeners tuned in.
Intense competition from television, which dominates the attention of most Americans in the evening, has forced commercial radio stations to use specific types of programming and carve out niches that appeal to various groups of listeners. WBEN, for instance, used to air a typical radio mix of popular music, news, and call-in talk shows. But the high-quality sound reproduction of stereo FM stations lured away many AM listeners in the 1970s, says Kevin Keenan, program director for WBEN and WMJQ.
"The audience was going to the FM band because of the quality of the sound," he says. "AM had two choices: We could play music and lose listeners, or do something different and recapture the audience." WBEN, like many other AM stations, jettisoned its music format and switched to specialized programming. "We could have gone all news, all business information, all talk show, or all sports broadcasting," Keenan says. "Instead, our format is a combination of all those elements, with local news updated 24 hours a day. On the weekends, we have niche programming, like a home improvement show, a gardening show, and two different financial programs."
The format appeals to an audience of adults over 35 years old, Levite says. The listeners are those who want to hear national and international issues discussed on two popular syndicated talk shows aired by WBEN and hundreds of other AM stations across the United States, and who want to hear about local news and happenings from WBEN's own radio personalities.
Algonquin's FM station went in the opposite direction, playing light rock music aimed at young women. "Of course we have male listeners, but the music is more personal to a woman," Levite says. "About 65 percent of our audience is female, 35 percent male. It's targeted that way on purpose. It's a music format, entirely different from the AM."
Each station's format draws its own categories of advertisers, and Levite says he can figure out any station's format just by listening to its advertisements. "We try to match the advertisers to the demographics of the station," says Larry Robb, an Algonquin vice president who manages advertising sales for the FM station. The adult listeners attracted to his AM station are at a stage in their lives where they are planning for their children's college educations and for retirement, so they hear many commercials for financial services companies such as banks, insurance agencies, and stock brokerages. Since this audience has enough money to make major purchases, automobile dealers also air their commercials on WBEN. The FM station, however, given its appeal to young adult women who are usually beginning to equip a household and make consumer purchase decisions, carries advertisements for furniture, department, and grocery stores. Although it is a rock station, it avoids the beer and sports commercials aired by other rock stations that appeal to young men, Levite says.
Competition for advertisers is intense. The two stations compete against nearly 30 AM and 30 FM stations in Buffalo and southern Ontario, as well as four Buffalo television stations, four Canadian television stations, and a host of nationally broadcast cable television stations that handle some local advertising through Buffalo's three cable networks. A daily newspaper in Buffalo, several local magazines, and 20 weekly community newspapers also compete for advertising. Because much of the advertising is locally generated -- Levite estimates that 80 percent is local and 20 percent comprises national ads for big consumer companies like Coca-Cola -- the profusion of local advertising outlets makes for often stiff competition.
The radio stations use their inherent cost advantages to compete effectively. "We do not have the production costs that television and newspapers have," Levite says. "To buy a full-page ad in the Buffalo News costs a lot of money." Where a full-page ad in the daily newspaper may cost $7,000, a 60-second spot on WBEN during its prime programming can cost as little as $200. A one-minute ad late at night can cost as little as $10, Levite says. The most expensive advertising slot is the morning commuter drive time, from about 7 a.m. to 9 a.m., when tens of thousands of people drive to work and school while listening to car radios. The second-most expensive time to advertise is late afternoon, when people head home in their cars. Also expensive is advertising during the two nationally syndicated daytime talk shows.
"The cheapest time to advertise would be 3 a.m. for $10 to $20," says Levite. "You would get a smaller audience, but sometimes you get the most bang for your buck at 3 a.m. The people who are listening to WBEN at 3 a.m. are really listening; they are not sitting there doing something else and using the radio for background noise. They are working alone someplace or they are insomniacs, and they are listening for companionship; they want the sound of a human voice."
Besides charging less for a commercial, the two radio stations write and produce ads for free. "We have three full-time people working in our production department, and we produce hundreds of commercials every week at no charge," Levite says. "If someone comes in and says 'I want to spend $5,000 next month to advertise,' we will write the commercial and will voice it and produce it at no charge; that's part of our service, which is pretty standard in the radio business."
An advantage of radio production for local advertisers is that they can sound as professional as nationally produced advertisements, while local television ads, no matter how well-done, cannot compete technically with national television ads that cost hundreds of thousands of dollars to produce and use technical capabilities beyond the capacity of local television production companies.
Advertising rates are determined by ratings -- assessments by independent rating companies of how large a station's audience is at various times of day. "We are one of those terrible businesses that have ratings; it's like a nightmare sometimes," Levite says. "You can be doing the best job in the world and have employees that work real hard, but if those 1,100 or 1,200 people who fill out ratings diaries for some reason are not your friends, you do not have good ratings." Arbitron, an independent rating company, hires radio listeners for 12 weeks at a time to keep diaries of their radio usage and then sells the results to advertisers.
Ratings are usually the top determinant of FM advertising prices, but "on stations like our AM, we tend to push results," Levite says. "When we talk to advertisers, we use lines like, 'If you want ratings, buy these stations. If you want to make money, buy us.' We have what we call 'cash register ratings.' We have clients who know that when they stop advertising with us, customers stop coming in and the telephones stop ringing."
To get results, radio advertisers need to run their commercials frequently. "Nobody buys once a week," Levite says. "On radio, it's 12, 15, 25 times a week. At any given moment, there might be 10,000 people listening, or there might be 55,000 people listening."
Although many of WBEN's and WMJQ's advertisers also buy ads in newspapers and other media, some prefer radio. "Advertisers who deal with a service that you shop for every day, such as supermarkets, like radio," Levite says. "They tend to buy a lot of radio time. Car dealers and companies that offer car products tend to buy radio time. After all, if you are in a car and you are listening to a radio station, what better place to sell a car?"
Some advertisers contact the station to place their ads, but most are found by account executives like Mary Kinney who spend 40 to 50 hours a week calling on potential customers. The six FM station and eight AM station sales executives usually arrive at 8:30 a.m. to set up appointments, return telephone calls from the previous day, and finish paperwork. By 10 a.m., they are out on the road, calling on customers, says Greg Ried, sales manager for WBEN. "They will try to see three to five people a day and spend a half hour to an hour a day getting into the advertiser's business and figuring out how to improve it," he says. "They get back to the station by 4:30 p.m., make appointments for the next day, and put together proposals for potential advertisers. Most of the proposals are written at home."
Many sales executives put in a minimum of 10 hours work a day, along with another hour at home. The work is rewarding: Successful sales executives can make $20,000 in their first year, $30,000 to $40,000 the second year, and $50,000 by the third year, Robb says. The station's top sales executives make $80,000 a year. All of that money comes from commissions of 15 percent on each sale. The stations run bonus competitions once or twice a year: A target for advertising is set, and those who exceed the target get extra compensation. "Each person decides with the sales manager what their goals will be, and if they meet or exceed the goals, they qualify for additional money over the basic commission," Robb explains.
Job candidates do not necessarily have to have prior experience in radio, but they have to know how to sell, says Robb. "It's a different sell because it is an intangible." Robb hires sales executives right out of college, from other sales fields, and from other radio stations.
Success in the business takes special talents, according to Greg Ried. "They have to show they can weather the beating that comes from selling," he says. "It's not the easiest job in the world; even though it can be a great career, it's not for everyone." The advertising executives would have little to do if their stations were not among the most successful in their market. A large part of WBEN's success is due to its popular radio personalities, Keenan says. The station has dominated the AM radio waves in Buffalo for the last decade with a surprisingly small staff of on-air announcers. Led by Bill Lacy, the top announcer in Buffalo in the 5:30 a.m. to 10 a.m. slot, the station gets by with five on-air broadcasters during the week and four on weekends, says Keenan.
Lacy is the linchpin of the weekday broadcasting schedule and is only the third person to work the station's all-important morning shift in its 63-year existence. "Bill Lacy is very important because he grew up here and knows the area so well," Keenan says. "He is a strong personality who really can relate to his audience, and he does as well as any top personality in the country." Lacy's easy-going commentary links the morning's heavy doses of news, sports, traffic, and weather coverage. In a town where radio salaries range from $15,000 to $200,000 a year, Lacy probably is one of Buffalo's highest-paid announcers.
Another important element in WBEN's success is having its own staff of reporters to cover local news, Keenan says. "For us, the most important element is our news, because that is our constant tie with the community. We do local news every 30 minutes. It's an excellent way to keep in touch with our listeners." The station uses seven full-time and four part-time news reporters and editors. The broadcast team is backed up by four full-time and two part-time producers who handle both the local broadcasts and the syndicated talk shows.
The increasing amount of syndicated programming carried by stations like WBEN brings the station full circle from radio's early days, when much of each local station's programming came from national radio networks. Those networks declined when television took hold in the 1950s, and by the late 1960s most radio stations carried only local programming. But the success of nationally syndicated talk shows in the 1970s increased the amount of national programming on WBEN and other stations.
Algonquin's ownership structure is a little unusual for a large urban radio operation because it is owned by the same man who runs it -- Larry Levite. Although it is not uncommon for radio stations in smaller markets to be owned by a single individual, most larger stations are owned by corporate conglomerates that have stations in several markets.
WBEN got its start, as many early AM stations did, as an offshoot of the city's largest daily newspaper, the Buffalo News. Many newspapers started radio and television stations before federal legislation in the 1960s put limits on the numbers of electronic stations that could be dominated by newspaper outlets in the same town. Although the law did not affect prior arrangements, it did have an impact when newspapers were sold, often forcing the divestiture of some broadcasting properties.
In 1978, the family that founded the Buffalo News sold the company to a media investor, forcing the sale of the newspaper's radio and television stations in Buffalo. Levite, who was running the station, found a group of local investors and banks to buy WBEN and WMJQ from the newspaper. Levite has done so well as owner-operator that he was able to buy out his partners a few years ago, and he is now sole owner. He gets to make all the decisions, but says he delegates the programming and creative decisions to talented employees.
The employees who oversee programming, such as Kevin Keenan, rely in turn on their producers and on-air personalities. "Bill Lacy has total control of the content of his program, for instance," Keenan says. "I have been here for eight years and program director for two years, and I have never told him not to say something. Larry (Levite) fosters that spirit of creativity." There is also a hands-off approach when it comes to advertising and programming. "There is a very clear division between advertising and programming," he says.
Levite gets to worry about the overall picture -- revenues, advertising trends, operating costs, obtaining credit from banks. Being an owner-entrepreneur is not easy, he says. "I get to do what I want, but I work harder. I get all the rewards, and I get all the headaches. When you have partners, they can share your problems, but they share your profits too." Although he says he loves running radio stations, Levite has a warning for would-be owners: "Ownership," he says, "should really be called `stress and aggravation.' "
From "An Unfettered Press"
