Howard, Infinity,& The Competition. "Free" Advice

Good Morning!

As a former corporate radio operator, there is much that went into the decisions of the Infinity brass Tuesday. Today's Family Newsletter addresses the issue from a perspective of someone that has been there.

As you know (and reported to you early last week) Joel Hollander has launched an ambitious plan to replace Howard in 27 markets. This will cause an upheaval in radio not seen in decades. Every action has a reaction. There will be a lot of "reacting" out there. What to do? Let's look at it.

The Good News!

INF has made a bold move to replace a legend. Not an easy task. Replacing music formats on these FM stations is a good thing. Talk is a growth format for commercial radio. Walt Sabo has been preaching it for over 10 years. We flipped a few (DAL, DET, SAC, NY) at Infinity over 5 years ago. Many of the "Howard" stations had NO music position after morning drive anyway. After looking at research for years, both as a competitor, and from the inside, it's "Howard Stern in the morning, and I have no idea what's on all day long!"

Commercial radio companies MUST experiment. The same old tired formula won't work anymore. In order to get the attention of the audience, risks must be taken. With it's proprietary programming opportunity and the chance to be a local "voice" in the market, FM Talk is as good an option as any. And I applaud INF for trying.

Music formats, especially in the morning drive are non-performers. There is little revenue opportunities for "songs in a row" 6 to 10am. Example - "Jack-FM" type formats may garner a morning audience, but, will never achieve a large revenue base. The nature of "Jack" stations is LOW COST.

Morning radio can be profitable both ways. A 7th ranked music morning show with no costs can be more profitable than an expensive 3d ranked morning show. The reason for going with a personality? There can be only one or two top ranked music morning shows. Many "personality" shows can generate big revenue, even if lower ranked.

Infinity has spread the risk by putting a mix of personalities on it's stations. THERE WILL BE FAILURES. But if there is one big success, it will be moved to the others quickly. Think of it like a movie company. They release fifty films and have three hits. These three fund the entire yearly releases.

Expect a SEVERE Revenue Drop in all Markets.

Media buyers and clients will take a "wait and see" approach. Virtually ALL of the advertisers we spoke to, will NOT buy the stations "on the come". "There are too many other places to put my money" is the response.

Don't expect any meaningful ratings until the release of the Spring 2006 report. This will be in July of next year. As a result, the first 6 months of the new plan will be horrible vs. 2005. Even if every show is a hit, (not possible) there will be tough comparisons. This will be especially acute in NY, PHL, DC, CHI, DET, LA, SF, & PHO.

By the time the ratings are in the hands of media buyers, it will be September of 2006 before any significant rate for the shows can be established. Do not expect to see a turn until Q1 2007 at the earliest.

INF will try to convert the current HS revenue to the sister stations. Naturally the competition will have other plans. This can be good for commercial radio. When Coke & Pepsi fight, you sell more soda. All this noise can be good for radio if it calls attention to the value of local radio broadcasting.

Interpreting Public Statements - The Spin Stops Here!

Let's examine some of the statements made Tuesday by Joel Hollander.

On a conference call TUESDAY, HOLLANDER called the strategy "the culmination of ten months, a lot of work, a lot of sweat." He noted that the plan involves "a total of 10 different solutions".

How true. And each market will have different competitors to counter these actions. Remember, the audience didn't get the memo on this plan. All they know is HS is gone and "I'm looking for another way to spend my commute time."

Look for extreme competition to "The Plan" in PHL, DET, CHI, LA, PHO, DAL, & SD. The competition for mornings will be intense. All the above markets have established morning shows that will reap the benefit of change. In examining the HS departures from the CCU & CDL stations last year, NONE have recovered to the previous ratings level before the HS departure.

"It's not gonna happen overnight, it's going to be a 12 to 24 month period before you see what the shakeout's going to be."

Well, yes & no. 24 months is too long. July 2006 will be the first sign, by January 2007, there will be enough research and ratings info to declare winners & losers.

About ROVER's addition in several markets, HOLLANDER said that "we want to get a little bit younger on some of our stations." "He's definitely less edgy than HOWARD," HOLLANDER said of ROVER.

Advertisers are VERY skittish of anything deemed to be offensive. This billboard is from the www.roverradio.com website.

It's very easy to get on the "Do not buy" list at the agencies. The board above won't help.

On the possible revenue hit the company will take from STERN's departure, HOLLANDER said "we view it as an opportunity... the bigger opportunity for INFINITY is to fish in a bigger pond of advertisers we were not able to secure for the HOWARD STERN show," citing several advertisers that would not appear in STERN's show that the company can now go after.

They can try. BUT THE COMPETITION WILL POSITION the new shows "The same as Howard" on the offensive content issue. It can be overcome, but only with HUGE numbers!

Speaking of the Competition!

For the first time in 20 years there is a large audience & revenue opportunity.

Don't expect CCU to sit on their hands. I believe they will announce their own FM-Talk network over the next few weeks. It will feature Mancow (TRN) and a full slate of CCU personalities. Others will follow too! There will be break out shows NOT associated with Infinity. "The Frank Show" (a FigMedia1 client) will be one of them!

The SAT radio companies will come with their own plan. Sirius and XM will battle for the share of the displaced HS audience too! "Give Howard for the Holidays" will be a battle cry heard from the isles of the Sirius retailers.

So - The Bottom Line Is?

Forget about "less is more". That will be off the page with these FM talkers. (CCU/INF & others). LIM comparisons will not apply here.

Much of the success or failure will also be determined by the BRANDING of these new stations. They will use the outdoor/transit company for trade to promote the new formats. in addition, they will draw from the internet/blog/podcast/broadband/new media universe to spread the word. They will also get press, lots of press!

Execution of a sales program will be critical to the success of the INF effort. It may NOT happen in 2006. Sales departments have endured commission cuts, poor communication, and across the street recruiting. EXPECT THE AUR (average unit rate) TO SUFFER SIGNIFICANT DECLINES at EVERY INF station undergoing change.

This will cause some if Infinity's best and brightest to follow the money. Keeping a good salesperson is hard if they can't earn the commissions they are used to. INF managers will have their hands full keeping their big billers away from competitors.

The question is, how far will the INF revenue market share decline? At the HS stations, as much as 70% of the annual revenue is attributed to HS. The MK (Miller/Kaplan) report for the first half of 2006 will show significant declines in market share. IN NY, CHI, & LA, the comps will look bad. In addition to HS, there is a year over year loss of WCBS-FM, (NY) WJMK (CHI), & KCBS-FM (LA) to contend with.

IMPORTANT - Starting 1/1/06 any Miller Kaplan revenue market comparison with 2005 must exclude the format changed INF stations. They will pull the entire market down.

Assuming CCU and others will respond with an FM-Talk strategy of their own, expect a significant decline in National advertising for the top 10 markets. National advertisers do not like uncertainty. It will be a year before the dust settles here.

INF collected significant fees from the HS syndication. Gone!

INF will make major expense cuts to offset the revenue loss. Expect a significant reduction at every level. With the exception of a few "Jack" type stations, there will be little outside marketing for the "other" INF stations.

CCU & INF will continue to migrate the decision making from local to national. As New York & San Antonio execute, the local management will be less involved in programming, but MORE involved in sales. (see my concern below)

Large radio companies will continue to reduce expenses. They will accelerate the rate of cost reduction to offset the revenue loss. Revenue producing shows will get the money. Everyone and everything else will be chopped.

My concern, if 80% of the revenues in a local radio cluster are local and 80% of the operational decisions are national, there may be accountability problems. It's a "spread the blame" game. Local managers blame corporate for a failed plan NOT created by them, corporate blames local for a unacceptable effort to their plan. "We gave them the support, they didn't get it done!" The buck stops....uh...there! Not here!

It's Game On!

Expect INF, CCU and other independent companies to wage a HUGE WAR for ratings & revenue. This is it! The Super Bowl of radio revenue is now in the first quarter.

The next 12 months in the world of commercial radio will be wild!

There will be more format changes in the next year than in the last five!

Talk-FM's, Spanish, Jack ,(Bob) plus HERE COMES CHRISTMAS!

In NY alone it has already been announced. WXRK, (Talk) WLTW (Xmas) WNEW (Xmas). All will cause a cume migration. Positive & negative.

How can you benefit from it?

If you are a Manager across the street from Infinity.

- Have your best sales effort ready to go. There is a lot of revenue to collect. if not now, when?

- Market your best personality and brand. There will be a lot of cume trolling for a replacement. If your station(s) are in the Howard target, Get your share!

- Don't assume they will just "'find" you. Go get them!

- Upgrade your sales department if you can. (From uh, guess who?)

- Don't assume Infinity will fail. They won't everywhere. There will be hits, and misses. Never underestimate a competitor.

If you are an Infinity Manager.

- Make sure your best people are happy. Not an easy task given all the changes. Don't lose any you don't want to lose.

- Remain calm. There is going to be a lot of armchair quarterbacks out there! (including me!)

- Assume the competition and the press will throw crap at you. (real or not) Prepare to defend. No matter how you personally feel, you must now put on your "game" face. The decisions are made, make it work as best you can! that's what they are paying you for!

- Prepare a "Plan B".

Everyone Else

There's a lot going on out there. Bottom line? This is all about content. If you have it, and it's good, the audience will find it. The revenue will follow the audience. Your sales department will follow the revenue, and you will pay the bills and give the rest to the company.

Hopefully they will give a little back to you for your efforts.

As always, I appreciate your response good or bad. Individual issues, questions, & observations? fig@figmedia1.com

Fig