Radio and records: the Lost Worlds, Part one

Specifically, terrestrial and Internet radio and what we still refer to as the record labels.

Don’t they remind you of two dinosaurs locked in a deadly battle?  One problem. 

Like the dinosaurs, the equivalent of a large meteorite is about to strike earth resulting in instant extinction for both. 

It doesn’t have to be that way. 

Let’s start with the major labels.     They’ve been consolidated down to four companies – Sony, EMI, Universal, and Warner.  

The labels used to be a business made up of trained ears and crafty minds.   After consolidation, the ears and minds were fired, or bought out and replaced by automatons. 

instead of attracting people who were born to be in the business,it’s now run by  deaf beancounters or know-nothing trustafarian music business wannabees like Heirhead Edgar Bronfman, Jr., who buy their way into the business. 

You can spot them a mile away.  They resemble fermented rock stars.

They don’t even drop names anymore.  They want to be the name. 

Since consolidation, the labels would rather have one act selling ten million copies of an album than ten acts selling a million each. 

Artist development is a myth in this quarter-to-quarter world.    Don’t confuse the labels with the fact that overnight sensations that sell ten-million copies of an album vanish just as rapidly.

The labels cozied up to Best Buy and WalMart.  Not long after, many independent record stores found the big boxes selling albums for less than they could buy them at wholesale. 

And they were still expensive.  Half the stores’ DVD selections were priced lower than the average CD. 

How long did it take for the big boxes to fall behind in paying their bills…90 days, 120 days and longer? 

About the time it took to put the record stores, like Tower and independent stores under.

The labels had to keep the big box stores in business and continue stocking them because they were the only go-to retail outlets left. 

Around the same time, the labels and radio concocted legal payola with the sole purpose of controlling new music radio playlists, which, they believed would convert to sales.  It didn’t because the music they were paid to play was not what their listeners expected to hear. 

Consumers stopped buying CDs at retail, and peer-to-peer file sharing, which the labels ignored because they insisted on inventing their own failed technology, became the new ground zero hearing and procuring new music. 

Being consumer-controlled, illegal downloading supplanted radio as a source for new music. And right behind and coming up fast is Internet radio.

The way consumers listen to, use, and perceive owning music is changing and evolving rapidly.  

Not just new generations – but all generations are accustomed to getting certain services free and on demand (search engines, audio, video, and print), and in real time (news, weather, sports and traffic). Those that refused to accept change – like the labels and the movie industry, it doesn’t really matter.   They’ll continue to play a game of catch-up they will never win. 

Believe it.  The labels and film industry spent millions to target, search, destroy, then legitimize Napster.  That gave rise to the next generation p2p’s Kazaa, Grokster, and Morpheus. By the time the labels and film spent more multi-millions to secure a favorable decision from the Supremes to silence them, Bit Torrent technology came into play. 

Just last week, the owners of the leading Bit Torrent site, Pirate Bay, which is based in Sweden, were found guilty by a court there for promoting copyright infringement of others – though they haven’t shut the actual site down yet. 

And those scurvy pirates may still end up victorious after all.   It was revealed last Friday the judge who fined the Pirate Bay owners – better known as the PB4 - Fredrik Neij, Gottfrid Svartholm Warg, Peter Sunde, and Carl Lundstrom (no, I can’t pronounce their names and neither can you

)$3.6 million and sentenced them to four years in  the hoosegow is a member of the Swedish Copyright Association and sits on the board of the Swedish Association for the Protection of Industrial Property.   Attorneys for the PB4 are appealing the decision. 

No matter what the outcome may be, you already know the rest of the story. Someone’s invented the sequel to Bit Torrent delivery and we’ll be hearing about it any moment now. By the time labels and film shut that down, they’ll be another and another.

Take it one step further.  Where does social networking end and file sharing begin?  Aren’t they becoming one and the same? 

Most importantly, we have evolved into a society where the consumer is in control?

Where does terrestrial and Internet radio fit into this mess? 

Smack-dab in the center of it.  Stay tuned.

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After completing this piece, I received news that Bain Capital and Thomas H. Lee ordered its Grim Reapers to initiate thinning the already skeleton-crew herd at Clear Channel.  The first victims fell yesterday - mostly afternoon drive talk sidekicks and producers.  It’s likely that morning show support staffs, off-air PDs, air talent, and smaller market engineers will be notified this morning that they won’t be partaking in John Hogan’s new localism policies. 

Those terminated today are still eligible for the severance deal as promised in Clear Channel’s privatization deal with the SEC from May 21 2007.   It reads, in part, that anyone who is “…actively employed at the time the merger is completed, and involuntary terminated without cause during the following one-year period is eligible for the benefits..” For the record, they are “Less than 6 months - 1 month of Base pay; At least 6 months but less than one year - 3 months of Base pay; One to less than three years - 6 months of Base pay, and Three years or more -- 9 months of Base pay.

“Base pay’ means, in the case of a full time employee, the employee’s applicable base benefit rate in effect at the time of termination or, in the case of a part time employee, the employee’s average base wages over the immediately preceding twelve week period.”

As I've mentioned before this also means that any Clear Channel employee surviving today’s purge gets fired on or after July 30, 2009, “nobody’ll owe you nothin’.” 

Radio: The NAB - if it wasn't for bad luck....

Poor David “Fumbles” Rehr and his battered and bewildered National Association of Broadcasters (NAB).

It was bad enough when CNBC ran a brief piece titled Clear Channel or Static Interference on CNBC’s Street Signs where host Erin Burnett asked a direct question – “Is the Clear Channel deal going blow up or not?” to the usually unflappable Thomas H. Lee co-President Scott Sperling, whose reply channeled Porky Pig on a b-b-b-bad day.

It wasn’t exactly the positive spin the radio industry was counting on from Clear Channel as a lead-in to the NAB show.

Sperling’s appearance was to also serve as a morale boost for the beleaguered Clear Channel market managers who were summoned to San Antonio for their latest herd thinning orders.

It only got worse when CC radio head John Hogan released the most unconvincing, conniving press release, which all other disingenuous press releases will be measured against for the foreseeable future. It declared that Clear Channel born again of fresh new initiatives that would show its commitment to the wants and needs of their cities of license.

Hogan even sent a rewrite of this terribly-written press release in letter form to Rep. Henry Waxman (D-CA), the Chairman of the Energy and Commerce Committee, which you can read here. 

It did nothing other than humiliate the entire radio industry.  When the company with the most number of stations commits a faux pas of that scale, what message does it send to everyone from the ad community to the government on the way it conducts business?

Can you imagine a conversation between Hogan and Fumbles?

Fumbles:  Oh, you speak bullshit too!  Hogan: It's like a second language to me.

Tribune Chairman and CEO Sam Zell conveyed more discomfiture when he told Bloomberg TV that his leveraged $8.2 billion deal to buy that company, including its radio and TV assets, was “a mistake.” His quote, “If you bought something and it'snow worth a great deal less, you made a mistake and I'm more than willing to say I made a  mistake.”  He could’ve been speaking of the “buy now, figure out what to do with them later” business plan the radio industry followed post-deregulation.

At least Zell sidekick Randy Michaels’ reputation as king of all tosspots is secure.  He’s now done to newspapers what he already did to radio and TV.

Want more?  There’s plenty.  The Scranton Standard-Speaker reported last Friday that Citadel’s WARM-AM, licensed to that city, had gone silent two days earlier – and its corporate Chief Operating Officer Judy Ellis, knew nothing about it.  Quoteth Ms. Ellis, “You would have to call those at the station in Scranton.”

They did – but itsgeneral manager Bill Palmeri didn’t respond to calls and e-mails to his office on Wednesday and Thursday.

Citadel – where accountability is optional, at best.

The Standard-Speaker also contacted the FCC.  ““They have 10 days to (officially) notify us that they’ve gone silent and, after 30 days, they would need our authorization,” said FCC spokesman David Fiske. “They’ve got to come to us with facts and they have not said that they’re going out of business.” 

A notice on WARM’s web site stated that the station was off the air for “unexpected transmitter maintenance” but the web site was temporarily removed following the Standard-Speaker story. 

The paper deserves credit for finding the one person in Scranton who knew what Citadel didn’t about its own radio station. Meet the Saturday host of a barter show, Polka Weekend, Sam Liguori.    Sayeth he, “Unless someone with a lot of money buys the license, WARM will say dark.” 

On Friday evening, Scranton’s WNEP-TV reported that WARM had shut down “a few weeks ago” and that employees at the station were told, “it was too expensive to repair the transmitter.”   If that’s the case, Citadel is negligent in its reporting to the FCC. 

Before its transmitter died, WARM was carrying the Citadel-syndicated True Oldies format in hours it didn’t barter out. 

Like Clear Channel, Citadel feels beholden to no one but itself; least of all its listeners, its clients, and the FCC. It parcels out information on a "need to know" basis.  Unless you’re Farid or Judy, you don't need to know – and even they didn’t know that one of their Scranton stations went dark.

When the FCC was F-Troop under Kid Michael Powell and Boy Kevin you could get away with anything.   But it’s a different FCC now.  The days of ‘if you see a chance – take it’ are over and perhaps Citadel, as we know it, will be, too.

It’s been said that the omens are plentiful at this spring’s Vegas bash.

Concomitant with the NAB convention opening, came news of a filing Clear Channel Communications parent CC Media Holdings Inc. made with the SEC, which revealed its whopping 23 percent loss in revenue during Q1 2009 compared to the same quarter last year - from $1.56 billion to $1.21billion.

Clear Channel did make one top ten list.  It joins Univision, Rite Aid, Six Flags, Beazer Homes USA, Harrah’s Entertainment, MGM Mirage, United Airlines, Ford and GM as one of the ten most bankruptcy-endangered companies in the U.S., according to MSN Money.

While we’re at it, how about the report that many chains are shutting down their HD Radio stations to cut the additional $3,000 to $5,000 they add to an annual electric bill?  Just think.  If the HD Radio Alliance got their way and the HD stations went full power, that annual bill would jump to around the $30,000 to $50,000 range.  Of course, that doesn’t include the extras HD Radio is siphoning off the bottom line like license fees, maintenance, and those darned overheating problems.

It seems like the only trade reporting on good vibes at the NAB convo is the same one that commended John Hogan’s new initiatives – Inside Radio.   Yes the Clear Channel owned and operated Inside Radio.  It’s to the radio industry and the NAB what Pravda was the old Soviet Union.

I’d be remiss if I left out U2’s Bono and his poorly timed (for the NAB) comments

 on the proposed performance fee royalties for terrestrial radio stations with music formats.

Just a few weeks ago, Fumbles was falling all over himself with praise to Bono for thanking radio for helping U2 achieve superstar status.  

Yesterday, Fumbles went bipolar.  Turns out Bono’s in favor of the performance royalty fee for terrestrial radio. Read his statement here.

Now, let me tell you about Bono.  He’s probably the smartest and most fiscally responsible rock star since David Bowie.

Bono also has a pretty good memory and can recall when the band released “Beautiful Day” in the fall of 2000 from their forthcoming album All That You Can’t Leave Behind. He was told that radio in America had changed – and the band would now have to pay to receive airplay on pop and rock stations.  And since U2 had a long lag time between albums – it would cost the band at least double the going rate to get "re-established at radio."

Bono – and every other artist looking for radio airplay - learned that a couple of years after deregulation, Sam Zell’s drinking and strip joint buddy, Randy Michaels, who had maneuvered himself as CEO of Clear Channel’s radio division, came up with the radio equivalent of clean coal – legal payola.

When Clear Channel marketed its new pay-for-play rate card – the other radio chains fell in line like the penguins they are.   The radio industry pitched legal payola as an example of that non-traditional revenue stream that Wall Street was becoming skeptical about.

U2 paid the freight, got airplay, and a hit single and album that followed.  But Bono never forgot that he had to pay for something he used to get for free – and knowing that payment was deducted from directly from the band’s royalties bothered him even more. Things like that don’t sit well with an artist who probably still has his First Communion money hidden in his shoe.  

He’s not getting mad.  He’s just getting even.

If a frog is dumped in boiling water, it leaps out and lives to see another day.  If it’s dumped in cold water, which is heated slowly enough, it gets used to heat and is boiled alive.

Dead boiled frogs.  That’s what the radio industry has become; so immune to the crises facing it that its participants don’t even notice they’re drowning in it.

David “Fumbles” Rehr, this is the industry that you represent and it’s your show.  

Enjoy.

You may resemble Buster Poindexter but you always remind us of Dr. Kevorkian.