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Can black radio survive an industry shakeout?

Declining ad dollars and new FCC policies are just two challenges beleaguered stations face now.

Karen Slade had never been in a war zone before, but on April 29, 1992, that's exactly where she found herself. Shortly after her radio news crew did a live broadcast of the acquittals of four police officers in the beating of motorist Rodney G. King, the South Central community's fury over the verdict came crashing down around KJLH-FM's Crenshaw Blvd. station in the heart of Los Angeles.

Slade, the 3000-watt station's vice president and general manager, sent her support staff home and hunkered down with her top disc jockeys. KJLH's phone lines, flooded with irate listeners, were patched straight onto the airwaves.

For the next three days, as sirens and gunshots sounded in the distance, the station dropped its R&B/pop format and played no music at all. Slade and her on-air talent served as a neutral zone, allowing the community to vent its frustrations while tempering raw anger with pleas for calm. The station also conducted food and clothing drives for riot victims and provided on-air counseling to help parents explain the violence to their children. During one of the nation's worst acts of civil unrest in our history, KJLH proved itself a vital link to its listeners.

"That was our opportunity to be the voice of the community, and we were," Slade says proudly. "We did not shy away or run to music."

KJLH's role during the 1992 Los Angeles riots illustrates how black communities have come to rely on their radio stations. No matter what the format, black radio has been the community's cultural lifeline for a long time. Remember James Brown? What other stations played "I'm Black and I'm Proud" often enough to get the whole neighborhood screaming? Then there was rap, which critics called just a fad. Black radio and its listeners embraced it, though, pumping it up to the top of the charts. Then, of course, there's that delicious black gossip. (Who was it that said Michael and LaToya were really one person?)

On the more serious side, it was stations like KJLH that took Jesse Jackson for real during his bid for the White House. From talk to gospel to plugs for dollar-a-plate church dinners, black radio has done more than entertain us--it's been the only place on the dial we could call our own.

But as the nation slowly recovers from recession, there are signs that small, independent black-owned stations like KJLH are seriously endangered.

Industrywide troubles began surfacing in 1991: For the first time in 30 years, radio advertising revenues dropped, falling 2%, from $8.8 billion in 1990 to $8.6 billion in 1991. Moreover, 58.6% of the industry's 9,692 radio stations lost money that same year, according to a survey by the Washington, D.C.-based National Association of Broadcasters.

"All the debt from the free-spending 1980s came home to roost in 1991," notes J.T. Anderton, editor of Radio Business Report, a Washington, D.C.-based trade journal. "There was a tremendous level of bankruptcies that year, and 10% to 20% of the remaining stations are still in trouble."

And although revenues bounced back up to $8.8 billion in 1992, the industry--especially the black segment--kept bleeding. "Last year was a bad year for radio, but it was a terrible year for black radio," says Joann Clark Anderson, director of minority telecommunications development programs for the National Telecommunications & Information Administration (NTIA). Black ownership of FM radio stations saw perhaps its biggest falloff ever, from 71 in 1991 to 64 in 1992. Although the number of black AM station owners ticked up slightly last year (from 109 up to 111), black radio still suffers from static in the industry. More and more radio executives like Slade are asking, "Can we survive?"

Troubles in the black radio business run long and deep. Like other black media, radio stations suffer financially from their inability to sell advertisers on the viability of the black consumer market. But even in markets where they have cracked the ad barrier, black stations face another problem: deep-pocketed white stations who play black music formats, creating even greater competition for ads aimed at blacks. Worse, black stations say they've been locked out of capital for acquisitions and expansion--precisely the tools they need to compete and survive under the industry's new, hotly competitive rules.

The Government Impact

To industry veterans, these woes may seem like deja-vu. In the 1960s and early 1970s, the lack of black-themed programming spurred the Federal Communications Commission (FCC) to enact policies that would increase the number of black-owned properties. This was in large part due to pressure on the regulatory agency by the National Association of Black-Owned Broadcasters (NABOB). Under President Carter, the FCC put in place incentives and rules to encourage minority ownership, says NABOB executive director and general counsel James Winston. Over the short term, these policies worked, expanding black radio ownership by 366%--from 30 stations in 1976 to 140 stations in 1980. The message? "You can have rapid industry growth if the government is committed to assisting the effort," Winston says.

However, during the past 12 years of Republican rule, the growth of black radio ownership stalled. The number of stations increased by just 25%, from 140 to 182. "During Reagan/Bush, there was a deliberate move to deregulate the airwaves, which retarded the rules [from 1978]," says Pierre Sutton, who is NABOB chairman and CEO of Inner-City Broadcasting, a 1993 BE INDUSTRIAL/SERVICE 100 company.

Enter the FCC--again. To help the industry rebound, the FCC last fall approved a strategy for "consolidation." The three-pronged approach centers around "duopoly," which allows one company to own up to two AM and two FM stations in the same market. Another key peg is the newly sanctioned LMAs (local market agreements), which encourage stations to forge partnerships. Their appeal seems clear enough: Under duopoly, four stations owned by one company could woo advertisers with a bigger share of the market and with deeply discounted ads. Under an LMA, two independent stations could save costs by combining their sales forces or having one general manager oversee more than one station.

The FCC has pitched the new rules as a win-win proposition, betting that consolidation will help the industry recoup the chunk of ad dollars it is losing to the cable and TV markets. But FCC Commissioner Andrew C. Barrett--the only black among five commissioners--has strongly opposed the rules change. The lone dissenter, he argues that "Consolidation hurts black station owners because it can be used to establish regional pockets of concentration.... These regional networks could be very attractive to advertisers, having a negative impact on black radio stations." Consolidation, he says, makes small independent black-owned stations a harder sell to advertisers.

Take KJLH, for example. Despite its strong identity as Los Angeles' black community station, its weak FM signal limits its area coverage to just 2% of audience share. If duopolies catch on in Slade's market with the resulting stations using black formats, they stand to offer advertisers an irresistible package: cheap ads and a new crop of black listeners. This could slice into KJLH's revenue base.

Says Slade: "If the big boys can own two or more FM outlets in the same market, they can corner a [black] format and put local properties out of business." Once that happens, she and others argue, the fallout will be painful. Untested black artists won't have an outlet, black listeners won't have a voice and majority stations can hoard profits without any incentive to serve the minority community.

Problems Go Beyond Government

The prospect of stiffer competition for advertising revenue disturbs many blacks in the industry. Henry Rock, an account executive for the Interep Radio Store, which sells ad time for 110 black-formatted radio stations across the country, says black-owned stations rarely receive the ad revenue they deserve. "The value of a typical black station's audience is discounted by 30% compared to what a general market station might get," says Rock. His station largely shunned by advertisers, Don Rosette, vice president and general manager of WMVP-AM in Milwaukee, says that WMVP, which ranks 17th in its market, often has better luck getting advertisers to sponsor newscasts and public affairs programs than he has getting them to place commercial spots.

Pluria Marshall, chairman of the National Black Media Coalition in Washington, D.C., says advertisers overlook black stations because, "many feel that they do not have to use black-owned media to reach black people. Advertisers figure blacks like what whites like and they can reach blacks through general media outlets."

Advertisers say their decisions are based on demographics, period. Says Larry Stoddard, director of media research at the New York-based Advertising Research Foundation: "For the big national [advertisers] the audience delivery numbers are the main criteria for ad placement, no matter who owns the station," he says.

In addition, "Advertisers want a mature audience because older audiences spend money," says Radio Business Report's Anderton. That, of course, eliminates many black stations which aim their music at black youth. "Black stations that have moved to Adult Contemporary are doing well," he says," but stations using Rap or Top 40 formats are having a harder time."

Pierre Sutton, for one, understands how a station's format can affect its bottom line. Although his WBLS-FM added an all-rap music segment on Friday nights in the 1980s, it expanded its "oldies and classics" music segments on weekends to keep its demographics where advertisers wanted. The result: The station climbed from fifth to third in the New York City market with a 4.4% audience share. Another Inner-City station, in San Antonio, tried a similar tack. KSAQ-FM changed its call letters and switched its format to improve its ratings and revenues.

Improvising formats is just part of the radio industry's new competitive environment. "With 'crossover' music and many black artists achieving 'pop' popularity, black music is no longer an exclusive entity for black-owned stations," says KJLH's Slade. In fact, some of the top stations in the nation's largest markets--such as WRKS-FM in New York and WGCI-FM in Chicago--play black music formats, but are white-owned. "Money that should be meant to reach the black community winds up going to a nonblack entity," Slade laments.

Playing By The New Rules

Cathy Hughes, chairperson of Radio One Inc., has adopted a play or pay attitude to the new rules. She opposes the rule changes because she believes duopoly will force many blacks out of the industry. Yet, she also realizes that survival may mean embracing the concept of LMAs. "It is fiscally wise for us to do [LMAs] whether there is a need to or not. The best time to strengthen yourself is when you're already strong," Hughes asserts.

Hughes' son, Alfred C. Liggins, president and general manager of Radio One, has gone one step further. In April, he purchased WERQ-AM/FM in Baltimore for $9 million, forming the first black-owned duopoly in the nation. The March 22 edition of Radio Business Report disclosed that 170 duopoly deals had been announced or filed with the FCC since last September.

With WERQ-AM/FM and its other Baltimore stations, WWIN-AM/FM, Radio One will control 10% of the market. "Market share is the name of the game," says Liggins. "We're in this business to compete with the big boys, so we've got to be just as aggressive as they are."

Cathy Hughes, who also owns WOL-AM and WMMJ-FM in Washington, D.C., has discussed developing LMAs with other black owners in her market. She hasn't forged any agreements because of what she says is a "wait-and-see" attitude about the rules. "I don't think the reality of what's coming has set in yet," she says. Two pending acquisitions that would create white-owned duopolies in the Washington, D.C., market may force some owners to face reality.

Black radio station owners should learn from Hughes' willingness to incorporate the beneficial parts of the new rule changes into the way they manage their stations. Those adjustments could help improve their financial positions enough to gain financing for additional stations. "If you're going to be serious about radio, there's no way that you can own only one station anymore," says Marshall. "We've got to purchase better stations, and we've got to manage them better."

But with a sluggish economy and the radio industry showing losses, banks have rejected loan applications from both black and white radio station owners because they consider the risks too great. Though they can cite no tangible evidence, black station owners charge that banks are simply tightfisted when it comes to blacks.

"Banks foreclose on black station owners' loans quicker and they force blacks to sell their stations quicker than others," says Skip Finley, president and general manager of WKYS-FM, Washington, D.C. Finley's station thrives on Washington, D.C.'s huge black listening audience and ranks third in the market with an overall 5.2% share. Even with his success, he says the costs of expansion are way beyond his reach: Purchasing a station in rural America could cost from $100,000 to $1 million. In major markets, the price tag can run a hefty $80 million.

To assist black radio station owners in what may become an acquisition market, new sources of funding for minority broadcasters, such as John E. Oxendine's Broadcast Capital Inc. (202-429-5393), must be developed. The NTIA has been studying community-based models and financial strategies for telecommunications capital development and investment. At press time, the study, TELECAP, was not complete.

Beating The Odds

Even with all the problems, some black owners have succeeded. Owners like Finley, who operate stations in major markets, where advertising revenue is still plentiful, continue to make profits. Two owners, Ragan Henry and Bishop L.E. Willis, have taken full advantage of the radio ownership rules, each holding 15 radio properties. At least seven other blacks own more than one station. This small group is expected to benefit most from the new rules.

And although it is widely believed that the rules will hurt small market stations, some owners have used them to their advantage. Abe Thompson, co-owner of WUVU-FM in South Bend, Ind., has already fashioned an unlikely partnership--an LMA with a white-owned station in his market. The stations have combined their sales forces, and Thompson says he has cut his expenses, helping his troubled station survive. "It's too early to say whether the new rules are an angel or a devil for black radio, but in my case it's been helpful," Thompson says.

NABOB's Winston points out that President Bill Clinton will appoint a new FCC head and one additional commissioner this year. At press time, Antoinette Cook was rumored to be the top choice for appointment as FCC chairperson, which would make her the first black and the first woman to head the commission. Such appointments could lead to more significant shifts in industry policy, some that may even help minorities. "We will be working with the Administration and the FCC to reverse the rules," Winston says.

But reversing the rules will take some doing. It is unclear whether black station owners have the resolve and solidarity to effectively push for industry changes that will benefit them. As Commissioner Barrett grumbled while the rule changes were pending, "There was only one of me, and nobody was listening."

Winston says NABOB did actively lobby against the new rules; however, criticism that his organization is not doing enough is surfacing. Winston declined to say how many black owners are dues-paying members of NABOB, and industry insiders say there are rumors that some owners are considering starting a new organization. The new group would aggressively court advertisers to use black media to reach black audiences and develop new ways to increase minority broadcast ownership. Maintaining a united front will be crucial to winning any policy changes to benefit blacks. Marshall, for one, is not optimistic. "Over the next five years, we could lose 80 stations," he says. For black radio's sake, he better not be right.
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Title Annotation:includes related article on a training program for minority radio broadcasters
Author:Scott, Matthew S.
Publication:Black Enterprise
Date:Jun 1, 1993
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