In addition, there is some question whether the economy as a whole is entering a recession—and whether the radio industry will be impacted should a recession occur. The radio industry has, in the past, seemed almost immune to economic slowdowns in the economy. And, it appears that radio has been untouched compared to other media. “Over the last five years, overall advertising on radio has grown faster than sales for TV, daily newspapers, outdoor, and the Yellow Pages (a traditional benchmark)” (Taylor 11/21/98 ¶5).
However, the concern lingers that the increasing spot load (making the time between music sets longer) will result in fewer listeners. Professionals in the radio industry attended the National Association of Broadcasters Radio Show in October 1998. “Despite repeated predictions of a coming recession and concerns about radio’s post-consolidation spot load [...] panelists representing the current ownership were surprisingly upbeat, rarely suggesting that any radical change in the landscape was about to take place” (Ross, Taylor, Silberman, Schiffman, 10/31/98, ¶2).
The radio industry rarely provides the opportunity that this particular divestiture by Clear Channel is providing to Radio One, since “Urban stations, particularly those in the top 50 markets, rarely become available” (Ruback and Fischer, 2000, p.5). Therefore, this is an opportunity that Radio One cannot let pass it by. "For example, with the number of stations that must be divested, the merger offers the opportunity for smaller radio chains to get into markets they've been traditionally screened out of," (Taylor, Garrity, Saxe, Gait and Newman, 10/16/99, ¶7).
However, complicating the decision of whether or not to invest in Clear Channel’s assets is the fact that Radio One is currently in the process of purchasing nine other radio stations, i.e., one station in Charlotte, NC; five stations in Augusta, GA; and three stations in Indianapolis, IN (Ruback and Fischer, 2000, p. 5). And, each acquisition requires not only a capital investment but management time and attention. Each new acquisition comes with its current format, employees, and corporate culture, and if employees of the acquired stations are to remain on staff, there may be issues.
However, internally, Radio One is very strong. The board of directors is headed by the company’s founder, Catherine L. Hughes, who has considerable radio experience. The president and CEO of the company, Alfred Liggins, is the son of Catherine Hughes and also has considerable radio and business experience. In addition, the company’s CFO has extensive experience not only in the radio industry, but has worked as an investment advisor. Therefore, the management of Radio One, Inc. is experienced and knowledgeable in their industry.
In addition, management has made some solid business decisions in the past both regard to format and to expansion into new geographic areas. “By the end of 1996, WKYS had achieved a No. 2 ranking in Washington, and one of the acquired Baltimore stations, WERQ-FM, had become the No. 1 station in its market” (Ruback and Fischer, 2000, p. 2). Radio One has “pursued a clustering strategy within each market by acquiring two or more stations that target different demographic segments within the African-American population” (p. 2).
Radio One, Inc. is also financially sound as a result of strong management. “Liggins and Royster worked together to cut costs and create efficiencies. Radio One centralized certain functions, including finance, accounting, legal, human resource management, information systems, and overall program management” (p. 2). Radio One, Inc.’s current ratio and quick ratio for 1997 and 1998 were 5.3 and 3.5, and 5.2 and 3.3, respectively. In addition, Radio One, Inc.’s asset utilization was .41 and .30 for 1997 and 1998. Though Radio One, Inc. suffered losses at the end of 1997 and 1998 which resulted in negative earnings per share, -.74 and -.31 in 1997 and 1998, the company had a positive net operating income prior to interest, taxes, and extraordinary items in both years.
Finally, the outcome of the SWOT analysis follows:
The strengths of the organization consist of the strong management team, including the industry-experienced board of directors, a solid financial history, and a successful expansion strategy. In addition, Radio One, Inc. has just completed its initial public offering, which has provided additional capital.
What may be considered a weakness of Radio One, Inc. is that it has been successful conducting business in the traditional manner, i.e., going in and purchasing “distressed radio assets [...] at below-market prices” (p. 1) and making the changes necessary to achieve profitability. Therefore, there has been some reluctance to look forward and anticipate how the new technology provided by the internet and satellite radio might impact traditional broadcasters and also to consider the newer media as the company seeks to grow and expand. At the 1999 NAB Radio Show, Liggins stated: “The only thing that’s allowing [the internet] to exist as it is now is the strong economy and support from the stock market” (Rathbun, 9/6/99, ¶4).
Opportunities in the environment at the time that Radio One, Inc. is faced with the decision of whether to purchase Clear Channel’s divested stations, is the increasing strength of radio advertising sales over the years despite economic downturns.
Threats in the environment include satellite radio, internet web casts, and competition from the largest radio conglomerate in history—Clear Channel and AMFM.
III. Identification/Evaluation of Alternatives
Possible alternatives for Radio One, Inc. include 1) deciding to let the Clear Channel opportunity pass it by, 2) deciding not to follow through with the purchase of the other nine stations it was currently pursuing in favor of investing in Clear Channel’s divested stations, and 3) deciding to invest in an internet presence rather than invest in Clear Channel’s assets.
The first alternative is for Radio One, Inc. to let the Clear Channel divestiture pass without purchasing any of the available stations and expand into other areas, such as internet and satellite broadcasts. This is not a viable alternative, since the opportunity to purchase stations in the top 50 markets is so rare that Radio One, Inc. may never again have this opportunity. In addition, in order to pursue its intended expansion strategy and get into the internet and satellite business, the company needs the audience and national coverage that these acquisitions will provide.
The second alternative, for Radio One, Inc. is to drop all negotiations for the stations and focus its effort and capital on acquisition of the Clear Channel stations. This would be a viable alternative, if capital and financing were the primary issues facing Radio One as it attempts to purchase the Clear Channel stations. However, Radio One, Inc. is financially sound and has the ability to pursue each of these purchases simultaneously.
IV. Recommendation and Implementation
Radio One, Inc. should not let the opportunity presented by Clear Channel’s divestiture pass it by. This is a rare opportunity to expand into urban top-50 markets like the one in L.A. Because Radio One, Inc. has the experience and financial resources to pursue this purchase, there is no good reason for it not to move forward.
However, should the company decide not to move forward with the purchase of Clear Channel assets, an alternative course of action would be for Radio One, Inc. to establish an internet presence, beginning with an interactive homepage and quickly expanding into the world of internet broadcasts. This is feasible for Radio One, Inc. since it has the financial resources to expand into a new market or venue and because the technology is available for it to do so. In addition, management is already looking at the internet as a possibility. “Radio One, Inc. is just beginning to try to figure out how its stations can use the Internet to benefit African Americans” (Rathbun, 9/6/99, ¶4).
Expanding into internet broadcasts would likely be popular with Radio One’s existing audience. The internet presence could be used to expand Radio One’s geographic coverage area, as well as serve as a supplement to its existing programming. Other broadcasters are using the internet to “expose their stations to a worldwide audience […] generate extra income as a new advertising and promotional revenue source” (Silberman, 11/13/99, ¶1).
A decision to expand into internet broadcasting would be in line with the findings of Arbitron’s survey of internet use and how internet use has affected individual radio-listening and television-viewing habits. “The Internet-listening study suggested that broadcasters should look at acquiring not just conventional signals but also Netcasters; it added that they should look at using Internet audio to serve the uncovered format niches in their own markets” (Ross, Silberman, and Schiffman, 10/31/98, ¶13).
Arbitron’s survey indicated that internet usage was having a detrimental effect on both radio-listening and television-viewing and a majority of those surveyed indicated that they would be interested in subscribing to satellite radio and also in listening to out-of-town signals broadcast over the internet. (Ross, 10/31/98, ¶3).
In addition, if Radio One, Inc. was to initially use its internet presence as solely a means of providing a community for its listeners and a venue for disseminating information, it would still be accomplishing much of what Arbitron’s survey recommended:
“a majority said they would listen to their current favorite station on the Internet, if it were available; and that radio stations were doing a good job of driving people to their World Wide Web sites. The study also cited considerable respondent interest in using a station’s Web site to glean more info about a station’s sponsors or even to buy products online” (Ross ¶3).
Therefore, it would be in Radio One’s best interest to expand its presence to include the internet, whether or not it decides to pursue the Clear Channel purchase. This would increase their coverage area and the size of the audience.
References
Rathbun, E.A. (9/6/99). Clash of the ‘casters. Broadcasting & Cable, 129, 38-39. Retrieved September 26, 2006 from ProQuest.
Ross, S. (10/31/98). Arbitron warns of increasing online competition. Billboard, 110, 82. Retrieved September 23, 2006 from Academic Search Premier.
Ross, S., Taylor, C., Silberman, J., and Schiffman, M. (10/31/98). Radio remains cool in the face of heated-up competition. Billboard, 110, 81-82 . Retrieved September 22, 2006 from Academic Search Premier.
Ruback, R., & Fischer, P. (2000). Radio One, Inc. Harvard Business School Publishing (Case #9-101-025).
Silberman, J. Sites + sounds: radio webcasts. Billboard, 111, 76-77.
Taylor, (11/21/98). Suhler report predicts sunny skies for radio industry’s bottom line. Billboard, 110, 83. Retrieved September 22, 2006 from Academic Search Premier.
Taylor, C. (12/26/98). Merger frenzy continues unabated. Billboard, 110, 77. Retrieved September 22, 2006 from Academic Search Premier.
Taylor, C., Garrity, B., Saxe, F., Mitchell, G., & Newman, M. (10/16/99). Big deal rocks radio biz. Billboard., 111, 1-3. Retrieved September 23, 2006 from Academic Search Premier.
