David Field: “We Can Move The Needle” (9/06/04)
By Reed Bunzel, Editor-in-Chief
There’s no question that Entercom is one of the jewels in radio’s crown. Ranked fourth in terms of overall revenue, the company in recent months has picked up stations in Indianapolis, Buffalo, and Providence; and it is actively seeking additional acquisitions that fit the company’s aggressive growth strategy. Meanwhile, Entercom’s second quarter 2004 net revenues increased 6 percent to $113.7 million. Same-station net revenues increased 5 percent to $112.7 million, and free cash flow increased 5 percent to $35.9 million (all vs. Q2 2003).
“We are very pleased with our second-quarter performance, as we delivered record-breaking financial results, including a 27-percent increase in net income per share,” said Entercom President/CEO David Field when the numbers were released in early August. “We also moved to create additional shareholder value by deploying a portion of our strong free cash flow towards a share buyback that we announced during the quarter.”
At the same time, Field noted “the acceleration of positive industry developments” and observed that “the industry is rapidly implementing electronic invoicing to improve and simplify the purchasing process for our customers, and the Radio Advertising Bureau has dramatically enhanced its business development capabilities over the past 60 days.”
Additionally, Field lauded Clear Channel’s recently announced initiative to significantly reduce commercial inventories, as he stated, “Entercom has always maintained a disciplined, limited inventory policy, and we remain committed to this advertiser- and listener-friendly approach.”
But wait, there’s more: The same day that he reported the company’s Q2 numbers, Field also announced that Entercom would be accelerating the rollout of HD Radio, with plans to upgrade 80 percent of its stations over the next four years. “HD Radio will enhance our ability to compete and win against a variety of new digital competitors,” he explained. “Providing innovative digital services for listeners and advertisers is a key part of our long-term growth strategy.”
Few would argue that Field has provided solid stewardship for the company that his father, Joseph Field, founded in 1968, when FM was still playing “beautiful music” with few, if any, commercials. Against this backdrop, the younger Field didn’t immediately join the family business, opting instead to pursue a career in corporate finance. He received his B.A. from Amherst College, earned an M.B.A. from the Wharton School of Business, and worked as an investment banker at Goldman, Sachs & Co. in New York.
The broadcasting bug finally bit when Field was 25. He joined Entercom in 1987, when the company owned just a handful of stations and was generating under $10 million a year in cash flow. He began as a general manager and worked his way up, eventually being named vice president of finance and chief financial officer. Field subsequently was named vice president of operations, essentially running the operations side of the company throughout the 1990s. In 1998, before Entercom went public, he was named president, adding the title of chief executive officer in 2002.
A strong believer in consolidation and the strength it brings to the radio industry, Field also believes that radio broadcasters have let intramural competition fester far too long, at the expense of long-range growth. “Historically,” he says, “we’ve been so focused on infighting in our business that we have not invested in our medium or focused on the long-term growth of the industry. But in the past year or two, we’ve seen a sea-change in thinking among broadcasters, focusing more broadly on the industry’s prospects.”
Taking an active role in retooling the industry’s priorities, Field currently serves as vice chairman of the National Association of Broadcasters Radio Board of Directors, and he is a member of the Radio Advertising Bureau Board of Directors.
Field’s life, however, is not all about broadcasting. Equally passionate about the environment, he is a board member of the Philadelphia Zoo and The Wilderness Society. “I am absolutely as passionate and competitive as anybody could be about our business, but that has to go hand-in-hand with being a responsible corporate citizen,” he explains. “You need to be successful in all domains, not just in the bottom line but in your contributions in terms of how your people feel about the organization, in terms of your contribution to the community. We really do strive to keep a balanced perspective.”
Following Field’s lead, Entercom stations and employees are actively making a difference in their communities. In 2003, $53 million was raised for charitable causes through fundraising activities, advertising and promotional support. One day each year, employees are given the opportunity to participate in a company-wide program called Make a Difference Day, which provides community-based charitable work that benefits a variety of humanitarian causes.
Radio Ink recently sat down with David Field to discuss radio’s inherent strengths, the industry’s pressing challenges and prospects, and the responsibility that companies have not only to their employees but to the communities in which they operate.
National advertising is showing considerable signs of weakness, compared with other advertising-supported media. What is radio’s greatest challenge on this front, and is radio doing enough to reverse this downward trend?
I’m not sure radio is truly lagging. If you look at the macroeconomic statistics for this quarter, consumer spending is down, so it isn’t just a radio issue — it’s an economic issue. We’re now seeing that television (excluding political advertising), newspaper, magazines, other media, also is softer. We may have been the first to reflect the mediocre consumer climate, but as we get more data from the field, it’s pretty clear that the economic issues are more widespread.
Having said that, there is certainly ample opportunity for us to be more effective in growing our appeal to national advertisers, and there are several important initiatives under way to address this.
Has the Radio Advertising Bureau been as effective as it might be in promoting radio effectively to national advertisers and agencies?
Historically, we as an industry did not invest in marketing radio to Madison Avenue. Now the RAB is being transformed into a far more effective marketing engine. I have been very impressed with the steps that RAB is taking to put more senior-level marketing executives on the street, and to invest in other initiatives and marketing programs, inducing Fortune 500 advertisers to invest a greater share of their marketing budget into radio. With these efforts, we have a very real opportunity to move the needle in a meaningful way.
You don’t think the RAB has made as valiant effort in this area as they could have in the past?
Not at all. Until now, they’ve had one [Executive Vice President/National Marketing] Mary Bennett. How many times have we lamented the fact that senior marketing executives and multibillion-dollar companies have never had anybody from radio call on them? These people know nothing about the radio story. We can offer so much to them as part of their marketing program, and now we have exponentially expanded our resources to talk to them in a meaningful way.
How can radio best satisfy the concerns and needs of advertisers who increasingly look at return on investment and accountability as determining factors for placement of ad dollars?
We are investing in significant effectiveness research in RAEL. Just last month, the Wirthlin Study was completed, with some terrific implications for radio. Other effectiveness research has been done, and will continue to be done, both generically and with test clients. Over and over, we’re finding that radio is a remarkably effective, low-cost provider for reaching consumers — an extremely potent combination. We will need to continue improving the industry’s measurement tools so that advertisers can receive better and more-timely information on their radio advertising.
What from the Wirthlin study can be applied to street-level sales efforts?
The Wirthlin report is just the latest stage in a succession of terrific reports that will give marketers much greater insight into how to make their radio most effective. We’ve all known for years how undervalued our medium is, and it’s largely undervalued because a great number of marketing decision-makers frankly just don’t understand what radio is all about. This effectiveness research gives them volumes of information on how radio works and on the success of radio. That will be an enormous catalyst for these companies to put more money into radio and take advantage of not only our effectiveness but also our efficiency relative to the other choices.
What message would you ultimately like to convey to advertisers on national as well as local fronts?
There’s no better place to be in any business than to be both highly effective and highly efficient. If we demonstrate that to customers, in turn driving additional demand for radio, we will also drive prices. The good news is we have huge headroom, as advertisers increasingly recognize the effectiveness of radio vs. newspaper and television, which — on a cost-per-thousand basis — still sell for two to three times what radio sells for. So the opportunity to raise prices and provide an efficient alternative is enormous.
You are vice chairman of the NAB Radio Board Of Directors. What pressing issues face radio broadcasters?
We have an active agenda for the next year. First, I want to salute the NAB for being such an effective voice for the industry and continuing to be on the front lines of both offensive and defensive battles in Washington. We have a satellite radio industry that is acting duplicitously to insert local weather and traffic content, and that needs to be addressed. We have potential low-power FM legislation that is based upon a deeply flawed study; if it’s enacted, it will cause substantial signal disruption for listeners across the country. This definitely must be addressed. And, of course, we have an indecency debate, which must be handled effectively.
Most broadcasters agree that the industry should pay special attention to indecency, but they don’t agree how. Should Congress and the FCC get tougher on this issue, or should the industry take charge?
As a society, we have a legitimate concern over indecent content in the media, but I think it’s absurd to distinguish between free radio and television vs. cable and satellite. In addition, we have meaningful First Amendment issues that should not be given short shrift. Broadcasters must maintain appropriate content standards, but I am concerned that cable and satellite operators will be held to a radically different standard and permitted to broadcast the most egregious content. That doesn’t make any sense whatsoever. There are legitimate legal questions that can be raised here, but at the end of the day, if the government’s intent is to eradicate certain content from the media, it cannot accomplish that by focusing strictly on broadcast radio and television.
We’re eight years into consolidation, and most of the major market activity is over. Looking back, has consolidation been a positive force on the radio industry, or have some unforeseen factors posed ongoing challenges?
Consolidation has unequivocally been a positive factor in providing a stronger business model and platform for the industry. Our enhanced scale enables us to innovate and enhance the quality of our product for listeners and for customers, and to compete more effectively against other advertising vehicles. However, we have not always taken advantage of this. Sometimes, companies have taken short cuts that have enhanced short-term results at the expense of long-term appeal.
Some critics of the radio industry contend that consolidation has led to less innovation and creativity in programming. Is there any validity to this?
Not at all — it is pure, unadulterated garbage. There are critics with business agendas or political agendas that benefit from trashing the radio industry, and they have asserted a handful of myths, which have been picked up and repeated by certain reporters who have not scrutinized the validity of those assertions. The fact is, like virtually every other company in the industry that I’m aware of, all our stations are pressed today for innovation more than ever. New Entercom stations, such as the Mountain in Denver, the Lake in Buffalo, and the Walk in Greenville, exemplify our efforts to continuously develop compelling new programming.
Experiments such as Air America, Emmis’ Red in St. Louis and Hubbard’s FM 107 in Minneapolis, demonstrate that the industry remains a vibrant and dynamic source of new programming.
Has radio effectively and efficiently restructured sales platforms to create the critical mass for advertisers as promised at the start of consolidation?
The results have been mixed. The goal for restructuring sales platforms should be to leverage the collective strength of your station group to compete more effectively against other advertising media, to drive more revenues. But, more often than not, the sales platforms have been used as packaging tools, which have undermined price integrity and not effectively developed business.
Most radio managers maintain that the real competition is other media, particularly newspapers and cable, yet many salespeople still actively engage in selling against other radio stations. Does this activity hurt or help the radio industry?
Wonderful, positive changes are going on in the industry’s mindset. There’s definitely truth to the suggestion that historically we’ve been so focused on infighting in our business that we have not invested in our medium or focused on the long-term growth of the industry. But in the past year or two, we’ve seen a sea change in thinking among broadcasters, focusing more broadly on the industry’s future prospects.
Can radio significantly grow its share of the pie without making major changes in the way it is sold on both the national and local levels?
Do the math. If radio grows at 3 or 4 percent a year, even if your station gains share, you never achieve the success that we as an industry aspire to. If the industry is growing at 6 to 8 percent a year, however, it changes everything. That’s a far healthier environment for all players to prosper. So it’s really a no-brainer. If we put half as much effort into attracting advertising dollars into radio as we do on fighting among ourselves, we’d be in a far healthier industry, and we’d all be better for it. Having said that, we will continue to fight aggressively within the industry, and that’s okay. It’s a competitive business, and it always will be — but it should be a competitive 8-percent, top-line business.
Is it naïve to think that managers working for different companies within a market could put aside their differences and promote the benefits of radio, not just their stations, to local or regional advertisers?
We are strongly encouraging our markets to do just that: to work with other radio broadcasters through their local associations to compete for larger shares of ad dollars from large local and regional advertisers.
Recently, Clear Channel announced it was cutting spot loads in order to drive up pricing and reduce on-air clutter. Is this just a pipe dream, or can it really make a dramatic change in the way advertisers — and listeners — perceive radio?
It may be one of the most important events in the industry’s recent history. It is a decisive and bold move to meaningfully make the industry more advertiser-friendly and also more listener-friendly, which is terrific. It also will force their managers to make better business decisions. Here at Entercom, we’ve been adamant over the years to maintain a sustainable spot load of 10 to 12 units an hour on our stations. We’re also looking at ways in which we can follow Clear Channel’s lead, thinking how we can shorten commercial length where appropriate and clean up other clutter on our stations. It’s not just the spot loads, as Clear Channel has pointed out; it’s the promos and other intrusions on the air.
Is it possible not only to sustain revenues but grow them 6 to 8 percent a year if you reduce the number of spots you run?
That’s the challenge — and it’s not clear where that will end up. In many cases, creative directors can effectively deliver their message in 30 seconds or even less. In sports play-by-play, network, and news radio, :30s are used extensively. In other countries, including Canada, Mexico, Australia, New Zealand, and much of Europe, shorter commercials get the job done as the industry standard, so it’s really not that great a leap to think in terms of :30s as the basic unit length for the industry in the future.
Even if spots are reduced to :30s, won’t companies have to sell more of them to make up the revenue difference?
There’s a fear that we’d have to add lots of :30s to make up for the reduction in :60s. To me, that’s a non-starter. We all agree that 16 :30s is worse than eight :60s — but are 10 :30s worse than eight :60s? I think it’s a lot better.
Wall Street analysts have taken major swipes at the radio industry lately. Are radio stocks — and the radio sector in general — priced fairly, considering today’s economic climate?
There are a lot of really smart Wall Street people who analyze our industry both on the buy side and the sell side. But the current stock prices have plummeted to the point where they presume very little growth going forward, so there’s a great opportunity, as we once again demonstrate the consistent growth of the industry, to see those stock prices rebound dramatically in the future.
What must we see if prices are to make that kind of rebound?
Investors must perceive that the industry has sustainable growth prospects in the 6- to 8-percent range, at which point the stocks move dramatically.
Radio used to be “first into a recession, and the first out,” but this doesn’t seem to be the case with the latest “recovery.” What’s going on?
I think it’s quite possible that radio is merely reflecting a deteriorating consumer economy. Consumer spending was up just one percent in Q2, and radio was up low single digits for the same quarter — so is that a radio issue, or is that an economic issue? Clearly, July and August pacings were underwhelming. We’ve seen a significantly stronger picture for September, but we just don’t know.
Here’s what we do know: We have an industry that has extraordinary strength in advertiser effectiveness and in delivering listeners at a low cost per thousand. We know that we have done a poor job historically in capitalizing on our core strength and that now, for the first time, we are making aggressive investments to harness the strength of the industry. If we maintain the will to work collectively to invest in industry marketing, and continue to make radio more compelling to listeners and advertisers, we know that we will have the opportunity to have the industry grow dramatically in the future. But if we continue to wait for the bell to ring and do business the old-fashioned way, we will find that radio will be a mediocre performer going forward.
What do you believe sets Entercom apart from the rest of the pack — essentially, what makes your company unique in the radio industry today?
We’re very proud of what we’ve accomplished as a company in terms of the team and brands we have built, our financial performance, our acquisitions, and our culture. We truly believe we have created an environment where the best and brightest folks in the industry can be stimulated, fulfilled, rewarded, and challenged better than anywhere else. But having said that, there are a lot of good companies in this industry, and today’s challenges and opportunities are really much more about the industry than about any of our individual companies.
Since most of the larger-market consolidation has already been done, how do you sustain solid growth within a major group?
Well, I’m not sure that’s true. Over the last few months, we have bought several stations in Indianapolis, we added a station in Buffalo, we entered the Providence market, and we continue to talk to lots of other companies. Consolidation in radio is not over.
Will the next stage involve mergers of larger corporate players?
There are still a substantial number of meaningful small- to mid-size companies that remain independent. Over time, we believe you will see more consolidation among those entities to create greater scale in a No.3, 4 or 5 industry position.
Should we understand, then, that Entercom currently is in major acquisition mode?
There’s no secret: We remain active in pursuing opportunities to grow our scale by making prudent, large acquisitions in larger markets. We’ve made three moves this year, and we would like to believe we’ll continue to make even bigger moves in the future.
To the point where you’d like to acquire another group of similar size?
It would certainly be our desire to find a way to combine our platform with other forward-thinking, progressive companies that believe additional scale brings additional capabilities and opportunities.
Terrestrial radio is based on localism, but many critics claim that the industry is losing that local flair. How critical — really — is remaining local (and live)?
We have several big cards to play in the media world. We have the ubiquity of our receivers — roughly a billion radios. We have many great brands. We are free. We have some great personalities, and we are local. Live and local — allowing for a few Howard Sterns and Rush Limbaughs — is extraordinarily important in terms of the medium’s viability and growth.
Radio arguably is not the first choice among younger demos for getting new music and lifestyle information. Is radio in danger of losing the ears of Generation X or Y? If so, how can we get them back?
I don’t think we’re in danger of losing younger listeners. We’ll have to share them to a greater extent than we have before, with everything from video games to iPod downloads — you name it, it’s there. Having said that, we still get an incredible number of passionate people listening to well-programmed stations that are targeted to the younger audience. The key is we’ll have to continue to innovate and to rethink some of our formulae in order to stay in front and, perhaps, create our own trends. We have a ubiquitous and free distribution channel with local differentiation, and that’s an extraordinarily powerful platform.
What will be the most significant competition for radio over the next decade?
Fragmentation. Do I fear X boxes or iPods? No. But we’re living in an increasingly fragmented world that requires ongoing innovation to sustain the growing appeal of the industry.
What do you see as radio’s single greatest strength today?
There’s no single greatest strength; there are many. As I said earlier, we are a ubiquitous, locally differentiated, free distribution channel with many terrific brands and personalities. That makes us incredibly powerful. On top of that, on the sales side, we have abundant evidence, formal and anecdotal, that we’re an extremely effective advertising vehicle, and we’re the low-cost provider. If somebody today invented what I just described, it would be the hottest new product launch in history.
What is radio’s greatest shortcoming?
The failure to market ourselves properly to listeners and advertisers. We do a good job of marketing individual radio stations, but we do a lousy job of marketing the radio industry as an entity to listeners and advertisers.
What do you see as radio’s greatest challenge over the next 10 years?
Innovation. Our opportunities are as great as ever, and our challenges are greater than they have been in the past. Our success going forward will increasingly rely on our ability to innovate.
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