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First Mediaworks


To Joel Hollander, Radio's Future Is Infinite (07/18/05)

By Reed Bunzel, Editor-in-Chief

Infinity Broadcasting has been caught in the same maelstrom of inertia that has plagued the entire radio industry of late. Net revenues and operating income have been in a low-grade wobble for a number of quarters now, with modest growth in one three-month period typically offset by flat or negative numbers in the next. The radio firm's Q1 2005 numbers - the most recent available until parent-company Viacom releases its second quarter figures early next month - showed a 2 percent uptick, increasing to $463 million vs. $455 million for the same period last year. Meanwhile, Infinity's operating income dropped 5 percent to $190 million from $199 million in Q1 '04.

Part of the problem with the radio industry - now in its ninth year of consolidation - is that, like a book, it is judged largely by its quarterly cover. Wall Street bean counters (and the business media) place undue emphasis on profits, free cash flow, EBITDA, shareholders, stock price, downgrades, and the satellite threat, while giving second shrift to a company's internal operating plan, corporate culture, and long-term strategies. Hence, a pervasive malaise that fuels broad speculation about radio's long-term health and financial viability, especially in the face of new technological threats.

Enter Joel Hollander, Infinity's fourth CEO in eight years. Following on the heels of Mel Karmazin, Farid Suleman, and John Sykes, Hollander in six short months has left his mark on nearly every aspect of the industry's second-largest-billing radio company. Under his guidance, the financial fists have loosened and the words “capital expenditures” no longer are considered indecent. “Over the last five or six years, this company really had been under-invested in marketing, promotion, future technologies, capital expenditures,” Hollander told Radio Ink. “I was appointed chairman and chief executive officer, and we started to get very aggressive.”

You'll have to keep reading to learn how these aggressive moves have manifested themselves, but suffice it to say that Hollander had been sitting so close to the top of the Infinity chairman's office for years that he knew where the problems festered. When he finally assumed his current position at the start of 2005, he wasted no time initiating fixes, quashing plans to eliminate general manager positions in the company's top markets, and formulating a plan to incorporate, rather than try to defeat, emerging technologies.

“In the last six months, we've started the podcasting station in San Francisco, we're streaming radio stations, we're multicasting, we're changing formats, we're doing formalized sales training, we're really trying to invest in the future while also keeping an eye on today,” he explains.

Hollander was named chairman and chief executive officer of Infinity in January, following the departure of Sykes, who had come to the radio company from VH1. Hollander had been president and chief operating officer of the company since May 2003, and before that had served as president/CEO of Westwood One. He began his radio career as an account executive in Daytona, FL, eventually returning to his native New York City, where he worked in sales and management positions at WBLS-FM, WKTU-FM, WAPP-FM, and WHN-AM. In 1987, that station flipped formats to sports, and with Hollander as general manager, WFAN-AM became the nation's sports talk leader - until he was tapped for the Westwood One job.

With the help of his wife Susan, Hollander in 1993 started the CJ Foundation for Sudden Infant Death Syndrome, a nationwide voluntary health organization dedicated to recognizing the special needs of the SIDS community. He also is also on the board of directors for both Tomorrows Children's Fund and Westwood One, as well as a trustee of the foundation of American Women in Radio and Television.

Six months into his term as CEO of Infinity Radio, Hollander agreed to share with Radio Ink his observations on everything from Mel to Howard to Stern to Jack - and just about everything in between.

INK: Infinity's revenues were up slightly in the first quarter, even though operating income was down. At the same time, we've seen some programming and technical changes that have seemed a long time coming. What's behind this surge in activity?
HOLLANDER:
What changed everything was the change at the top, when Mel Karmazin left and Leslie Moonves came in. Mel had been in this job for a very long time, running Infinity under a different set of circumstances, where the shareholders and investors were the top priority. Over the last five or six years, the company had been under-invested, in marketing, promotion, future technologies, capital expenditures. During the past 12 months, we've tried to build some infrastructure and connectivity for the company, and fix some stations along the way. In January, I was appointed chairman and chief executive officer, and we got very aggressive. In the past six months, we started the podcasting station in San Francisco, we're streaming radio stations, we're multicasting, we're changing formats, we're doing formalized sales training, we're investing in the future while also keeping an eye on today. We've been changing some formats and taking some chances with Jack, as well as with WHFS in Washington, which we changed to El Sol. We're excited about where we're going, and we'll continue to be aggressive.

Generally speaking, radio revenues are soft, the general media are hyping new technologies, and Wall Street is skeptical about short- or long-term growth. Is this just a temporary blip, or is the radio industry in trouble?
Radio has been, and still is, a very good business. The problem is that radio broadcasters have catered to Wall Street and profits for the past five years. Both are very important; I ran another company - Westwood One - so I understand that issue. But you have to have a balance. You have to take care of your listeners, your advertisers, your shareholders all at the same time. There's a way to do it in a thoughtful process, and that's what we're doing. We're spending X amount of dollars on future technologies and making some investments that will produce revenue streams in the future. At the same time, we're taking care of today by changing some formats, investing in others, working on branding and marketing - whatever we need to do.

Over the past several years, Viacom Chairman Sumner Redstone indicated he was displeased with the company's radio division. Where does he stand on the changes you're trying to bring about?
In Sumner's defense, he bought a strong asset five years ago that was growing X, and who would have thought that five years later - after 9-11, a war, the dot-com bust, and new technology - that we'd be where we are today? Sumner and Leslie both believe in the radio business, and they believe in the plan we've put together to keep the company moving forward.

Radio has survived the development of television, 8-tracks, cassettes, and CDs. Is today's explosion of new media any different from the changes that have come before?
It's true - radio has survived every technological advance in the past 50 years. All the radios in the United States aren't going to be turned off tomorrow. Having said that, one of the very foolish things broadcasters do is bury their head in the sand and say, “It's not going to work” or “It's not going to affect radio.” You can't stop technology. Before the railroad, people said nobody will ride on trains. Look back at the history of industry: A lot of people along the way said things weren't going to affect them. You can't stop technology - you live with it and grow with it, and you make some investments in the future along with your existing business.

As an advertiser-supported medium, how important is it to re-examine your internal practices and make changes where changes are needed?
It's very important. Obviously, our lifeblood is our listeners and our advertisers. If we can't find solutions for advertisers to move their product, then we have a problem. That's the issue; there are many products that radio does a good job of moving and selling creatively.

Can radio do a good job when there's a self-diagnosed problem with clutter on the airwaves?
There's clutter in every medium: pop-up ads on the Internet, captions on the television screen, clutter in the newspaper. Now, for some reason, radio has been singled out on this issue, and a number of people in the industry are doing something about it. Less Is More did not need to be talked about as in-depth as it has been in the last year. I applaud Clear Channel for trying to do something about it, but they've taken this clutter issue and turned it into a pricing issue - and that can be a problem.

Earlier this year, you said Infinity did something similar to LIM, but was less vocal about it. What exactly did you do?
We've cut inventory at a third of our radio stations, depending on the competitiveness within the marketplace. That's what you respond to. You don't just whack. Look at Clear Channel's WLTW in New York, one of the great radio stations in the United States. They cut inventory, and the ratings are not going up. The station is number one already, so it was foolish. WFAN has had the same commercial inventory for years, and it's been 1 or 2 in its demo all the time. If the content is good, people stay. That doesn't mean we shouldn't cut the spot loads, which we have done. But it's not just a universal slash. It's more strategic than that.

You've caught a lot of heat for switching to Jack at WCBS-FM. In retrospect, was that a good move?
Yes. The Oldies format has changed. The company has a very big investment in the Oldies format across the country, but we've seen dwindling cash flows for the past five years. We spent a lot of money on WCBS-FM in the last year to see if we could jump-start it. We put in a new morning show and invested in a lot of other things, and nothing happened. It wasn't an issue of branding: Everyone in New York knows the brand. But the demo has changed, and we believe that the Jack format has music that people have not heard. It was a hard decision, because WCBS-FM and WJMK-FM in Chicago were good radio stations; they just weren't making as much money as they used to. You can't have sticks in New York, Chicago, and L.A. that aren't doing great. WXRK, WINS, WFAN, and WCAA all make a lot of money. WNEW needs to improve, and CBS-FM was making a lot of money, but is making less. This was a move to strengthen the cluster.

You made a similar move in Washington, when you switched WHFS to El Sol. Was this another case of diminishing returns?
WHFS was a great heritage radio station with dwindling cash flow. We felt that the format growth for the future was Spanish. It's a hot format right now, and we saw a big hole in Washington. There might be a similar hole in another market, but we're not going to put on 20 Spanish stations. That said, where we see a hole in the market, whether it's Spanish or Urban or Talk, we'll go for it.

How big an issue is Howard Stern's departure at the end of this year?
Huge. That's why we're doing a lot right now.

What's going to happen - offensively and defensively - when Howard leaves?
I can't tell you, because then I'd have to kill you! Is his departure going to be a big hit? Absolutely. You don't replace Howard Stern. He did something no one else did. He's legendary, and he made a lot of money for a lot of people. When he leaves, we're going to move in a new direction, which means we'll be able to create some new opportunities. It's going to take time; it's not going to happen overnight. Again, we'll be investing in the future, investing in talent, investing in morning shows.

Speaking of investing in the future: Do you think Stern has what it takes to pump up Sirius' subscriptions?
I would never underestimate Howard and Mel, but it won't be easy for them. There's a business for satellite radio, but their biggest issue is that some form of technology will leap-frog right over them. There's a business for satellite, but it's just not as broad as they think it is. Also, Sirius is pretty far behind XM, so if Howard doesn't sell a lot of subs, they're going to be in trouble.

How important is it for the industry to adopt HD Radio to remain competitive with all the new technologies out there?
Very important. We made a commitment to light up 100 radio stations in HD. There's still a long way to go- there has to be adoption in Detroit and there has to be a big retail element. We need unification in the radio industry. HD will not happen overnight, but everyone wants to see it happen a lot faster than the pace it's on right now.

In the days following the passage of the Telecom Act, consolidation was supposed to lead to critical mass, which was supposed to lead to stronger revenues. Has this happened?
Some has and some hasn't. Consolidation is an idea that was hatched back in the 1990s, and some people are just starting to figure out how to run these clusters better, smarter, and more efficiently. For a long time, everybody concentrated on efficiency, and now people are beginning to see that we need to invest in the product again.

Some of those efficiencies came in the form of job cuts. Did the industry go overboard in its haste to eliminate managerial positions?
I have a tremendous disagreement with Clear Channel on a number of issues, and one of them is management. I believe it's very important for us to have a general manager at a majority of our radio stations - although certainly not all of them. If you owned a Sears store worth $500 million, wouldn't you want a full-time general manager running it? That's the point of consolidation that I disagree with: A lot of people lost their jobs because companies were looking for cost-efficiencies without thinking about the future.

Still, Infinity went through its own period of job cuts.
For two years after Farid Suleman left, they were ripping out a lot of general managers and sales managers, so we just didn't have enough people. The first thing I did was invest in computers, technology, and people. Just before I got this job, they were going to whack all the general managers in the top three markets, and have just one person. Tampa is one of the markets where we still have one manager, and we just hired a general manager in Philadelphia. We're adding people all the time.

You have a general manager at every station in New York?
Yes. And our director of sales, Jack Abramowitz, also is a general manager rather than a sales manager. We believe that by having a GM as the DOS, he can concentrate more on the whole cluster, while a GSM who is isolated at one radio station would focus just on that station.

Wall Street seems to have gotten into the business of scrutinizing national business on a monthly basis. Is this micro-management of pacings healthful to the industry?
I view it differently than most people. I look at the whole revenue picture. National business obviously is very important, but it changes a lot from year to year. One year Staples is local, the next year it's national, and its all combined in the Miller Kaplans. I concentrate more on the whole environment, not just national business.

How important is it to adopt a new audience measurement system? Is the Portable People Meter the best methodology?
It is important, and everybody is screaming for it. It's important for advertisers to show return on investment, to know what's working and what's not. The entire media industry has to change the way it measures audiences, and I'm a believer in PPM. Again, it's going to be a slow process. Even if the radio industry adopted the PPM tomorrow, it would take years to roll it out in the top 10 or 20 markets. There's definitely a cost issue, and every radio company has different pressures, but it will happen. It comes down to a thoughtful process of when, what, and how.

Last year, Infinity was slammed by the FCC over on-air indecency. Does this continue to be an issue, or have you brought it under control?
I think it's outrageous what the FCC and Congress have done, increasing the fine to a half-million dollars for certain utterances. I believe in free speech, but I also believe programming can be controlled for decency - and we have always had very good controls when we've understood the rules. This goes back to Mel, who fought and fought for clarity about the indecency rules. I agreed then with his position, and I still do.

Can broadcasters set their own controls?
Yes. I know this broadcaster can. Every one of our program directors knows what to do and what not to do, where the line is, what is air-able and what is not air-able. We are very vigilant about it, and we have a no-tolerance policy. We'll fire people for doing the wrong thing.

As CEO of one of the two largest radio companies in the U.S., how important is it for you personally to be a leader in this industry?
It's very important. We're going to disagree with Clear Channel on some issues, but we'll agree on some, as well. I've had conversations with Mark Mays about HD Radio and others things that affect the industry, and it's been a good dialogue. The bottom line is, Infinity and Clear Channel have to lead. I take my responsibility as a leader in this industry very seriously. There's a lot hinging on it, and people want to hear the talk and see the walk. We're doing that at Infinity. We've made a lot of investments in the last six months, and we're being aggressive.

What do you consider radio's greatest challenge at this point, halfway through 2005?
The industry's greatest challenge is to be creative and take risks. I can point to what we've done, and I'm encouraging everybody to go on the offense. Don't play defense with new technology. Embrace what's out there, use these new technologies where it makes sense, and be aggressive.


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