United They Stand (06/19/06)
By Joe Howard, Editor-In-Chief
While the general-market radio business has been mired in the financial doldrums for several years running, the Hispanic radio market has been booming. Once relegated to bit-player status, Spanish-language radio stations are now being recognized for the powerful impact they have in their communities, and the financial clout they carry with advertisers.
While growth in the number of Hispanic stations on the air has had an obvious impact on the segment's growth, the impact Spanish-language stations are having in communities nationwide can't be denied, and has caught the attention of the industry at large, and investors on Wall Street.
For those who still hadn't noticed, the ongoing debate over the United States' immigration laws has further raised the visibility of Spanish-language radio. Around the country, Hispanic radio stations have served as virtual town halls for listeners concerned about proposed illegal immigration laws that could affect the millions of immigrants already on these shores, and that could stem the tide of future immigration to the U.S.
Two of Hispanic radio's most respected figures, Bustos Media CEO Amador Bustos and BMP Radio CEO Tom Castro, agreed to participate together in an interview aimed at uncovering the reasons why Spanish-language radio stations connect so well with their audiences, and how the segment can extend its current winning streak.
RADIO INK: Spanish-language radio is widely regarded as the growth story in radio right now. How are your companies doing?
Tom Castro: We've come to dominate some good-size markets. For example, this is our second full year in Austin. We have five Spanish formats there and one English format, and we're seeing huge growth - higher than the average for the whole company in Q1. Last year in Austin we did about six million bucks for the year, but we grew 63 percent in Q1 alone because we're dominating the ratings. Due to situations like that, we have gotten to 30-31.
Amador Bustos: Spanish radio is a very bright spot in the radio industry, which is partly why you saw flips from most major players into Spanish last year. Maybe they haven't done as well as we have because of operational issues, but it's now largely out in the open that Spanish radio - and ethnic media in general - is the primary driver of growth in the industry.
TC: There are two forces at work here, both very powerful. One is that the Hispanic population is growing much faster than any other group of people. You need only to look at what's been going on in the streets across America to realize this is a very large group of people, a family-oriented group of people. They're peaceful, but they work hard and don't like it when people want to criminalize their hard work. If any advertiser doubted that he should be in the Hispanic market before, I think those doubts are erased. There may be people who don't like the fact we're here, but unless there's going to be a deportation of millions of people, the Hispanic population is and will be a growing part of America. Another very important, more subtle factor is that Amador and I operate in faster growing parts of the United States. The economic regions are much more vibrant than the Midwest or the Northeast, so our local economies are growing much faster. When you have those dual factors, you have substantial growth.
RI: You mentioned the local economies. Does either of you rely heavily on national advertising, or is most of your money coming from the local communities?
AB: We have less than 10 percent national sales, because we are in developing markets where national business has to be developed. It takes a lot more climbing for agencies and national clients to redirect their funds to developing markets, so we rely on local sales and the strength of the local community.
TC: Company-wide last year, we did about 20 percent national business. This year we may do a little more. National is growing in terms of percentage growth faster than local, but that's only because we were getting nothing in certain markets. Although San Antonio is only the 30th ranked general market, because it's a top-10 Hispanic market it gets national buys that don't even go into English radio. But, we have other markets in Texas - like McCallan or Laredo - that are not as well recognized by national advertisers. In general, we rely on local sales. Our perfect scenario would be for 100 percent of our revenue to come from local direct clients, because they can see the benefits of the advertising immediately. Plus, you're usually dealing with a business owner who has control of the money - it's not a bureaucratic process, and it's not subject to corporate earnings or anything else. If you can make the cash register ring, they're going to come back. With national, even if you sell a lot of product, they could still cut the budget due to bigger corporate issues. Still, we want as big a share of the national pie as possible, and it will become a much more important part of our business in the next two to three years.
RI: What do you look for when entering a market?
AB: We look at the demographics for potential audience, but we also visit the markets to assess whether there is a viable base of small Hispanic businesses, and if there is a core of local advertisers with opportunity for promotional activities. You have to actually see if there are enough furniture stores, used car dealerships, restaurants, and nightclubs owned by Hispanics that will form the advertising base. We also like markets where we aren't going to be sandwiched by two big operators. We want to be the leaders in emerging markets.
TC: We have chosen to concentrate our investments; we bought 35 stations, and invested over a quarter of a billion dollars in one region. We're big believers in serving contiguous - or nearby - markets so we can spread out our corporate management. These places tend to have the same kind of ethnic profile, so it's not that we're serving Puerto Ricans in one market and Mexicans in another. We can leverage our programming resources, because the population tends to be homogeneous. Also, we learn the economic region by identifying the movers and shakers in advertising, and who we will be doing business with.
RI: BMP has a few English-language stations. Does Bustos Media have any?
AB: We have two in eastern Washington, but that's because we had to buy them as a package from the seller.
TC: As a matter of strategy, we decided that we wanted to be in the English radio world. My view is that the cluster of the future will be in both English and Spanish radio, because that's what the marketplace is going to be. One is sort of a hedge against the other. Spanish is going to grow much faster, but the majority of the money will be in English radio. Advertisers will spend the majority of their money where they're most comfortable personally - in English radio. That gap will close some, but it won't close completely. The English stations we have serve Hispanic people, and where there are large numbers of English-speaking Hispanics, we want to serve them in English, Spanish, Spanglish, or whatever language they speak. Our business is to serve Hispanic people, not necessarily to do Spanish radio.
AB: Tom makes a good point about demystifying and breaking down stereotypes about Hispanic stations being only in the Spanish language. In markets with a large concentration of Hispanics, regardless of the language or the language mix, it's a Hispanic station.
RI: Amador, what do you think of Tom's idea of the “cluster of the future”? Is that a path Bustos Media might follow?
AB: We are primarily in immigrant markets - very high-growth, developing markets. I think Tom is talking more about mature markets. Some of that will happen in areas like Los Angeles, but it will be a lot longer before there is a significant enough multi-generational, assimilated group that we could serve with a non-Spanish-language format.
TC: There weren't Hispanic people in Portland or Seattle 20 years ago. The large populations there today have recently come as immigrants, so they're much more homogeneous than say San Antonio, where there's always been a Hispanic majority.
AB: Seattle has always had a high Asian population, but the Asian population is multi-lingual and from various parts of Asia. They don't have the unifying force of the language, so they don't have the same amounts of media as Spanish-speakers.
RI: You mention the unifying force of language. Radio has played a large role in the immigration debate, with radio rallying the people behind the issue. How is it that radio stations have such a connection to these communities?
AB: Radio has been effective because the focus is on a single issue that has been unified by the language. Also, the Spanish radio audience tends to be very loyal to its radio stations, and very attached to the personalities. Those personalities have great influence - they're companions. That relationship has strength, and that's why you saw the audience reacting the way they did.
TC: Spanish radio is really the only institution in the immigrants' lives that is entirely devoted to them. Univision is something brought in from Mexico, and they recognize it's not from here. It's not about their reality. Maybe the local news is on Univision, but most of the programming is imported. By contrast, most of the radio is made in their local community. If programming is coming in from another source, it's still coming from the United States.
Many immigrants are Catholics, and they share the Catholic church with non-Hispanic Catholics. Their business life may be shared with Latino workers, but the business probably isn't owned by Latinos. Spanish radio is the one thing that speaks to their reality, day in and day out. Also, many DJs have lived the immigrant experience themselves, and many came to this country without documents. Amador used to have a guy named Chulo working for his old company. He now works for us, and he is one of four or five Spanish radio morning DJs who has rating that are off the charts. He came here illegally, and got legalized during the 1986 amnesty program. When he speaks about the immigration issue, you know he's speaking from the heart.
AB: The interactivity of radio versus any other media is an extremely important factor. You can call and talk to the DJs. Even though we don't have an all-Talk format, in many cases the listeners turned our format into a talk-news format during the days prior to the demonstrations, because they wanted to talk about it.
TC: Radio is a very powerful medium. Spanish radio stations played an important role in what may have been the biggest mobilization of people in the history of the United States. Go back to the Civil Rights or anti-war movements - in one day, you never had 100 cities with a minimum of 2,000-3,000 people in the smallest places and half a million in the larger ones. It's a very good example of our ability to reach and move our listeners, and it's a great calling card for Spanish radio. We can mobilize a lot of Hispanic people in the United States - more than television can, and more than print.
RI: Has the immigration controversy affected business? Has it brought advertisers to your stations, or chased any away?
AB: It hasn't had an effect one way or the other. No one cancelled, but no one rushed to place new orders, either. It's been business as usual.
TC: We didn't have any cancellations due to the marches. However, the immigration service conducted some high-profile raids in advance of the May 1 marches, which scared the hell out of our listeners. They were afraid to go to the predominantly Latino retail centers for fear that the immigration service would raid these places. We also had a lot of nervous advertisers, and it was an effort to prevent them from canceling, but fortunately none of them did. We have not yet had anybody want to increase or add advertising to our stations, but I have not doubt that more dollars will be generated as a result of the Latino community standing up for itself. When people allocate their money, it's a combination of intellect and emotions. With their intellect, they see the numbers, but tend to discount the population. Now, I think their emotional side will say, “There are a lot of these people. They must consume a lot of what I sell as a businessperson.” It could easily have gone the other way if there was violence as a result of these marches. People waving Mexican flags and singing the Star Spangled Banner in Spanish might alienate some. It's a sensitive situation, but I think it will be positive, and more dollars will be spent in the future.
RI: What are your thoughts on general-market companies joining forces with Hispanic broadcasters, like the deal between CBS and SBS? Can English language buy their way in, or does success in Spanish-language broadcasting need to be grown organically to work?
AB: It depends. Instead of trying to grow it organically, they could buy and incorporate an efficiently run company like mine or Tom's, and create a Spanish division. It will be interesting to see what happens with the Univision acquisition, whether they'll maintain both the radio and television, or separate them. The landscape will change significantly depending on what happens after that acquisition is consummated.
RI: What if Univision Radio is sold and doesn't stay Spanish? Is that a possibility?
AB: I don't think so. I think it will stay Spanish language, but it probably will be distributed, and maybe some of us will end up with a couple of pieces each. That would be good - Entravision gets some, Tom gets some, and I get some.
TC: We've got our order in, so we'll see what happens. What Amador says is absolutely true. Because the price will probably be very rich, the buyer may decide to focus on television, and spin off radio. That's the 800-pound gorilla in our niche - what will happen with Univision? As far as the English guys getting in, they are rich in licenses and poor in good programming ideas. Because they're not growing their main business, the temptation is pretty great to get into Spanish. They have the raw material - the signals - and they have the financial capacity. What they almost always lack is the human skills side. The number of Spanish stations is growing much faster than the talent base. The existing talent is getting stretched over the traditional operators. The demand for talent is greater than ever, and will continue. That will be the challenge for the English operators that have already gotten in, and those who will get in over time.
Clear Channel is the trailblazer in this. They've had some success on the programming side. I don't know on the sales side how it's going for them, but it's a building process. They're starting from scratch. All of a sudden, they've got to find people who can deal with the local Spanish-speaking business community, and go to the Hispanic agencies. They don't have a business relationship with those people, so the sales side takes a while. It's not as easy as it looks.
AB: I don't think there will be many stations making wholesale changes from English operators to Spanish until they really assess the situation. English broadcasters have realized the trouble with the conversion factor. Even when they get high ratings, they have trouble converting it to revenue because they sometimes just integrate these stations into their general-market cluster. They use the same GMs and sellers, who don't understand that format. They end up just throwing it in with a package, and even though they have high ratings, it becomes a giveaway.
RI: It doesn't sound like battling larger companies is any great issue for your companies, and your niche.
AB: We're not immune, but we have resources and skills that are much more nimble and appropriate for the markets we serve, where size and strength is not really the main ingredient. Creativity, agility, and efficiency are more important in these markets.
TC: This immigration issue is a good example of where a big English broadcaster would have a challenge. What do you do if you're publicly traded and you've got thousands of people in your city in the streets? Do you let the DJ do what he thinks is best, which is probably to encourage them to participate in the march? Or does it scare the hell out of you because corporate is saying, “If there's a riot, I don't want our vans and our employees down there.” Plus, they don't understand it. Amador and I do. My wife is an immigrant, and Amador himself is an immigrant. We've lived with this our whole lives, and it doesn't scare us. We're careful, but it does present a very tricky problem. In the future, the Hispanic population may not be as boisterous as it is at this moment, but I think the days of it being quiet and accepting what comes are probably gone forever. You have a challenge if you're serving that community. If the public is riled up over something, you've got to make a decision. It's a lot harder to know how to respond if you're a big American company than it is for people who've been in that marketplace for a long time. Not that you have to be Hispanic, you just have to be very familiar with the marketplace.
RI: What's the status of language weighting with Arbitron? Are you expecting a spike in listening in the next ratings book? Will the attention generated by the immigration debate be a good test for whether or not language weighting is working in the diaries?
AB: With the exception of Sacramento, none of our markets are considered Hispanic dominant markets, so the ratings are not very accurate. In most of the markets that I'm in, the ratings continue to be awfully underestimated.
TC: Most of our markets are substantially Hispanic, so we expect language weighting to have a pretty significant impact. We've already seen it in ratings from L.A. and New York, which clearly did better. You can quantify it - they all went up a certain degree. But it didn't really come from the immigration issue, because that was the January, February, March period, and the immigration stuff really got going the end of March, and through April and May. We might see those effects in the Spring book. Language weighting is good for Spanish radio, but they still aren't getting it right. It's better and more accurate, but even with the weighting, I don't think it reflects all of the listening.
RI: Do you have high hopes then for the PPM? Do you think Spanish-speaking listeners will be reached through that system?
TC: The diary version is not great for Hispanics, especially immigrants. You need to be fairly sophisticated at filling out forms, so it works against immigrants, most of whom have fewer years of education than the average American. I have my doubts about how well the PPM will be accepted by Hispanics. Some people will be very uneasy being a part of that measurement. There are still a lot of questions about how Arbitron will do it, and whether or not there will be an alternative service. We're basically bystanders in that whole process, which will be fought out between the big companies and the ratings companies. When they're done with their battle and some standard is chosen, we won't have the ability to stop it or to encourage it - it will happen regardless of what we want. But, the more intrusive it is in people's lives, the more likely it is that Hispanics won't participate.
RI: Will the future of Spanish-language radio be built around pure-play companies, or multi-media providers?
TC: In the right conditions, low-power television, especially if you can get cable carriage, is like having another radio station in terms of the economics - the radio station with pictures. You can't really compare it to being an ABC affiliate, and you don't have the monster Univision and Telemundo affiliates in these smaller markets. They may be there, but they don't dominate the marketplace. Selectively, we might do that in the smaller markets. As far as owning TV stations in the bigger markets, if the new owners of Univision wanted to sell those affiliates, we would certainly look at buying them. The difference here is that Spanish television still has a lot of growth compared to English television.
AB: In the developing of markets, it's good to have a combination of radio and television. In the larger markets, it may be a different story because you have giant signals at giant prices, so you may need to have more individual attention on a cluster of radio or television stations. In our case, because we are not anywhere near having a large enough cluster of just radio, we need to combine with television in order to have the core promotional activities. The combination of radio and television in these developing markets will be good because we won't be able to get a full complement of Spanish radio stations. We need to strengthen our position with both radio and television.
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