November 25, 2015

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Shaking Off Inertia … Stirring Up Innovation: Jerry Lee, Radio Ink’s Radio Executive Of The Year (01/07/08)
When the subject of successful single station owners is raised, Jerry Lee’s name is usually the first mentioned. An enthusiastic advocate for radio, Lee’s involvement in industry initiatives like the Radio Ad Effective Lab and his outspoken support for more and better research, improving audience measurement, and exploration of new revenue streams set him apart as a man whose influence in radio goes far beyond the reach of WBEB-FM/Philadelphia, the now-legendary station he’s run since the outlet’s earliest days.

Along with his passion for radio, Lee also works tirelessly on other issues close to his heart, including criminology and providing a helping hand to children in need. In his rare moments of down time, Lee enjoys one of his most prized possessions, an Aston Martin DB5 built specifically for the James Bond movie Goldfinger. And like the superspy, just about everything Lee touches turns to gold. So as his station enjoys top-of-the-heap success in Philly, radio would do well to listen up when he discusses his ideas for how the industry as a whole can resolve its struggling revenue growth simply by hunkering down. “We’ve got to get back to the basics of how to sell radio,” he says. “Our problem isn’t PR right now. People on the outside think this is a very glamorous business. I don’t see any problem attracting people to this industry, but I do see a big problem in training. Because radio is a very solid product, it’s a great business.”

At a time when radio is finding its way in a changing media world, Lee’s pioneering vision and hard work set him apart as one of radio’s most vibrant leaders. For the reasons mentioned above and many, many more, Radio Ink is proud to name Jerry Lee its 2008 Radio Executive of the Year.

RADIOINK: What is your outlook for 2008?
I don’t think we’ll see much growth in ’08. I think it will continue that way unless we become proactive as an industry. We’ve got a phenomenal product, but we’re not banding together to focus on it.

RI: Proactive how?
For example, Erwin Ephron just conducted a PPM study in Houston on the effectiveness of using TV and radio together. The results found that if an advertiser took 25 percent out of the TV budget and gave it to radio, the reach for the campaign would increase by 30 percent. This is a helluva story, but as an industry we won’t do anything with it. I don’t know why, but we just don’t glom onto things and run with them. If we did nothing in 2008 but told that story over and over and over again, it would make us a lot of money.

RI: Why don’t industry leaders realize we need to tell this story?
The radio industry is being run so lean that nobody has time to plan or think. Everything is about this week, this month. As a result, people are either not willing or don’t have the time to worry about the future.

In radio, we seem to have a very short attention span, so we need to spoon feed information to people. Some major research done in the early ’50s showed that 97 percent of the population can only handle seven new things at a time, plus or minus two. Some people can only handle five, but nobody in the 97 percent can handle more than nine. People are being pulled in so many directions that we don’t have the time to take one simple idea and really drill it into people. We need a lot of repetition to get to people.

Another thing we don’t do — and I’m not faulting anybody here — is make use of the RAB. They have phenomenal material on their website, but the number of people using more than 2 or 3 percent of that material is probably close to zero. It’s our own fault; we don’t make it a priority to use this great ammunition. We’re not willing to make sure that all of our sellers know this information and hold them accountable for it. We have a major accountability problem in radio.

RI: Accountability is a big buzz word these days with the rollout of PPM. How can radio improve its accountability to advertisers?
There is a way, but nobody’s doing it yet. It’s so obvious; I’ll give you a real-life example in Philadelphia. When PPM came out in April, the first client we heard from was Geico. They’re the largest national advertiser in Philadelphia, probably the whole country. They’d already booked the third and fourth quarters, so this is existing business. After seeing the data, they called and said the average quarter hour is down 30 percent with PPM, so we want you to revise our buy and lower your price by 30 percent. We told them no. We were the only station in the market that told them no, so they went out and bought the other stations at a lower rate. I won’t say what the number was, but they took 25 percent off our buy and placed it at other stations. The other 75 percent we kept at our rate.

But there is a bigger problem here: In this Gieco buy, the PPM had just come out. There were a few stations whose AQH didn’t go down the 30 percent in PPM — they actually stayed flat; these stations should have jacked their rates up 30 percent because they were the same in PPM as they were in the diary.

The problem is that nobody is managing this; market managers aren’t getting instructions from headquarters on managing rates. If these companies had said to their managers: We’re going to change the compensation based on your pricing in the marketplace, they would have solved the problem. Plus, most of the big groups in the major markets control a demographic. CBS, for example, controls men in Philadelphia. When you control demographics, you can get a disproportionately higher rate for that group because you have the negotiating power. Advertisers can’t go anywhere else to get those people. If you realize that, you can say no.

Just this week, a major advertiser told us through their buying service that they want diary rates, which meant they wanted about a 30 percent discount. In this case, we were in tight with the client, so we said no — and we got our rate. Most stations would have said: OK, I’m not going to give you 30 percent, but I’ll give you 15 percent.

RI: Is that because you knew you had the demo they’re trying to reach?
We would have done it anyhow. We did it with Geico; we took a bath of about $125,000 because we did not lower our price. If you control a demographic, you can control the pricing, but for some reason the big groups just don’t understand that.
Nobody is leaning back, taking a breath, and saying: How do I strategize this? There are not enough bodies out there; everybody is working their tail off. Nobody has a chance to say: Wait a minute, let’s address this differently. We control this demographic, let’s put our foot forward and refuse this buy and see what happens. Right now, if you don’t meet your budget, you get penalized, so no sellers are going to change their ways because they are trying to meet their budgets. But if the group heads told their market leaders: We’re going to hold you accountable for pricing as a group; some stations have to go up and down, but we’re going to hold you responsible — this wouldn’t happen, if they’re incentivized on that basis.

RI: Do compensation packages for sellers and market managers need to be changed?
It needs to be totally changed. Especially under PPM, we need a reset for the radio station between management and their sellers. It’s really between the sales manager of the station and the market leader. For example, if you went down 50 percent when the market is down 30 percent, then you shouldn’t be expected to be even next year. If you’re only down 20 percent, you’re doing well for that particular format. If another station in your group is flat — which means it’s up 30 percent because the whole market is down 30 percent — then we expect a 30 percent increase in rates. Unless you’re willing to say to me, I can’t do it, but I can do it over two years or whatever increment. But there is no plan, and it’s a severe problem. Unless somebody comes to grip with this, the future, instead of being very bright, is going to be very dicey.

RI: Is there is a short-term bridge while radio is in limbo between the diary and PPM?
The short-term fix of taking 25 percent out of TV and putting it into radio can be done right now, without PPM. You can do some modeling based on Philadelphia and Houston to give advertisers an approximation of what’s going to happen, and they can see in the real world what sales are getting.

RI: What are your thoughts on Arbitron’s delay of the next phase of the PPM rollout?
I’m upset about it, but it was the right thing to do. It would be too costly to try to fix it on the run. One way Arbitron can fix it is to use the Neilson method of going door to door in certain demographic areas of the city where they’re having a poor response rate and ask consumers to carry the PPM. You wouldn’t want to do this for every group because it becomes ridiculously expensive, and I don’t know the cost factor for doing it in a limited basis, but I know it will work.

Arbitron is obviously trying every other way of getting cooperation rates up because they’ve got to run a business. It’s good that they’re delaying now because they can do all their experimenting in Philadelphia and New York without it being on line. They can experiment and can get it right, then roll it out.

RI: Why not get going and tweak on the run?
The problem is bigger than they thought. They had no idea they’d have cooperation rates like this. They were getting so much bad PR, so they did the right thing. It’s a very costly thing for them to do, but it was the right thing to do, no question.

RI: Is doing more to promote combining radio and online advertising another area where radio should focus more attention?
Radio and the Internet is a perfect combination — dynamite. To me, it’s quite simple. Until you have the desire to buy a product, you’re not going online to try to find it. Radio stirs up emotion for a product, and then you go to the web to find everything about it, and how to get it. We shouldn’t be fighting the Internet — the Internet is phenomenal. Our mantra is don’t worry about selling radio time, worry about getting results for the client. Recommend to the client that they do other things. It’s not about selling radio time. Radio is just one piece of the solution for the advertisers; whatever it takes for the client to make money.

I'd like to see the industry resurrect their old work organization. For example, we’ve had a group in Philadelphia called Pro Radio that’s been inactive for 30 years. We got it back together so that we’re all telling the same story about PPM, and it’s starting to perform. What I want to do with this group is set up a 25,000-member web panel. All the stations could advertise to their audience to be part of this panel, and we could ask questions of consumption of radio listeners once or twice a month. We can then find out who they P1 and P2 to, and what their purchases have been. This could be dynamite; we could show cause and effect: The station being advertised on got this result, this number of actual sales; the ones who weren’t being advertised on were business as usual. Things like this can put the industry over the top.

There’s a system I want to put in place, I call it the Las Vegas money machine. In Las Vegas, they have a tax on hotel rooms, and 100 percent of that tax is spent for one purpose — to bring more people into Las Vegas. So it’s become a perpetual money machine. The more people they bring in, the more money they have to spend to bring more people in, and it goes around in a circle.

What I am proposing is that as a local industry here in Philadelphia — and I can see this being done all over the country — we go out and create new business, and from that new business we put 20 percent into a kitty to do this consumer panel and other things to build the industry.

RI: Will cross-town rivals agree to cooperate like that and share money?
Absolutely! I have no question in my mind. I got all the stations together in person to discuss this web panel. Asked if they would run an incredibly heavy schedule in January to get recruits, they all said yes. It’s not yet 100 percent final, but it looks like we’re going to do a pilot program. That will be delayed for a year just to do a proof of concept, but the feeling I’m getting from the groups here is that they’re very interested in working together. I hope to make Philadelphia the proving ground for the country so this idea of setting up a money machine can be replicated all over the country. Once you set up this money machine, you can do anything under the sun, and it will just keep breeding more and more money. You could hire one or two full-time salespeople who do nothing but sell for Pro Radio. You can use it to hire the best copywriters in the country. This stuff will work big time, and radio will go through the roof.

Another thing I’m working on to jumpstart this whole money machine idea — I think this is a killer — is saying to an advertiser: We want to give you 2 million dollars in advertising in Philadelphia for the next 12 months. Don’t change the way you’re spending money now, and we will overlay 2 million dollars. At the end of six months, if we can’t show you through our web panel and your own internal audits that you’ve made enough money to pay for at least the first month of advertising, walk away. You owe us nothing. Assuming that it’s paying for at least the first two months of advertising, starting in the seventh month, you’ll pay us two months of advertising each month until we’re whole again.

RI: How are other stations feeling about taking those kinds of risks?
I’ve gotten the go-ahead from one group in Philadelphia. The reason it’s not a big risk is because we’re calling this delayed billing. We’re not saying they’re getting it for free. We’re stacking the deck. We will not let a client do this unless they agree to work with us to produce a winning commercial. We also have to agree on their profit. We’ve got to have all those things up front so we know what success is. Once we do that, the odds of failure are very, very low. Don’t forget, we’re not talking about them making a profit, we’re talking about them making enough additional sales to pay for the advertising. You’re not in business to break even; in advertising, you’d better get three or four or five dollars to one for your spend.

The panel would also be used for testing commercials. Right now, I’m only testing people who are listeners of my radio station, but commercials that work with my audience may not work with some other audience. The best way to do radio is for certain products to have several different campaigns customized to the particular demographic.

We did a study in 2005 and found that only 19 percent of all radio commercials on the air in Philadelphia, both national and local combined, were any good. That means over 80 percent are lousy. This is a golden opportunity for radio to go out and hire people. We’re now becoming very aggressive and going to clients to say: We’ve had this testing service around for the past three years, and we’ve tested over 2,400 commercials — and your commercial doesn’t test well. It’s time to do something about it, and here’s what we’ll do: We’ll work with your agency and give them resources they don’t have. We have contacts all over the country who can write great radio commercials. We will pay for the first commercial to be produced, we will test it, and we won’t come back to the agency until we have a winning commercial. Then the agency can go to the client and say here’s what I’ve done.

RI: If radio is being run so lean, how can they spend more money on creative?
This is where the Las Vegas money machine comes in. You take that 20 percent of new business that the local group has created — brand new stuff, they wouldn’t have had otherwise unless they aggressively went after them as an industry — and use that for the panel for hiring outside people to write this copy. It takes away all the money problems.

RI: How will auction services from Google and eBay affect the value of radio advertising and how it is sold?
Again, it’s relatively simple. Right now, Google is not only going in at a low rate, but they’re charging a 50 percent commission. That’s not gonna fly. If they get down to a reasonable commission, say 15 or 20 percent, they’ve got a viable product. I have talked to them at length about using the lowest unit rate as the bottom rate that you’ll let anybody bid on. If they do that with a 15 or 20 percent commission, overnight, it will be a successful program. But they haven’t gotten to that point yet. Hey, it’s nice to go in and say I want 50 percent. Why not?

RI: Can these services bring new money to radio?
Yes, I think they can. But within five years, most of the selling nationally is going to be over the Internet. I’m not recommending it, but I think this will be reality. All inventory will be posted on the station’s website, and there will be a central source where every agency goes to choose what they want to buy with no human intervention at all. I’m not advocating this, I just think it will happen. So the value of the national and local reps will be the ability to help the client make money by developing ideas for producing results. With our web panel of 25,000, we’ll be able to show cause and effect. This is a major added value for advertisers: We can experiment, and we can actually see if it has made a difference in who’s buying the product and the amount of product they’re buying.

RI: What about new money from podcasting and other digital media?
I choke when I hear things like that. You’re playing with pennies. There’s a rule in life, it’s called the Perado Principle or the 80/20 Rule: 20 percent of the activities produce 80 percent of the results. That podcasting stuff is in the 80 percent that produces 20 percent. We’ve got to get disciplined and spend our time, energies, and money on things that have the big payoff and make the client successful. If we spent our time training salespeople how to sell, that’s the 20 percent that produces 80 percent. We have a tendency in this industry to provide some training, and say, OK, I’ve done it, I’ve trained them. We don’t ask for feedback on what they really learned, or if it has changed their ability to bring in more money.

One of the things I want to talk to the RAB about is their fabulous website that very few people are using. I would like the RAB — in fact I’d be willing to volunteer to head up a committee to do it — to work on ways of making the information stick. Xerox was the only company I ever came across that knew how to teach people so it actually stuck. They would take three days to teach what somebody else would teach in one day. They used role play, audio, video — when you walked out of a Xerox learning course, you had it for life. Most training doesn’t work because we don’t do enough to embed it in the people’s psyche so that it becomes part of them. You go through a training program on Wednesday, Thursday, and Friday, and return to work on Monday. Tuesday is a crisis, and by Wednesday, you have forgotten everything you’ve learned. When companies send their people to a seminar, it is nothing more than a freebie for entertaining their people, not for learning anything. Any training that is provided needs to be regurgitated back within 24 to 36 hours or it won’t stick. I’m doing it, but nobody else is.

RI: How do you convince sellers that those days of training are worth losing time in front of clients?
We need to parcel out learning in very small chunks. Right now we’re training our entire sales force on how to use Google to learn everything about the clients. After a 45-minute seminar, we break up into two teams of no more than five people each. One of our tech people sits with each team and watches them as they try to find information on key clients. Obviously they are not going to do it right, so we help them along by asking have you tried this, have you tried that. The following day they come back with different clients and demonstrate that they can get this information. Now they’ve learned it, and it doesn’t take a lot of time.

In life, I use research. I’m involved in so much research around the world, it’s ridiculous. You can get to the bottom of anything by using research. I did an experiment a number of years ago where I found that the easiest way to make sales is over lunch. I tried over the years to teach our salespeople the power of selling over lunch; I had a whole system for selling over lunch, a real system that nobody uses. For the next month the salespeople would be setting up all these lunches, and all of a sudden their billing would go way up — and then they would stop doing it. They would say, well it really wasn’t the lunch, it was something else that made the sale. But it really was the lunch, and I couldn’t get people to see the cause and effect.

RI: As chair of the Radio Ad Effectiveness Lab, do you think that information is getting used enough?
We’ve got a long way to go there. We’ve got phenomenal information and research, but people are not being trained properly how to use it. It should be used on every sales call.

RI: Why aren't they excited about using this data?
They’re too anxious to make the sale; they’re trying to bring the business in for this week rather than approaching it in a way that will change people’s perception of the station and radio, so they can make more money in the long run.

RI: What’s next for RAEL?
It hasn’t been announced yet, but we’re toying with a couple of studies. The last study we did with Gallop and Robinson used the smile muscle and the frown muscle to determine engagement. From the existing knowledge we have, we can do three reports out of that, which we’re going to do. Basically, we’ve slowed down because we’re trying to figure how to best make money with the knowledge we have. We’ve got this pot of money — $4.4 million, we’re up 17 percent this year in donations — but we have to use it in a way that actually produces dollars. Actually, I’m asking RAB if they would like to appoint me to be the person responsible for building sales for the radio industry, so we’ll see whether they decide to do that. I’m passionate about it, and I think I know quite a bit about it.

RI: What are the growth opportunities for HD Radio?
The big opportunity for HD is model year 2011. According to Texas Instruments, in the 2011 model year HD will be standard equipment in cars. They’re building modules that can incorporate all kinds of features for less money than the modules now cost. For less than a dollar each, automakers can add this modular system to vehicles. They’re around $30 now, and to the car company that is a horrendous amount of money. It may be more than that, and they won’t consider it beyond in limited models. At a dollar, it’s automatic. They have to do it at a dollar because somebody else will do it. To me, minimum penetration of maybe 35 percent is key; once we get to 35 percent, we can do things. Say you’re running your format on your main channel and it starts to wane and you’ve got to replace that with a new format — you just automatically drop that old format into your HD channel and you’re going to make money. I think that’s where a lot of money will come from in the future for HD Radio. Once your mainstream has gotten to a point where it’s no longer viable, you have to change, and it will be viable on your HD2.

RI: What about opportunities for data applications? Is that another case of pennies?
Right now it is, but it could be something later; it depends on technology, how much they’re able to do. Right now, I look at my radio station and it’s literally a gold mine. I can come up with an idea and get another 200, 300, 400, 500 thousand dollars. Why should I be spending my time looking at something I can maybe make $10,000 on? With the same amount of energy, I can make a half million dollars. It just doesn’t make any sense.

RI: The FCC is under fire for making changes to their cross-ownership limits, but you’ve been an outspoken supporter of consolidation. Why?
I think the American public is better off with consolidation. We’ve got more formats than we had before in markets. People complain that stations sound the same from Philadelphia, Chicago, New York. Who is traveling across the country? And so what if you go visit your friend in Chicago and you hear the same announcer? Who the hell cares? And, they’re saying it’s homogenized because of that? It is ridiculous.

RI: Local talent have been the victims along the way, though.
It’s like the number of people who have lost jobs because of products that are no longer manufactured in this country. Unemployment is very low in this country because we have found other ways of employing people. People in manufacturing are not employed in the same type of job they had before their company shifted their production elsewhere. They’re into a totally different area. It’s the same thing here. It’s not a God-given right to be a DJ. So our business is shrinking people-wise as the rest of the country is shrinking people-wise industry by industry.

RI: What are the chances that Congress will adopt a performance royalty for radio?
I have faith in [NAB President & CEO] David Rehr. He won’t let it happen.

RI: Would it be fair to pay performers some form of royalty?
Absolutely not, it would be ridiculous. Because we are already taking care of the performers by playing their music on the air and making them into viable commodities; selling product, selling records, concert performances, etc.

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