Steve Hegwood: On Top Of The World [3/10/03]
By Reed B unzel
It was just three months ago—December 6, 2002, to be exact—that On Top Communications closed on its acquisition of KNOU/FM in New Orleans from JP Broadcasting. At the same time, On Top also completed a $20 million recapitilization that, according to founder and CEO Steve Hegwood, gives the company “the resources to realize our goal of creating dominant Urban format clusters in our markets." The addition of the New Orleans property has helped On Top increase its visibility and presence within the industry, but Hegwood says he is fully cognizant that a lot of hard work lies ahead. “Hopefully within the next few years we can look back and say, ‘we’re On Top, we have been funded properly again and again,’” he adds. “When I started with Radio One they had 8 stations; currently they have 65. That’s encouraging.”
Hegwood founded On Top Communications in 1998 to acquire and operate FM and AM radio stations in the southeastern region of the U.S. At the time he was serving as vice president of programming at Radio One, responsible not only for programming the company’s growing portfolio of stations, but also for assisting in identifying which stations—and markets—were suitable for Radio One’s rapid growth strategy. It was during that period of growth that Hegwood seriously began to consider owning and operating his own stations, and in 1997 he approached Radio One Preswident/CEO Alfred Liggins about his entrepreneurial dream.
“I started very small with an opportunity to purchase WRXZ in Albany, Georgia,” Hegwood recalls. “By using bonus money and the assistance of personal friends and family we were able to put together enough money for a deposit on the station, and we began operating it in April 1998. It was a rock station that had a 0 share, so we flipped it to an Urban/Hip-Hop station, and it debuted with an 11 share. It was very good success for the station.” At that time Hegwood was going to the office at Radio One during the week and flying down to Georgia on weekends. “I spent time there with managers, programming, other staff members, and clients, and then I would fly back Sunday night or early Monday morning, and come in to my ‘real job’ at Radio One.”
The following year an opportunity emerged to buy WRJH in Jackson, Mississippi, and by June of 2000 Hegwood had two stations demanding his attention. “It was getting pretty challenging for me to fly around the country and operate the Radio One stations, while trying to gain some traction in our markets,” Hegwood continues. “So I told Alfred that I wanted to resign that October so I could operate On Top Communications full time. He and Cathy Hughes were very complimentary and asked me to stay on to the end of the year, which I did, and right before the end of the year Alfred asked me to stay on till March. During this period Radio One closed on stations in Detroit, Richmond, and Cleveland—and then we went through the Clear Channel spin-offs, so we were able to pick up ‘The Beat’ in Los Angeles.”
Hegwood left Radio One in March of 2001 and focused full-time on On Top. “I was introduced to my chief financial officer, Lenny Rayford, through a mutual acquaintance, and he’s become as integral to the success of On Top as I am,” he says. “Lenny and I spent many hours going through my strategy for the company, putting together a business plan, which we took on the road for a road show from New York to L.A. We met with a number of institutional investors and Lenny was very successful in securing financing for us.” That financing has led to additional acquisitions, and at latest count On Top’s current portfolio includes seven in four markets, including two LMA agreements. These stations include Urban Contemporary formatted FM radio stations in New Orleans (KNOU at 104.5), Norfolk-Hampton Roads Virginia (WWHV at 102.1), Jackson, Mississippi (WRJH FM at 97.7) and Albany, Georgia (WRXZ/WFFM at 106.1 and 105.7).
INK: First, I have to ask: How did the name On Top Communications come about?
AL: I always believe in planting the seed for what you want to do and then growing from that perspective. Everyone wants to be at the top of their industry: Michael Jordan wants to be the top basketball player; Oprah Winfrey wants to be the Queen of talk. My goal is for our stations to be on top of the ratings in our markets, and to be on top of our revenue. It’s a mission statement for our company.
What do you view as your greatest challenge operating as a small player in a world of giants like Clear Channel and Cumulus?
The most challenging thing for On Top is having the resources. Since we were undercapitalized in our initial debut, we haven’t been able to do the things we need to do to be competitive in our markets. And I’m not just talking about having a full-fledged marketing campaign; I’m talking about having a digital music system, or the proper phones for the sales department to make sales calls, or being able to hire qualified salespeople. One of the things that I do have at the advantage of most start-up operators is I’ve had the opportunity to work in larger markets and smaller markets, and I understand where On Top’s opportunities are—and I utilize those to be able to build a company.
Have you been able to compete effectively as a single player in markets where other groups own five or six stations?
We’ve been very fortunate in being able to do so. XXXX-Albany currently ranks number three in the market 12+, number two 18-34, and number three 18-49. In Jackson we rank number five 12-plus, number two 18-34, and number four 18-49. My level of programming has transcended to those stations, and we have systems set up with all of our program directors, and they must work within those guidelines. We firmly believe that the ratings eventually will come in Norfolk, and the ratings are already on track to exceed our expectations in New Orleans.
How do you position your station—or stations—so they stand out from the pack?
Overall we have our mission and our strategy, and we hold fast to it. We know we can’t be all things to all people, so in most of our markets we have individual properties that are targeted to the 18-34 demo. On Top’s strategy is to understand our target audience and super serve that audience through programming. We also must express, explain, and deliver that audience to our advertisers. When you think about it, it’s critical that we understand who an On Top listener is. It doesn’t make sense to try to sell advertising to someone who does not desire to have our audience frequent their establishment. So we try to pair our audience with advertisers where there’s a perfect match, like with Best Buy, McDonald’s, Coke, or a local nightclub—that’s where our listeners spends their disposable income.
Do you program your Urban format differently in the markets you’re in, or do you maintain a similar programming approach at all of your stations?
There’s a little difference, given that Jackson and Albany are further south than Norfolk, and New Orleans has its own brand of music. For the most part, however, I’ve always thought that the hits are the hits—so we play the hits. Our target demo in every market is 18-34, and that’s who we go after. We’re able to do extremely well 18-49 in each of our markets because of how well we do 18-34. The days of old, where stations were able to dominate 12-54 are over.
What’s your business strategy? What do you look for when you assess a market or a specific property to acquire?
On Top’s strategy is to dominate the southeast U.S., which we feel is underserved by Urban radio. If you look at the distribution of African Americans through the southeast, we feel there’s an opportunity for us to grow in this area. That has been our pitch to advertisers and potential investors, and that’s what we’re going to hold fast to. First and foremost we’d like to create some cluster opportunities in our current markets, and then expand into additional markets. Should any opportunity become available, we will certainly look at it, and there are some opportunities on the table now that we are looking at.
Has the FCC been effective in promoting diversity in the marketplace? Should that be the role of the Commission?
The way the Commission would evaluate minority ownership is different from how I would look at it. There may be more minority-owned radio stations today, but I’m sure there are fewer minority owners. Also, the bigger problem for me as a minority owner is not the availability of stations, but the availability of capital. There could be 200 stations available today but without the capital, other minority-owned broadcasters and I could not afford to bid or participate in the opportunity to purchase those radio stations.
How tight is funding today?
Funding is extremely tight. The scandal on wall Street, the dot-com bust, and a lot of other challenges have caused the industry to really slow down and take a hard look at what they invest in. Jeff Smulyan said at the “Power of Urban Radio” panel last month that it’s easier for his company to get funded than it is for On Top, but it is easier for Clear Channel to get funded than Emmis. The bigger you are the more proven you are, and the more people will take chances on you. It’s just like anything else in life. But to get there you have to be given the opportunity to prove yourself, and On Top is in that proving stage. Hopefully within the next few years we can look back and say, “We’re On Top, we have been funded properly again and again.” When I started with Radio One they had 8 stations; currently they have 65. That’s encouraging.
Is radio serving local communities and individuals as best as it can?
I will be very candid and tell you that radio is not serving the local community as well as it has in the past. Because of consolidation the radio business is very Wall Street-driven. I remember growing up in Milwaukee and the DJs would be in the community day after day after day. Decisions were made by community uproar, and programming decisions would be made by what the community wanted. Now, if an operator wants to do something, it is done without as much input from the community.
In what ways could it provide greater outreach for people within the community?
One thing we really try to stress at On Top is we want our stations heavily involved in the community. We want to make sure that our announcers and our managers are always involved. I’m always on a panel or at some community event, or at some church, and so are our program directors, sales managers, and general managers. They’re all out there meeting people, pressing the flesh, and getting to know the people in the community.
There’s been a lot of criticism lately that radio programming is too bland, and that everyone’s playing the same short list of records. What’s your take on this?
The hits are the hits. I can’t help it that Ja Rule, 50 Cent, Ashanti, and P Diddy are the hottest artists. Should I play obscure records just because I want to be different? If you play obscure, unfamiliar records too frequently on your radio station, the listeners will find the hits on your competitors. That means that a) you will not have the ratings you desire, and b) you will not be able to create the revenue your station has been projected to create. To those people who say “Radio is not as creative as it used to be,” I ask them, “what are we supposed to play?” Most successful stations have some form of music research, and they’re not just picking records for the sake of playing them over and over. These records are obviously the best-tested records on those stations. There is room for specialty shows, but the only way you win is by playing the hits.
Let’s shift gears a bit. To what degree is there still a divide in this country when it comes to racial diversity and opportunity?
There definitely is a racial divide in this country. It is very, very difficult for African Americans to achieve any level of success other than sports, and even if you’re successful in sports we’re criticized. I’ve watched many successful African Americans succeed before me, and the only thing I keep in mind is that I have faith in God. That’s what drives me. I can’t allow any race of any person slow me down, so I don’t get caught up in that myself. But I have faced challenges by being an African American. I am confident, very sure that African Americans have to work extremely hard to prove that they are as good or as qualified as they say they are. Even after you’re a success, you’re still challenged constantly.
Is there anything the FCC can do to ease this divide and provide greater ownership opportunities?
The FCC can’t go to Clear Channel and take back 100 stations. What is done has already been done. And they can’t go and create another 200 stations to give opportunities to minorities and women. So I don’t know where the opportunities come from. Maybe it’s through television or cable or newspaper. I honestly don’t have the answer to that—but I know that nothing will stop Steve Hegwood and On Top Communications, short of a national disaster. As an African American male who grew up in Milwaukee, a market that’s 18 percent black, I knew I had to be as good or better than anyone I competed against. That is something that comes from within. I don’t look at On Top as a small, black, minority-owned company. I look at it as a company that competes with Clear Channel, Cumulus, Inner City, and whoever else has an Urban-formatted station in the market. I don’t look at it as “we can’t be as good because we’re minority-owned.” We have to be as good or better because we’re minority owned.
That said, where does a solution come from?
The best thing to do moving forward would be to be able to give minorities and women the opportunity to gain capital, to build a business, to compete with larger corporations. That would be my greatest request from Congress and from the financial industry. Let’s say you have the opportunity to buy a radio station or a newspaper—what do you use as capital to pay for it?
What are the keys to providing strong business leadership? What leadership qualities do you look for in your people?
I’m self-motivated, and I look for individuals who also are self-motivated. Or individuals who would like the opportunity to build something and be a part of something great. My greatest reward in this business was to have been a part of Radio One’s growth and success. It was truly rewarding to sit back and say, “wow.” To this day I’m extremely proud of what Cathy, Alfred, Scott, and Mary Catherine and the rest of us were able to do. So I look for individuals who would like to be a part of something growing, something successful. I also look for people who understand that every single day I have a mission, and I have to accomplish the goal. My recommendation to all of our managers when we recruit people is to look at where they’ve been, and where they want to go.
How important is mentoring in today’s competitive business climate? Is there as much “give-back” as there should be?
There are a number of people who do give back. I will give anything that’s in my brain to anyone who works with us. My way of looking at it is this: the more I teach other individuals, it makes my job easier at On Top. If I can teach someone else how to do something, it educates them on how to be more diverse at what they do. One thing I do dislike about radio now is people who get in it are one track. When I got into radio in the early 1980s you did everything. But younger people want immediate gratification. They say, “I want to be Tom Joyner or Doug Banks or Howard Stern.” The fact is, these guys did everything in radio to get where they are. So I like to preach to younger people to understand the entire business. I tell them I understood the sales side growing up as a programmer, and I understood the engineering side. I can tell you when a station sounds bad or if it is distorted, or if a commercial is out of phase. There are PDs now who have no idea what I’m talking about.
Has it been difficult to prove to people that someone who came out of programming has the wherewithal to put together and run a successful broadcast company?
Although I was vice president of programming for Radio One, I did understand the other side. I spent six years understanding sales and the financial side of this business, and why you make acquisitions. I was on a number of trips with Alfred where we would look at potential acquisitions, trying to determine which stations we should acquire. We went into a market and heard the station, and did the back-of-the-envelope figuring out what the potential share and revenue for the station was, and how much we could pay for it. I think that it’s because I was in programming that I also understood why we did what we did, and why we acquired the stations we acquired.
So it’s because you were a programmer that you have a specific set of skills that gives you insight into growing a station’s revenue?
My biggest asset was that I understand how to program a radio station and how to get a share. You can have great ratings and no revenue or great revenue and no ratings, and I’ve seen it both ways. But it’s bad to have no ratings and no revenue. My biggest challenges have been learning and continuing to learn the entire financial side of the business, and then putting together a strong management team in each of our individual markets to be able to generate the revenue we want.
Has the fast-track process of consolidation hurt the people aspect of the business?
Actually, consolidation has afforded us the opportunity to hire very qualified people. Tom Kennedy is our general manager at KNOU in New Orleans. Carolyn Jones is our GSM, and Lamonda Williams is our PD. John Tyler, who worked at Gannett and Cumulus, is our GM of WWHV in Norfolk, and he has done an exceptional job with virtually no ratings. We average a 1.5 share of the market, but we made our budget last year. Overall, when you look at the available pool, if you understand where your company is and what you’re looking for, you decide whether an individual fits the company. Whether a person is a jock, a program director, or a business manager, if they expect us to be Clear Channel next week, they’re in the wrong company. We’re not going to be that. We have growing pains, we have the challenges that go along with that. We’re a small minority-owned company that is growing. We watch every penny that’s spent.
What’s your overall business strategy that has allowed you to come into a market and achieve strong success in the ratings—and in revenue?
I can’t give away any of our secrets, but I can tell you that we are very focused on everything that happens on the radio station. We sell virtually everything: the Top 8 at 8 countdown, special concerts, special appearances to qualify for tickets, music mix shows—whatever there is. We also look at On Top’s success as being able to secure the “low-hanging fruit,” and our ratings allow us to achieve our national revenue.
Where do you see growth coming from in Urban radio?
The biggest growth for Urban radio is gospel. It’s here to stay and it is the next wave of what everybody will switch to. It’s an efficient format to debut in a market with a large African American audience.
What's do you think is the greatest challenge in keeping radio fresh?
There are a number of things radio can do to stay fresh. Not just freshening up your promo or your imaging sweepers, but also doing things in the community. Let me give you an example: the Norfolk region is known as seven cities, and we’re taking our popular afternoon drive personality on a tour of the region. It’s called the Hercules Hot Seven Cities Tour, and every Friday he’s going to broadcast live from a different community. You have to just stay in tune to what’s happening in your community. They want to see you. They want to touch you. They want to hug you. They want to know what you’re doing. And they want to feel a part of your station.
What do you see as radio’s greatest competitor, and is the industry prepared to meet that challenge?
Radio’s greatest challenge is the Internet. If you’re able to download music legally or illegally, you’re able to get it and utilize it in many ways. This is one reason that we in radio have to become better programmers. We have to create innovative programming for listeners so they’re excited by the compelling programming. I’m a big fan of MTV and BET; they do a great job of pre-planning what happens, and we in radio must get better at doing that. This means if there’s something coming up you’re able to plan for it, and have a special prepared for it, rather than waiting for something to happen and then you scramble to put something together.
By Reed Bunzel, Editor-in-Chief
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