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July 26, 2014

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Randy Michaels: The Noise You Can't Ignore [09/9/02]
The news came abruptly on July 22: Randy Michaels, Chairman/CEO of Clear Channel’s Radio division, was stepping down from that position to oversee development of the radio giant's interactive, wireless broadband and satellite technologies. Meanwhile, company President/COO Mark Mays would assume Michaels responsibilities within the division until a replacement could be found. It didn’t take a pair of prescription glasses to read between the lines on this one, and within hours the industry was abuzz with speculation, rumor, and innuendo. All the things that great communicators do best.

In fact, immediately following Michaels’ departure from the Radio Division, industry message boards were swollen with vitriolic postings vilifying both him and Clear Channel. Various diatribes claimed that Michaels was everything from “the antichrist of Radio” to “a blight on professionalism” to “representative of the heinous crimes perpetrated by Clear Channel.”

Why such venom? Michaels suggests it largely has to do with an innate fear of change, especially when that change has lasting, personal effects on an individual. Further, Michaels is under no delusion that his and Clear Channel’s approach toward consolidation profoundly shook a lot of people out of their comfort zones and effectively changed their lives—and their livelihoods—forever. Stations were brought together, cultures were forced together, people lost their jobs, other job responsibilities mounted, and budgets were tightened—all in the name of creating cost efficiencies and generating critical mass. Along the way, some members of the Radio community began to lament a loss of innocence—both theirs as well as the industry’s—as rapid-fire evolution changed the radio business almost overnight.

Michaels is clearly cognizant that some people need a scapegoat against which to vent their frustration and anger, and accepts that he’s been elevated to that ignoble role in Radio. In a sense, he says, change needs a whipping boy, and while he’d rather not be trashed in the message boards, he understands why some people feel a need to do so.
There are some things that, for a variety of reasons, Michaels still does not feel comfortable talking about. For instance, it’s too soon for him to discuss the events that led to his hastened departure from Clear Channel’s Radio Division, and equally premature to discuss what comes next. But in a recent exclusive interview Randy Michaels was eager to peel the onion on several issues that both he and Clear Channel recently have found themselves in the middle of, including the relationship between Radio and independent record promoters, Clear Channel’s use of voicetracking, and accusations that Clear Channel’s Entertainment and Radio divisions have strong-armed touring artists, while at the same time shutting out independent radio stations and concert promoters.

INK: Does it bother you that you’ve been so vilified by certain elements within the radio industry?
We’d all prefer to be liked, so of course it bothers me. I think I personify uncomfortable change in our business for a lot of people. I don’t read the message boards all that often, but when I do the depth of misunderstanding and misinformation is pretty significant. However, you can’t manage a company in the middle of fundamental change listening to the segment of the public that whines on the message board. I don’t know what motivates these people to complain, but the amount of noise associated with radio’s consolidation is significant and surprising—especially when you consider that every industry is in the middle of fundamental consolidation. But when you look at the amount of dislocation that’s occurred inside the industry in a short period of time and the amount of change that’s occurred externally, that probably accounts for the noise level.

A lot of people seem to blame you—and Clear Channel—for virtually all that is perceived to be wrong with Radio today. Why do you think this is?
Psychology is not my expertise, but the noise level certainly is high and there are quite a number of factors that contribute to that. The most significant of those is the speed with which consolidation is occurring. Before 1996, even in the days of the 20-20 rule—when you could have 20 AMs and 20FMs, with 2 AMs and 2 FMs per market—a broadcaster could only be in ten markets. Imagine if hamburger restaurants could only have ten outlets, how different would that business be? And what if, on a particular date—say February 12, 1996—they were told that instead of ten McDonalds they could have many as they wanted, and McDonalds rolled out in four years the platform they have today. The protest would be very loud.

Has the Radio industry spent enough time studying how other industries dealt with the pressures of consolidation rather than just listening to itself?
Since radio is a consolidating business, we have nothing to learn from radio broadcasters and everything to learn from people who’ve been through consolidation. One of the reasons Clear Channel has been able to consolidate so quickly is because we’ve looked outside our own business and said, “How do the airlines and banks do it when they consolidated? What problems do we have that they’ve already solved?” Still, no matter what business you’re in, there’s a tendency to rely on the expertise within that industry.

A lot of people in Radio lament the “old days” of radio. Was the business inherently more fun than it is today?
The early days in anyone’s career usually are the most fun. That’s true no matter what time you get into it. The kids who are getting into radio today are having the most fun, and they see this is the right way to do radio. I read an interesting article written by [talk show host] Jack Ellery, who was lamenting the state of radio today. He talked about how we left the days of the smooth professionals from the 1950s for the sort of raucous wild ‘60s, the uncontrolled ‘70s, and the bland ‘80s and ‘90s, and the unlistenable, cacophonous vanilla crap of today. Now, I know some people who were in radio back in the days of live orchestras and performers, and they have a much different view of the 1950s. They see the ‘30s and ‘40s as real radio, while the ‘50s with disk jockeys sitting between two turntables absolutely stunned them. They hardly thought that someone with a canned laugh track and a cowbell and a couple of turntables was doing radio. “Disk jockey” was not a complimentary term from anyone who did radio in the ‘30s and ‘40s, whereas Jack sees the ‘50s as the penultimate time.

Is independent promotion a necessary evil in Radio programming, and can it be made into a legitimate line item?
First of all, I’m not sure it has to be evil. Second, I’m not certain that it’s necessary. And third, it can be made into a line item, although in our company not at the station level. Independent promotion started when there were independent labels. At one time even the majors—the Columbias and the Warner Bros.—had relatively small segments of the music business. Now the labels have consolidated and, as Congress has started to look at some of the promotional activities at the radio stations, the labels have found it convenient and safe to use independent promoters. The label wants to get music played, they have big budgets, and they’re willing to do just about anything to get their records on the air. I’m not accusing anybody in particular of any wrongdoing in particular; but you and I both know that record promotion people in their enthusiasm to get a record played have been willing to do almost anything, including compromising the integrity of a program director or a manager. And that is bad for the radio station.

Recently the recording industry claimed that Radio is to blame for the independent promotion system. Can you find any logic in this claim?
The record labels have shown a long willingness to bribe radio stations. A hundred percent of any money that ever has gone to payola has come from the labels or from artist management. The radio stations never paid the labels to do anything wrong; the label pays the radio station to do something wrong. The entire independent promotion system stinks. As we bought radio stations we found that structures had been set up in what I believe were a very poor attempt to get around the payola laws.

Yet Clear Channel has been the focus of several news stories because of its corporate system for accepting independent promotion dollars. What’s your take on this?
Payola is simply the process of playing a record for consideration—money or items of value—without telling the audience. What we found at an awful lot of stations we bought was that an independent promoter was paying the station based on a formula, so that every time the station added a record they got a credit in the “bank.” They could then redeem those credits for concert tickets, promotion items, T-shirts, fireworks shows, or even cash, if they needed some extra money to make the bottom line. To me, there is no difference between paying the manager to play a record and going through the process of getting credits in the bank that can later be converted to cash. One process is a little more complicated, but both involve a payment for airplay. It is not just illegal, but it’s also stupid, because it compromises the integrity of the radio station.

Did these payments directly influence the number of records that a station would add?
In many cases there was a direct increase in payments depending on how many records you added. I know of many circumstances where a PD would say “I need a little more money in promotions, what the hell, I’ll add a couple more records.” So what we told the labels was that if they were going to pay the independents all this money, and those independents were going to pay radio stations, we were going to take those payments right to San Antonio. The radio station will never see the money, the manager doesn’t get to apply it to his bonus, and the program director doesn’t get to spend it in promotion. I did this to remove the bribe potential, fully expecting that the payments to independent promoters would decrease.

Did you miscalculate the reaction of the record labels to the system you set up at Clear Channel?
I underestimated how loudly they would scream about this change in the system, because it clearly led to fewer adds on the average radio stations. Without the “bank” the number of adds dropped, and the labels are absolutely crazed about it. What Clear Channel is doing is far from being payola; in fact, it’s the best way I can think of dealing with a system they invented and keeping it from being payola.

So why are the record labels crying “foul” so loudly when it could be argued that you’re actually saving them from themselves?
I spent some time with some labels heads a couple of weeks ago, and they told me the Clear Channel system is less efficient for them. But that’s the intention, and I admitted that. Second, there is a fear that if the labels don’t pay, their records won’t get played. Back in the days when independent promotion was a little more effective, with guys like Joe Isgro and Fred Disipio, there was the famous time when one of the labels decided not to pay the independents and a record did get held off the air.

So ultimately, independent promotion stems from fear…
It’s very human to fear the unknown and to fear change. Think about it: evolution says that has to be so. People who didn’t fear the unknown have been eliminated from the gene pool. Those people without fear who came face-to-face with a bear or stuck their head in a fire—they’re gone. We all fear the unknown, and in the absence of information we tend to imagine the worst. And that’s a very good tendency for survival, and I can understand why the labels are paranoid. But there has never been a group add at Clear Channel, there has never been a group drop, and there is no connection between the payment and the people making the record decisions. I don’t know—and I don’t want to know—what records the independents get paid to work, and what they don’t.

What would happen if Clear Channel stopped taking the independent promotion money?
As long as they pay the money I’m going to take it. If they don’t want to pay the money, that’s fine. They all believe that money is really important to us. Every dollar is nice to have, but I will tell you that given the cash flow that Clear Channel Radio is going to generate this year, the record label money won’t change our percentage profit at all. The system Clear Channel has set up is much more about taking the potential for bribery and corruption out of the system then it is about increasing our NTR.

Clear Channel drew considerable fire when it consolidated the sales efforts of the Entertainment division into the Radio division. Can you explain the thinking behind this?
There’s a great deal of misperception there. Certainly there is some truth to the fact that CCU radio and entertainment are synergizing, but let me explain that. The concert venue is a tremendous place for an advertiser to reach an audience. People attending a concert are experiencing something with tremendous emotion. They’re seeing their favorite artists, so they’re emotionally vulnerable. This is a wonderful time to expose a product, a wonderful time to do sampling, and a wonderful time to create a bonding experience. Now, in a market like Cincinnati, Clear Channel Entertainment typically had one person in the market who might be out trying to sell signage, premium seating, and product sampling opportunities. Now, in the last couple of months, we have rolled that into Radio so that we’ve gone from one person who’s selling to 100 people. The opportunity to put your product or service in a venue, in combination with radio time, creates something that’s pretty difficult to duplicate. There’s no question that we can use radio research to start emerging artists quicker, and we do cooperate in that way.

Many independent companies have complained that Clear Channel has a lock on local venues and concert production. True?
There’s no question that where the call is close, the Clear Channel Radio station is going to work with Clear Channel Entertainment. But both divisions operate with enlightened self-interest. Clear Channel Entertainment works with every broadcast company because it would be crazy for it not to. Meanwhile, Clear Channel Radio continues to accept money from and work with other promoters, like the House of Blues and everybody on down, because to would not be in its interest to do otherwise. Most of the radio shows that are done by other companies are produced by Clear Channel Entertainment. The Clear Channel Kiss FM Wango Tango in Los Angeles is certainly produced by Clear Channel, but on the same day Infinity tried to fire a shot across the bow by doing the K-Rock Weenie Roast on the same day—and that was produced by Clear Channel Entertainment. If there’s a coin toss as to which station got a certain show, there’s no question there’s going to be an advantage within the company. But if Clear Channel Entertainment can make more money on a show working with Infinity, Entercom, or Cox, that’s what they’re going to do—and that’s what they do do.

Clear Channel also has drawn fire for eliminating live, local announcers in favor of voicetracking…
The motive in voicetracking is not really cost savings. The motive is to bring better talent to more transmitters. The liner-card reader can be replaced with voicetracking and, properly done, it can be better than the live staff you can afford. If you look at the performance of voice-tracked dayparts in Arbitron, certainly the audience doesn’t reject them. It’s the guy who can only read the liner card who feels left out. Voicetracking is all about improving product quality and yes, you can save some money.

What would you say to the people who claim that voicetracking restricts the amount of new talent that’s being brought up through Radio’s ranks?
Gosh, I’m not concerned about that. There were days when young programmers used to drive around and listen to small markets for talent, but the number of people who really have the potential to move up and make a lot of money in this business has always been small. What we have today through voicetracking is fewer jobs but better jobs. Typically talent gets paid for every shift that’s voicetracked, which means that someone who made X in the old days working in Minneapolis can probably make 2X by working in Minneapolis and exporting some shifts to smaller markets in the area. And while that may eliminate six or seven shifts and result in a net savings, it means there are fewer but better jobs. In some extent it’s no different than when studio orchestras were phased out in favor of phonograph records. I have many friends in their 80s who believe that radio died the day that recorded music began to be played.

How do you respond to the criticism that voicetracking is the death knell for live, local Radio?
The fact is, the death of live and local started right after World War II when we started to play phonograph records. It really accelerated with the emergence of TV and the dismissal of the studio orchestra. All we’ve done is pre-record, just a few minutes early in most cases, some of the DJ introductions, and to the extent that the trade-off is better talent, it’s not only good for the industry, it’s good for the listener. And therefore the advertiser.

So where is the new Radio talent coming from?
Anyone who is successful in radio today as talent is a little bit nuts. They all started under awful circumstances. No matter who you are, you typically start at a small station. You work overnights, holidays, and weekends, you pull horrible hours, you go in during bad weather when no one else can get in. You work for very little money, in a crazy, ego-driven environment. When I got into radio I couldn’t wait for someone to get sick. I loved going in at two in the morning; Sunday morning 6 am seemed like a terrific time. And if you have that kind of sickness you’ll still get into radio. The people who have that sort of twisted need to be in this business will get in. And what they will find is that, thanks to voicetracking, they may not have to be there Christmas morning, and if they have some ambition they can come in and make more money right out of the gate.

How serious is your new gig as head of Clear Channel’s New Technology Division?
I believe that the new technology position is and should be a long-term position for CCU. For a long time I’ve been a voice within Clear Channel saying that we should explore new technology and we should time it right. What a lot of people learned painfully is arriving at a space before there’s a market there is expensive. Look at the Internet. I don’t think any of us doubt that there’s a huge future in the Internet space. Convergence was very popular a couple years ago, the whole idea that content would be repurposed and delivered in multiple ways, maybe over conventional terrestrial media and new digital media. That was seen as natural evolution, something that was unavoidable, and everyone got ready. And, I think, a little too quickly. I continue to believe that we will see the ability to deliver content to a consumer in a lot of different ways, and all kinds of new opportunities are about to open up—it’s just a matter of timing. But I don’t think that spending a whole lot of money on convergence today is a smart idea. I also think that not planning for it and not getting ready is a terrible idea.

Is consolidation near its end, or is there more to come?
We are in a time of tremendous change, not just in terms of the world at large, but in this business in particular. We are being whip-sawed by two very rapid changes. One is deregulation. And while there’s a feeling in radio that dereg has occurred, it would be my perspective that there is a different round to go. The ad agencies have fully consolidated, the labels have consolidated. But Clear Channel, the world’s largest Radio group, only owns 10 percent of the stations in this country. In any other business you can name, that’s not a big number. There are still 5000 radio station owners out there. There’s a lot of consolidation still to occur, and a lot of consolidation strategies yet to occur.

How do you view your role through all this change?
It has been an absolute thrill to figure out how radio should approach consolidation, and how this industry should change. There is no thrill like being the guy who gets to drive that vision. At the same time I’m frustrated by how slowly things occur, because so many things I envisioned and wrote up in anticipation of deregulation in 1996 still aren’t quite there. I just assumed that within a year we’d be entirely interconnected terrestrially and by satellite, we’d be able to go into the production room and produce something, maybe it runs on 12 stations, and you push a button and it gets there in the most efficient way possible. That we’d have online management that would let you put together a schedule that might run on 18 stations, you could price it, order it, send it around digitally and have one invoice come out, and to me it seemed like 18 months that all that would take, but we’re still working on some of those systems. On the other hand, I’m amazed by how much noise there is over what seemed to me to be completely logical changes.

What’s next for Randy Michaels?
I was the architect of the largest radio group in the world, and I’m ready to move on to the next. Everyone has to decide how they’re going to play this, but to steal a phrase from the new CEO of Procter and Gamble, “Change is inevitable…lead it.” Everyone on a personal level needs to adopt that attitude. Change in this business in particular is inevitable, and it’s going to occur more quickly than in any business I can think of. You have two choices: you can either fight it or you can lead it. And I think the intelligent choice is obvious.


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