Why small markets beat big ones


It’s well known that small market radio stations have been performing much better than their big market brethren in the current ad downturn. CL King analyst Jim Boyle says it’s because the big market guys are wedded to spreadsheets and sell based on price, while the small market operators still practice “old radio” and sell quality rather than price.

Here’s some of his analysis:

“Small Market Radio is Healthy because it Practices ‘Local Radio’ or ‘Old Radio’: Small market radio has trounced big market radio for 16 of the last 17 months. The average gap in revenue growth has been by 4.6 percentage points. The average small radio market has grown its revenue by 1.4% per month during that period. The average big radio market has seen its revenue plunge by 3.2% per month. Why such a wide gap when they are in the same business? Small market radio has much more local radio content. Small market radio sells quality rather than price and results more than switch-pitching their radio peers’ clients. (The data comes from the confidential 45-50 markets information that we have gathered and analyzed.) When we often listen to radio veterans discuss radio’s present and its future prospects, they often describe the small market successes as simply ‘old radio.’ Before the giant groups built unwieldy giant platforms that had corporate/regional management too far removed from the local pulse, local audience and Main Street clients, there was local ‘Old Radio’ and it grew sales 6%-8%.
Big Market Radio is Ailing because It Tries ‘Excel Radio’: We recently had lunch with four private radio executives. They have operated stations in many sized markets. They had no falling stock prices to defend or ‘spin.’ We listened to them, as many others in the last few years had detailed as well, that in the big markets the big groups are indeed different. Big market groups tend to overcentralize decision-making regardless of differences in cities. They budget and plan from the ‘top-down’ rather than from the ‘bottom-up.’ They ponder Excel spreadsheets and tweak assumptions as though that will make it all come true. Big markets sell based on price. The big groups say they attempt to develop new business from outside of existing radio ad budgets. But we are told by sales execs year after year they really just try to steal other radio peer ad business so as to shift market share, not build the overall ‘radio ad pie.’ When most radio groups went public in the 1990s the top executives declared radio was management-intensive, locally-focused and people-oriented. No longer, it seems to us and to the many veterans unshackled by the typical company talking points.
How Can Investors Benefit from This Severe Dichotomy? During the recessionary times, we do not believe the small market radio outperformance will be recognized by investors. Once the economy rebounds, that could be when investors might become selective and might get rewarded by something other than the infrequent ‘going private’ event.”
That’s what Boyle had to say about what has been going on. Then he asked and answered an interesting question: What are radio leaders doing to change directions?

“The industry’s larger groups do not appear ready to institute revolutionary changes yet in sales, programming, promotion or station clusters. There is a notable sense of denial of how harsh the prospects have been and continue to be for radio. The classic CEO reply is radio is at least radio is not bleeding as badly as newspapers. There’s a battle cry for the radio sales teams. We conceded there is too little radio ad demand, but there is also way too little rate card integrity and too little investment in radio’s product and people for the long-term. It looks to us as the leaders’ talk (and their walk) is for the most part sluggish counter-punching. A goodly portion of the industry sounds frustrated.”

RBR/TVBR observation: If you’ve never worked in small market radio, you may not understand how different the sales approach is from big markets. We’ve been there, as has Jim – which makes him quite unique on Wall Street. His observations are right on point.