Radio Broadcasting

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RADIO BROADCASTING

The radio broadcasting industry is the oldest form of electronic communication. At the beginning of the twentieth century, radio was purely an experimental medium, as innovators struggled with ways to transmit Morse code via the new wireless technology. Over time, the transmission of dots and dashes would give way to the broadcasting of voice and music. By the conclusion of the twentieth century, radio had developed into a multibil-lion-dollar entertainment and information industry used by individuals around the globe.

Radio is a business, linking advertisers with audiences attracted to a variety of programming formats. Radio has the ability to attract different demographic groups with its programming, making it an ideal medium for advertisers to target different messages. Programming is dominated by music on the FM (frequency modulation) band and by talk and information on the AM (amplitude modulation) band.

The radio industry consists of two distinct markets: the local market and the national market. Most listeners identify with the local market for radio programming, which consists of those stations licensed to a specific geographical area. The local market contains a mix of both AM and FM stations. Larger markets, such as New York, Los Angeles, and Chicago, each have more than sixty to seventy licensed stations. Smaller markets may only have three or four stations.

There are more than 10,300 commercial radio stations in operation in the United States. In addition, there are approximately 1,900 noncommercial radio stations, consisting of stations licensed to schools, colleges and universities, and religious/nonprofit organizations. Noncommercial stations operate on the FM band, assigned to the range of frequencies between 88.1 to 91.9 megahertz.

Stations in local markets attract different listeners by offering a variety of different music formats. There are numerous variations of radio formats across the country. The most popular formats are country, adult contemporary, news-talk-sports, religious, oldies, classic rock, and Spanish.

At the national level, radio networks provide syndicated programming to local stations in the form of talk shows (e.g., Rush Limbaugh, Art Bell) and news and specials (e.g., concerts, interview programs). Programming is also available twenty-four hours a day in a variety of satellite-delivered formats, each targeting different demographic groups with various types of music. There are also regional networks in radio, most of which are geared to the broadcasting of collegiate and professional sporting events.

Major Companies in the Radio Industry

In terms of ownership, the radio industry is best characterized as a two-tiered structure. On one tier are several large conglomerates that together own hundreds of radio stations. The major radio owners include Clear Channel Communications, CBS/Infinity, Entercom Communications, Cox, and ABC Radio (Disney). The other tier consists of numerous owners that perhaps own a single AM-FM combination or a small number of stations.

Prior to the passage of the Telecommunications Act of 1996, groups and individuals were limited to a certain number of stations that they could own in each class of stations. The 1996 act, however, removed all national ownership limits, instead placing caps on the number of stations that a single owner could control in a local market, depending on the total number of stations in the market. For example, in the largest radio markets (those with forty-five or more signals), the maximum number of stations that a single owner could own would be eight, with no more than five stations in a single class (i.e., AM or FM). Freed from ownership restrictions, the radio industry experienced rapid consolidation, especially in the financially lucrative major markets.

By 1998, more than seventy-five different companies had merged into one of four major group owners: AMFM Inc. (formerly Chancellor Media), CBS/Infinity, Clear Channel, and Jacor Communications. Clear Channel acquired both Jacor and AMFM in separate transactions in 1999, becoming the largest radio owner in the world with more than eight hundred stations in its portfolio. Industry consolidation, involving stations in medium and smaller markets, is expected to continue, but at a slower pace.

The Products of Radio

The radio industry is a dual-product industry, in that it offers distinct products to consumers in the form of entertainment and information, and access to audiences for radio advertisers. In terms of targeting consumers, stations provide entertainment and information in the form of different music formats that appeal to different demographic groups. Stations deliver music that is provided by the recording industry and geared to the format of the station. The recording industry uses the exposure provided by radio to help sell recordings along with music videos, publications, and other promotional vehicles (such as concert tours).

In terms of information, the radio industry offers talk, news, sports, and feature programming that is produced by a number of different sources. Information may be local in nature, such as news, sports, and features, or may be syndicated in the form of national news and talk programs. Talk programming became increasingly popular during the 1990s on AM stations, helping to rejuvenate the medium that, over the years, had lost audience share to FM stations. Sports-talk stations began to flourish as well, especially in large markets that were home to a mix of professional and collegiate teams.

Advertisers purchase radio time in order to reach audiences in cars, at home, or at work or school. Radio is an efficient medium for many advertisers, complementing the use of print and television to reach target audiences. Radio advertising is broken into three categories: local, national spot, and network. Local advertising is the most important area for the radio industry, reflecting the fact that radio is a locally driven medium. National spot refers to national advertising by major advertisers who buy radio time on stations in specific markets. National spot is primarily found in the top twenty-five radio markets. Network advertising, which consists of advertising that is sold for syndicated and network programs, represents the smallest category of advertising revenue.

Radio advertising experienced strong growth during the 1990s. According to the Radio Advertising Bureau, total radio advertising revenues totaled $8.8 billion in 1990, but by 1998, revenue topped $15 billion for the first time. From 1990 to 1998, the radio industry generated approximately 79 percent of its advertising revenue at the local level, with national spot advertising drawing about 15 percent, and network advertising drawing between 5 percent and 6 percent.

When it comes to audiences and advertisers, radio faces competition from a number of other media and an array of new audio-related technologies (e.g., Internet radio and digital satellite radio services). Economically, the radio industry has never been stronger, but the competitive challenges that face the industry are great. Aggressive marketing and branding remains the best strategy for radio to maintain its competitive edge and awareness among consumers and advertisers.

Industry Evolution

The radio industry showed remarkable resiliency during its first century of existence. As mentioned above, radio evolved as a result of a series of contributions by many different innovators, which led from being able to transmit dots and dashes to being able to broadcast voices and music. By the 1920s, radio had become an industry that was designed not to deliver programming but to sell radio receivers. Over time, radio became an important companion for Americans, a trusted friend during the Great Depression and World War II.

Radio historians refer to the 1930s and 1940s as the "golden age" of radio—a period when the popularity of the medium flourished. In a pre-television world, audiences tuned to radio for the latest news and entertainment programming, especially during the evening or prime-time hours. Amos and Andy, Bob Hope, and Bing Crosby were just as popular with listeners as were Edward R. Murrow, H. V. Kaltenborn, and President Franklin D. Roosevelt (with his fireside chats). Radio networks (e.g., NBC Red, NBC Blue, CBS, Mutual) distributed content on a national basis to affiliate stations around the country. Advertisers used radio to reach mass audiences with a single message, selling all types of products.

The 1950s forever changed the radio industry, as the advent of television in post-war America led to radio's loss of both entertainers and advertisers to the new visual medium. Networks de-empha-sized their commitment to radio. Radio recast itself as a purely local medium, emphasizing different music formats to attract listeners. The FM medium began to emerge as an alternative to standard or AM broadcasting. FM provided a clearer signal, and during the 1960s, it would add the ability to transmit in stereo. FM growth was also fueled by the introduction of AM-FM radios in new automobiles in the mid-1960s.

The year 1973 marked the first time that more listeners tuned in to FM stations than to AM stations. FM radio became more suited for different types of music formats thanks to its higher fidelity and superior sound quality. As a result, AM radio began to lose audiences in significant numbers. An effort to revitalize AM radio with the introduction of AM stereo during the 1980s was a disaster. The Federal Communications Commission (FCC) refused to set a technical standard for AM stereo, which resulted in confusion among broadcasters and the public. Less than 10 percent of all AM stations adopted AM stereo.

During the 1980s, program consultants took on an increasing role in advising radio station owners how to program their stations. Formula radio was introduced and was quickly copied by other stations. "Formula radio" was a term to describe programming clusters of music separated by sets of commercials, leading to the perception of more music with fewer interruptions. Talk and information programming experienced a rebirth on AM stations, and shock radio, with personalities such as Don Imus, Howard Stern, and the Greaseman, both repelled and attracted audiences.

Most of the changes that the radio industry experienced during the 1990s involved revisions of ownership regulations. When the American economy suffered a recession in 1991-1992, many local radio stations experienced heavy losses as local advertising faced major cuts in their budgets. In 1991, three out of every four stations lost money. The FCC relaxed the duopoly rule in 1992, which previously limited ownership to only one AM-FM combination in a market. But it was the Telecommunications Act of 1996 that revolutionized radio ownership, eliminating all ownership restrictions at the national level and leading to the creation of several radio conglomerates. The strong revenue potential of radio, and the opportunity to cluster operations in many markets, led to increasing industry consolidation by the end of the 1990s.

Radio in the Twenty-First Century

Continuing evolution is expected to occur in the radio industry. A number of new technological innovations have the potential to affect the radio industry in both positive and negative ways. Digital audio radio services (DARS), such as Sirius and XM Satellite Radio, will offer high-quality subscription radio services to consumers. Because these services are subscription-based, their effect on terrestrial radio may be minimal in economic terms. However, they may help to siphon away radio audiences, especially among commuters using automobiles and public transportation. Digital audio broadcasting is now technically possible, but the expense to convert analog transmitters and millions of radio receivers to digital technology means digital audio will continue to be limited to technologies outside of radio.

The Internet has the potential to affect music listening habits. Hundreds of Internet-only radio stations have gone online, providing an alternative method of listening to music and information beyond a radio receiver. Internet-only stations face significant challenges in their ability to attract advertisers, but the costs to operate an Internet-only station are very modest compared to a traditional terrestrial station.

Another innovation in Internet-related broadcasting is the development of "personal" radio. The personal radio service uses digital music stored on a server. In a personal radio system, the user establishes a listener profile through an existing service. The user enters his or her music preferences, selecting a genre of music and, if preferred, individual artists. By adding a zip code, the listener can also access local weather. Eventually, access to other forms of local news and information will be possible.

Consumers can also build their own music collections by downloading MP3 audio files from the Internet and then record those files onto blank CD-ROM media. There are many issues, involving copyright and intellectual property, that are associated with MP3 technology. Recording companies are most affected by MP3, but radio stations could be affected as well if the recording industry adopts the Internet as the primary means to distribute music to consumers, thus bypassing radio. Furthermore, audience use of MP3 may mean less time spent with radio, which, over time, could have a cumulative effect on the ability of the industry to attract advertising.

The FCC established a new low-power FM (LPFM) service on January 20, 2000, to create new broadcasting opportunities for locally based organizations to serve their communities. LPFM stations will serve an area with a radius of approximately 3.5 miles, will have a maximum power of 100 watts, and will have noncommercial status. The commission began accepting applications for the new service in January 2001.

Conclusion

Although competition from new technologies is growing, traditional radio in the form of AM and FM broadcasting remains in a very strong economic condition. Furthermore, radio audiences remained stable throughout the 1990s, which in turn helped to increase radio advertising revenues. Consolidation has helped to make radio a more competitive medium for local advertising dollars, outpacing both television and newspapers.