Is there money to be made in small market radio?

A discussion on a Facebook page about small market radio, in the wake of iHeart's chapter 11 filing. I argued that going forward, it would be hard for small market stations to turn a profit. A fellow poster says that it profits were rising. I think they are confusing profit with revenue. So, is there money in small markets?

I provide contract engineering services in several small, relatively isolated markets, where the local station(s) support their staffs and ownerships with a combination of live-full service and satellite-delivered formats. They're up-to-date (enough) with automated technologies to fill in around the programming that sounds best live... meaning nights and weekends are largely automated, while there are actual people at the boards during major listening hours.

These stations have a long-term connection to their communities, some for over 60 years. They're plugged into everything. In those markets, local radio is doing very well.

On the other hand, I live in the shadow of Seattle. Years back, Seattle stations had their hands full, just keeping track of their own city. You rarely heard them mention even nearby communities. That created opportunities for local radio, even where the big blowtorches could be heard. Everyone outside your town was a long distance call away. No more. Technology has brought everyone much closer together, and now Seattle stations can serve outlying areas with the kind of programming the small, community stations can't afford to produce. In those areas, such as mine, the once-dominant local outlets are now mostly ethnic or religious repeaters, fed over the internet from distant studios. It's about the only way they survive, because you can't attract enough local listeners and advertisers to keep the lights on in an area like this, and can't show up on agencies' radars.

For local radio, I'm not sure how iHeart fits in to their success, or failure. In the areas where local radio still works, why would iHeart's fortunes matter?

Money can be made, but you must have the right conditions. If the town is dying, the demand for advertising will probably be too low to make a go of it.
Even in a healthy town, you probably won't make lots of money. Ideally you have 2-3+ stations in one town or adjacent towns so you can get economies of scale.

What this will look like in 5-10 years is anybody's guess. It could happen that social media takes a big piece of the advertising pie in these towns, crippling local radio. On the other hand, in places where there is no daily newspaper and not much media competition, radio could continue to win as a local information source.

leethalweapon said:

A discussion on a Facebook page about small market radio, in the wake of iHeart's chapter 11 filing.

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There's a lot of misinformation about the iHeart filing. The debt was caused by the company going private and buying back its stock just before the recession hit ten years ago. Unless there are over-leveraged small market stations, I doubt there's any correlation. But as pointed out in post #2, there are fewer advertising options as national chains invade small markets, causing local businesses to suffer. If the station focuses on building relationships with local businesses, there shouldn't be a problem.

I would agree to the "economies of scale". I've been a small businessman in the position of buying ads on small-market stations. A 4-station group would present me with a dizzying array of options. The deepest pockets seem to be car dealers; one locally has basically owned a morning show for years now. I used to do some work with the guys in that dealership's service department & one of their job requirements was to record the radio presets for every car that came through there.

Yes, there is money to be made but it depends on the market. The more isolated the better. The further from a Walmart and whether Family Dollar or Dollar General have set up in town has something to do with it. The community has to want their town to survive and choose to support it. If they make every purchase they can on Amazon, you have a problem. Also, the mentality of the merchant is key. Some say they only have a Facebook page. Some are swayed by the big reach of a multi-county shopper mailed to every address. You have to educate them and really center on sales. Naturally, hooking up a satellite and doing virtually nothing will never pay off. You need to provide unique product and sell like your life depends on it. You might not get rich but I know several stations in small towns doing north of a million a year. The people exceeding about $100,000 a month are an audio reflection of the community and they sell direct with custom proposals and such. Their employees make decent pay and get benefits normally.

leethalweapon said:

So, is there money in small markets?

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Answer: No, it is increasingly tougher to make money with small market radio. One of the things my business partner (who manages sales) discovered, was that among other things, Amazon is killing off local and regional advertising. What used to be a consistent, reliable source of income; the local tire shops, auto dealers, local feed and farm, tractor and implement dealers, etc., have either closed up shop, or spend more time using digital and social media platforms for advertising. What's left are the unreliable scraps (clients) like: restaurants, used car stores, independent health clubs. All notorious for being slow, or not paying.

Eventually things might shift the other direction, but that's assuming brick and mortar businesses in smaller communities tough it out. In the meantime, would I recommend someone getting into small market radio these days? Not unless you want to struggle.

Kelly A said:

Answer: No, it is increasingly tougher to make money with small market radio. One of the things my business partner (who manages sales) discovered, was that among other things, Amazon is killing off local and regional advertising. What used to be a consistent, reliable source of income; the local tire shops, auto dealers, local feed and farm, tractor and implement dealers, etc., have either closed up shop, or spend more time using digital and social media platforms for advertising.

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Some of this is due to consolidation. The first station I worked at had seven GM dealers within 30 minutes of the COL back in the 90s, and at least two of them regularly used us for advertising. But in GM's bankruptcy, most of them lost their franchises. There are now three, and they are all owned by the same family. And the local Chrysler and Ford dealers are closed too. The TV is plastered with ads for auto dealers, but not much on local radio anymore.

Ditto in farm implements. One company bought up all the John Deere dealers for a hundred miles, and they target their customers directly. Not a lot of people need an 8 row soybean combine head, and the dealership probably knows exactly who their market is.

And tires. A chain tire place opened in the 90s and, together with a Wal-Mart tire center, put everyone else out of business.

Another factor: fewer franchises offering co-op advertising deals. It used to be that chains with local franchises (Ace Hardware and Trane Heating & Air come to mind) would supply produced ads to their dealer network with a space for tag by the dealer. I rarely notice these any more.

gr8oldies said:

10 years ago I had a major farm advertiser tell me "we don't need grain reports on the radio. The farmers get that information on their laptops"

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Now they get that information on their phone.

You can still make money in small market radio. I'm talking radio in a rural county where a station might be in the county seat. It really depends on the market. Farming communities seem to be the best. I know personally of such stations doing $1 to $1.5 million a year.

There is one market, a town of about 10,000 with about 45,000 in the county. The town and is seeing increases in population (about 10%) while the county is seeing no growth. Retail Sales is just over $700 million. I have a way to get real information on radio revenue on each station in that county. There are 6 stations owned by 4 companies. One group has 3 stations. Two of the singletons are owned by non-profits: a Christian group and a NPR affiliate. Naturally there are a few translators. I have figures for the past 6 years. While the dominant AM/FM combo does quite respectable numbers in billing, the remaining stations account for about 55% of total market billing (this includes underwriting on the non-profits).

In this market there was $1.65 million in radio revenue 6 years ago. The dominant group had about $1.08 million. Fast forward 6 years and the market did $1.4 million with the dominant group getting $810,000. The NPR had gone from about $105,000 to around $150,000 in annual revenue. The Christian station lost about $1,000 a month in revenue over 6 years. The singleton AM was steady at about $150,000 a year. In summary, $250,000 in revenue vanished over 6 years.

Being the curious radio guy I am, I pestered people for answers. I knew it could have been as easy to solve as a good salesperson quitting but I felt that wasn't the true issue. I asked pointed questions such as, "is your client base spending the same, more or less with your station compared to 6 years ago?". My answers showed a market a trend: small market businesses are seeing their customer count and 'average ticket' decline with the consumer going to online retailers and national chains versus the local merchant. In fact, the $250,000 loss over 6 years can be attributed not to a loss of clients using other media but rather the monthly allocation of radio advertising dollars spent. In other words, if the client spent $1,000 a month six years ago on the dominant station, today that would be in the $750 range. In fact, other media options in the county are seeing the same trend although the newspaper has suffered quite a bit through losing circulation, number of advertisers and the amount the client spends annually. For them circulation is down 25% and revenue about 40%.

I checked this against small town newspaper publishers I know personally. I was wanting to see if spending per client was less and if that could be pinpointed to a point when, say a Dollar General or Family Dollar opened in town or if the UPS and Fed Ex trucks had become more common on the county and town roadways. Of the handful that will tell me, it appears their bread and butter, the mom and pop business is spending less because too many locals are opting for the national chains and online options. All the smaller towns are seeing some businesses close up after being fixtures in their towns.

At this point I think it is fair to say there is money to be made in small market radio but the long term forecast is not rosy. I think it is fair to say, if pressed for an average, to see a 4-5% drop in overall revenue annually. Clever stations have begun the newspaper attitude with non-profits of charging if the non-profit is charging for an event. They are courting local churches for Sunday morning. They are selling cheap 'features' that allow the smallest businesses to get a name mention for a few dollars. They are courting the medical and education fields to replace mom and pop retailers. In other words, the smart realize they're going to have to work harder and cultivate a wider base of revenue to make up for a retail trend they do not see changing.

I should have pointed out the smart stations are using their websites to get a bit more of the advertising pie. To bait listeners to the website some stations are posting the ads from their on air Swap Shop/Tradio program on the site daily in addition to local information and news.

I would caution against trades. My first boss in sales said "you can always go down but you can never go up". There is a great deal of truth in that. A client that trades advertising sees you as a less important advertising medium and will generally never see you as worthy of a paid schedule even if you end the trade. You might get away with it as a 'one time' deal after giving them 'the talk' about how you'll only do it once and they had better not utter a word to anybody about it.

That station where my boss said that would allow a trade for a business too small to have a minimal budget to advertise on the station under these circumstances: if a paying client had an event and the tiny business could benefit the paying client's event by offering their service or product they could be mentioned in the paying client's spot. For example, I arranged a tiny flower shop to provide their employees to hand out a flower to every lady on Valentine's Day's evening meal at the client's location, a restaurant. I knew flower shops always had leftovers from their biggest sales day of the year. It helped bring awareness to the little business and added a perk among a few I found, for a good monthly client.

I want to direct people to this interview with Ed Levine of Galaxy Media in Syracuse, talking about a way he's adding revenue to his stations:

https://radioink.com/2019/02/06/the-secret-sauce-that-makes-this-central-ny-media-company-tasty/

leethalweapon said:

... it would be hard for small market stations to turn a profit. A fellow poster says that it profits were rising. I think they are confusing profit with revenue. So, is there money in small markets?

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Profits and revenue are both relevant. Your ultimate goal is profit: imagine having huge revenue, but a larger outlay causing loss!!

To get long-term revenue in a small market, you must provide something people want.

In this age of McRadio, all the formats are so inbred and monotone. Country is all suburban country pop-ish stuff. All Top-40 sounds like Adult Contemporary and Hot AC, etc. Even religious music stations sound a lot like regular AC these days. Old rock is almost identical on all stations playing said format. Then you have a switch up for talk and sports radio that is outside the general McRadio formatting of iHeart and other big chains.

A local outlier in my area began playing gritty, old country standards and novelty pieces from the 50s-80s, and their ratings rose them into prominence in a rimshot market of 200,000+.
A local small-town station hangs on by doing local reporting, farm reports, all local sports for HS and a college, and playing some country, switching to 80s R&B at night for the university students (mostly urban youths).
These stations do well because they have relatively large incomes, a connection to people through unique programming, and small outlay.

The gritty-country station is without DJs or on-air personalities. They offer funny interstitials. Talk is scarce, music is king. Automated. It probably has a crew of one or two, outside of advertising sales. $$$$
The local sports-farm station is run almost entirely by a family: mom, dad, two kids. They have another who does sports broadcasting from local schools 300+ days a year. They do well.

When I hear a radio out here, it is usually tuned to religious radio or the local farm radio, or a talk station. I would assume most rural areas are like this.
Modern music is rejected due to irritability and a cultural disconnect. Info is key, but pleasant or memorable music is desired.
Rural programming is completely against the grain of urban programming, if you are an independent station. You MUST cater to your audience and keep expenditures low.

I have become familiar with several small market operations.One is a single station and the other a small group that owns about 20 stations all in an area about 150 miles end to end for my ramblings here.

The group operates all stations from one spot. Liberal use of computers allows about 20 stations to be fed with about 10 feeds offering about 8 format choices complete with local information,local sports and weather. Many are AM/FM combos. Offices are maintained in each town but these are primarily sales offices. The group can turn a profit selling about 30% of inventory. All but 4 of their stations were losing money when they purchased them. One of their stations billed about $3,000 to $5,000 a month. Today they do about $10,000 to $12,000 with one employee that has an apartment in the station. That person manages and sells while programming comes from the headquarters. They get plenty of agency and regional business too.

The single station market station is a household name in the town and does extremely well focusing on just the county. With use of computers, two full time and 3 part time employees run a very community oriented station with a custom AC format that delivers more people per week than any other media option in the county. Sure the station had been around for decades but in the last 20-25 years underwent several ownership changes and was insignificant a decade ago. It's a 'full service' format but music intensive meaning short information breaks where the same info does not repeat hour after hour. It takes about a daypart before some local info repeats giving the impression you might miss something if you turn the dial. Only the morning show is live. Midday and Afternoon Drive are voice tracked.

Both operations make money and while not quite at the point of needing the Brinks truck for making a deposit at the bank, they're not far from it. And they don't have to sell out to break even. They can sell less than half their inventory and turn a profit. With all the outside sources of information (network, private weather and such) it is pretty easy to create a big sounding station with ample local emphasis and a multitude of voices coming out of a computer that gets frequent local staff generated county information locals feel connects them to the station in that small town county seat.

All in all, lots of stations are losing money but those with a plan and dedication are demonstrating the money is there if you work smart and don't forget to actually serve your community. Sure dollars just don't walk in the door and you have to go out and convince people to buy, but if you will those dollars are found. Too many stations hook up to a satellite feed and don't bother with much local information. Mostly they're not very mass appeal and sound too much like the next station in the next county. Those seem to be the ones hurting most

I am sure there are a lot of things that need advertisement even in small towns. You just need to find your clients and agree on conditions. I know one radio station in a small town in Spain and they advertise commercial property in costa blanca https://tranio.com/commercial/spain/costa_blanca/ all around the region.