Economies of Scale

by Michael R. Lee, Ph.D.

The production world is getting smaller. The strong will apparently prosper and be worked harder, while the weak, the unlucky and many who deserve a better fate will soon be leaving our business.

Radio production is just beginning to feel the heat of LMAs, and this month marks the beginning of an intriguing, dangerous era called "duopolies." It's essentially a major market phenomenon, since owners don't need more than one FM and one AM in a smaller market to achieve dominance.

In large markets, there are many reasons to acquire third and fourth stations. Instead of dominating a wide variety of formats and audiences, the big radio groups are interested in totally controlling similar formats and certain demographics.

The revenue economics of the 1990's favor consolidation in virtually all industries. Radio has historically been immune from this trend due to F.C.C. rules. Whether owners are allowed sixty stations (thirty AM and thirty FM), as the F.C.C. has mandated, or fifty stations, as the NAB has proposed, this effectively represents an end to the limits that have restrained big operators for years.

Competitively, the twenty-five percent audience cap is virtually meaningless. You could take the ratings of the top four stations in markets like San Francisco, Los Angeles or New York and still not have to worry about exceeding twenty-five percent. But it's prohibitively expensive to operate the top News/Talk, AOR, Country and CHR stations in a large market. So the large operators will be selecting a specific format or demographic niche in the market and owning it. If you had two FM and two AM adult stations in Chicago, no one could really compete with you, because you could crush them with low rates and much more audience coverage. The other lure for owners is to control desirable demos (i.e. 25-44 year-old audiences) and thus get all the national buys in those demos for the market.

As anti-competitive and non-traditional as this approach to ownership is, the real chiller is the other side of the financial incentive. Owners think of it as "economies of scale." You don't need nearly as many sales people or engineers or promotion people as you did under multiple ownership. You also won't find as many General Managers, Program Directors or, alas, production people. The equation works both ways - more revenue, less expense.

The earliest indicators from stations that have gone with an LMA is that the dominant Production Director gets stronger. He or she gets more equipment and perhaps a slightly higher salary. The Production Director at the weaker station either becomes an assistant or finds a new job.

Under this scenario, the problem for the dominant Production Director is that he/she is constantly overworked. Imagine doing all the sweepers and promos for two major stations, utilizing a number of different voices and production material, and keeping everything different, exciting and fresh. Imagine adding a third or fourth station. The initial ego-boost offered by such additional power is soon transcended by unreal expectations. If most General Managers knew how hard a Production Director worked and the stress involved, they would not be so quick to adopt this approach. But as in so much of life, ignorance is bliss.

Meanwhile, the other Production Director loses authority, responsibility and perhaps his/her job. Don't be misled by instances where the Production Director of the weaker station has stayed and maybe prospered. It's fundamentally contradictory to the economic premise of LMAs and duopolies to retain high levels of staffing. In fact, many of the LMA stations are down to a single required employee.

The hard job of a Production Director is about to get harder. And the job of Production Director is going to be harder to find. Economies of scale. Will this increase efficiency? Will it make for more entertaining, more creative radio? Who benefits and who loses in the months and years ahead?

These are not easy questions to answer, but there are certain logical guesses. The most desirable production directors are those with a wealth of talent, experience and versatility. Not coincidentally, those Production Directors tend to be a bit older than the norm. They are capable of doing this massive new job, but they may not have the stamina for it. How many 70 hour weeks does it take to burn out someone who is creative? Perhaps these Production Directors will assume virtual teaching positions. But once they have trained their successors, where does a production professor emeritus go?

Younger, less experienced Production Directors will be less put off by the workloads. Radio has historically consumed youth with a voracious appetite. But burnout is not only a problem of maturity. Many talented younger Production Directors will hit a creative brick wall. There will be significantly less time to learn and experiment as the workload gets out of hand. Radio's advertising recession is already creating more production work vis a vis reduced local spot rates, promotional tie-ins, spec spots, etc.

Without question, this process will increase efficiency initially. Eager to please and receive a regular paycheck, production people will give it everything they've got. But it's not efficient to work beyond your endurance. Spending two hours at the end of the day doing something that would take only twenty minutes when you're fresh is not productive. Eventually, Production Directors will run out of everything, and the lure of having a life may draw them away from this production madness. The saddest part of this whole situation is that we will lose many genuinely talented, intelligent people at a time when we need more of them than ever before.

This is also a time when radio needs more audience than ever before. Instead, the radio audience is shrinking. There are too many other things to do and other media to attend. Digital broadcasting will put more power in the hands of the few. Cable radio has already shown some audience desire to hear music sans jocks or production. Unless radio makes itself better, it will continue to slide down the media ladder.

This process of centralization is not without precedent in modern radio. Indeed, the last few years have seen a proliferation of outside voice talent and top assemblage people who create promos and sweepers for quite a few client stations. They have generally made medium and small market radio sound better and have augmented, rather than replaced, existing Production Directors. The difference in LMAs and duopolies is that they will attempt to go beyond this scenario in major markets. Replacing two good people who already are jammed with one person can lead to no qualitative improvement.

It would be nice to think that there is a silver lining in this cloud of consolidation. Right now, it appears that the equipment manufacturers stand to gain the most. There will be more expensive gear a la digital workstations to help cut the load of production people. But even though this gear is valid and necessary, it will only serve to raise the expectations of ownership/management. Digital or analog, too much work is too much work.

It has withstood the scrutiny of MBAs from Wharton and lawyers from Harvard these economies of scale. We can only hope that most of the good people are around when we find it doesn't work well for radio production.