Giving Away The Store

By John Pellegrini

An open letter to all Radio Station Owners, Presidents, CEOs, General Managers and anyone else in charge:When was the last time you received some sort of business or service for free? I mean absolutely, positively, no strings attached whatsoever FREE? Got your real estate broker to sell your house for you, and he or she waived the commission? Had a dentist do some work on your teeth free of charge? Got your car repaired without getting billed (and I mean not even your insurance agency had to pick up the tab)? And absolutely no bartering for something else took place. I mean out-right-absolutely-no-money-exchanging-completely FREE?

Very likely, the answer is: “Never!” We all know that we never get anything for free. Anyone who thinks otherwise obviously doesn’t understand anything about the way business works in the world.

If you make your living in radio, however, you may not receive anything for free, but you give it away every day. It’s called commercial production. For the most part, it is a service that is performed free to your station’s clients. And I’m here to tell you that after nearly two decades of personal experience in this business, it’s still the most unbelievably stupid thing that radio does!

There is absolutely no reason for this practice. There is absolutely no logical explanation for giving away the single most important part of an advertising contract! If you take two identical businesses, with two identical air schedules, I guarantee you that the one that will be successful will be the one with the most creative spot. But how can we claim that our production will be successful when we tell the client that we do it for free? Why does radio have such little respect in the media industry? Because we whore out our talents for free!

What’s that you say? “We do charge for production. We just build it into the spot rate.” I beg to differ! I’ve talked to advertising agencies around the nation in this past year, from the big markets to the ones so small that they’re not even ranked. The bottom line lowest price you can get a legitimate advertising agency (and not some college student with a typewriter and a boom box to record the spot on) to write and produce radio commercials for your clients, and this is the bare bones minimum, is $300.00. That’s not in the major markets, by the way, that’s out in Turd Kick, Nebraska and Elk Testicle, Idaho. Here in the majors, don’t even try to get one done for less than a thousand dollars, in production fees alone. In fact the bigger agencies won’t even touch you unless you’re ready to spend six figures on your advertising budget.

But let’s get back to the $300.00 figure for a moment. That, as I said, is the bare bones minimum to write and produce a radio commercial in Small Town USA. If anyone offers to do it for less than that, put your wallet in your pocket and run away. Now, and this should come as no shock to any of you, we in radio who perform the same service, should consider our production to be worth no less than that. If you do think it’s worth less, then do us all a favor and get out of the business right now! For the rest of you, here’s a demonstration to prove that you aren’t building the cost into your spot rate correctly. What’s the average advertising schedule like on a weekly basis in Small Town USA? A thousand dollars a week? Hardly. I’ve worked at stations in medium markets (50-100) where the clients who spent that much were considered to be the high dollar advertisers. But guess what, kids? If your advertisers are spending less than a thousand dollars a week, you’re not making any money on your production costs, even at $300.00 per spot! That, by the way, is only if your client has one spot created per one to two month contract buy. You go bankrupt on production if they want more than that many spots.

How do we know this? Simple calculations based upon what advertising agencies charge, combined with knowing your bottom line costs for everything in the station, including salaries of all the people involved in putting the production on the air, not just the production person, but the voice talent (if it’s different from the prod person), and the traffic people, and the other members of your creative staff. Now I know that agencies don’t outright charge for their production either. They instead take a percentage of the advertising budget to be spent. But the fact is, they definitely let you know that they are charging you, and they show you where all that money is being spent and what the production expenses are. Actually, that’s only if the agency does the work in house. If they have to bring in a specialist on the campaign, such as Stan Freberg to name but one, then the client has to pay for the specialist service directly, or pay an additional fee to the agency, or make a bigger advertising budget. The point is, you pay for it, regardless. No one does this for free, is what I’m trying to say.

While we’re at it, let’s look at other media and see how they do it. Television and print charge fees for their production, and they, for the most part, charge those fees outright. I know there are some exceptions, but for the most part the advertiser who has a TV station, magazine, or a newspaper do its creative for them, pays for it separately and above the advertising schedule. In fact, and this may be startling to many of you, most TV stations and newspapers make more money on their production departments than they do in their commercial sales! Sometimes even double! Which again brings me back to my original question, why are we giving away ours for free?

Now, I know that many of us are in a trap here. We have never charged for our services, and many will object to this, including your own sales staff who, up till now, have never even thought that this increased revenue could add to their commissions. They will say, “We can’t make the customer pay for something that they’ve been getting for free!” And if someone challenges them on this, they always revert to the same old lack of vision excuse, the one that has always been used by stores that don’t plan for the future, which is: the customer is always right.

Did you know that the manufacturing giant that coined that phrase, Studebaker, is out of business for that very reason? Studebaker failed because they gave away their store while bending over backward trying to please their customers.

The fact is, in the retail industry (where that phrase really took hold), the best run and most profitable stores (such as Nordstrom’s) have made it their policy that the single most important aspect of their business lies in: customer and consumer education! And that doesn’t mean “the customer is always right!” It means that it is their job to educate the consumer and the customer about making better product choices for themselves and their businesses—which, by the way, is exactly what the best advertising agencies say they do for their clients! In other words, the retail industry has finally embraced the old parable, “Give a man a fish and you feed him for a day. Teach a man to fish, and you feed him for his life! Customer loyalty is not won by giving the customers whatever they want because the only loyalty you have is based on how much more you can give them for the same amount of money the next time. But customer education breeds loyalty because the customer always feels smarter for having dealt with your business! Emotion, not price, is the key to winning the sale. If you still need proof that retail has moved away from “the customer is always right,” just examine any department store’s return policy. You’ll be lucky if they even let you back in the store when you try to return something!

Here is the single biggest cause of lousy radio creative. We give away our talent so we cannot afford to hire better. If we were to charge for our creative services, we could afford to offer better salaries to hire people with more talent. Talk about your supply and demand! You supply free creative, you get crappy creative; thus, you get little or no advertising spent on your station because no one respects anyone who gives away anything in business. If you ran across any professional who gave away his services for free, you’d laugh at that person and never do business with her or him, wouldn’t you? Of course, because we all know that anyone foolish enough to not charge for their services won’t be in business long enough to bother with. They couldn’t possibly have any proper knowledge of their craft if they gave it away for free, right? So, what makes you think your station’s advertisers don’t think that way about your station’s production already?

What’s that you say? “Everyone in radio does it, so we can’t start charging now!” Wrong. You can. There is no law that says you cannot charge for your services. There is only a stupid custom of not charging. But who says we have to do it that way any longer?

You are the makers of the rules, to quote Shakespeare. You, as owners, executives, and managers set the standards by which the industry does business. And if you could suddenly see a revenue increase in your station’s billing from an entirely new source, would it not make sense to seize it? Here’s how to do it. Let’s set an industry policy to be adopted by the year 2000, that all radio stations in the United States will from now on charge a fee for creative and production services. It actually won’t be that difficult to achieve considering how many conglomerates now own hundreds of properties throughout the country. Just make it your industry-wide corporate standard. Who’s to stop you?

What’s that you say? The advertisers will complain? So what? They’ll stop complaining the minute they realize that 1) they have no choice because everyone’s doing it, and more importantly, 2) they’ll get a better value because their creative will be a lot better which, as we all know, will give them better results. How will their creative improve? The additional revenue generated will make it possible for your station to hire some creative people with real advertising and marketing background who can actually help your sales staff go out and sell more air time based on quality commercial work (this is what ad agencies do) instead of just promoting the overnight guy or the weekend board op to handle the production, which in turn, will increase revenue even further.

Plus, if your customers decide that since they have to pay for the production then they might as well get serious about the spots they run and hire a top of the line agency to do the creative, that will also improve the quality of the commercials being run. Then, at long last, maybe we’ll have a better standard of quality in radio commercials which will solve the problem of listener tune out during the breaks, which means that the ratings might just improve across the board for the entire industry, and everyone might even, dare I say it, live happily ever after?

Nah, who am I trying to kid!?

P.S. I know that, inevitably, there will be some jackasses who will refuse to do this, thinking that they will benefit by ruining business for the other stations. Let me suggest that they will only be ruining business for themselves because, as I said before, no one respects anyone who gives away their services for free, especially when everyone else starts charging for it.

Radio is the last of the sleeping media giants to take advantage of an income source that should have been in place right from the very beginning. With all the huge corporate conglomerates being created, and the companies going public in the process, combined with the increasing urgency to make money for these large conglomerate purchases, how can any of us not rush to get this policy in place? We’re only shooting ourselves in the foot by not doing it. Plus, what happens if the even higher-ups than yourselves in the corporate world of your conglomerate one day find out that you could have increased profits by charging for production and chose not to? Would any of us like to speculate on the answer to that question? Show of hands, please?

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