‘80s Radio: The Sound of Money and Format Changes : Broadcasting: The frenzy of buying and selling stations was spurred by FCC deregulation and by Wall Street. Some see creativity suffering as a result.

What better way to end a decade already dubbed “The Greed Decade” than by closing out with record prices for radio stations?

Group W finalized a mega-deal this month to buy eight stations from Legacy/Metropolitan Broadcasting (including KTWV-FM “The Wave” in Los Angeles) for a reported $385 million. With the acquisition, believed to be the largest all-radio transaction ever, Group W--which already owned 14 stations, including all-news KFWB-AM in Los Angeles--becomes the second-largest owner of radio stations in the nation.

And Viacom International, heretofore best known as a film producer and TV program syndicator, shelled out $101.5 million in November for an AM/FM combination in Denver and Los Angeles radio station KJOI-FM. The Southern California Broadcasters Assn. estimated the KJOI portion of the purchase to be in the $80-million to $90-million range.

The history of KJOI’s change in ownership and its steadily rising price tag dramatically illustrate what went on in the radio world during the ‘80s. The station had sold for $18.5 million in 1983 and $44 million in 1986 before Command Communications paid $79 million for the highly rated station in June, 1988.

Big price tags and frequent ownership changes show that radio has been rediscovered by Wall Street. Investors doled out more than $3 billion for stations in 1988, up 50% from the previous year’s dollar volume.

“This has been a real interesting 10 years for radio,” said “New Age” KTWV general manager Allan Chlowitz, who started out the decade as general manager of “Oldies” KRTH-FM. In the 30 months he has been at the helm of “The Wave”--the only genuinely new music format to emerge in the ‘80s, Chlowitz has seen the station bought and sold three times. In less than a decade, he has watched prices for an FM station escalate from a little more than $10 million “to the mid-$80s.

“I don’t think anybody could have predicted those kind of numbers,” he said.

Deregulation seems to have inspired new investors and prompted renewed interest in radio. The buying and selling frenzy--more than 1,000 of the nation’s 9,000 commercial FM and AM radio stations changed hands in 1988--has been spurred by the Federal Communications Commission’s deregulation of the airwaves, which loosened restrictions on ownership, and by Wall Street’s heightened interest in radio as an investment.

In 1985 the FCC increased the maximum number of radio stations that can be held by a single owner to 24 (12 FM and 12 AM) from 14. Risk could now be spread over more stations. And in 1982 the commission also eliminated an anti-trafficking rule that required broadcasters to own a station for at least three years before selling it.

“When they took the trafficking rule away and let people buy and sell quickly it escalated and got the Wall Street banking community involved,” Chlowitz said. “It opened up another game to play. . . . It’s gone wild.”

“Because the three-year rule went away, it’s more of a real estate business,” said media consultant Jeff Pollack.

Funds are increasingly available from Wall Street now to finance the multimillion-dollar deals, radio analysts say.

Wall Street began to show real interest in radio acquisition with 1986’s initial public stock offering of Infinity Broadcasting.

In Los Angeles the “stick” value (or average price) of a radio station is said to be between $56 million and $86 million, based on sales of stations that occurred this year. And the trend of high prices is expected to continue into the ‘90s.

“Certainly, top value will continue to be paid in L.A.,” Chlowitz said.

However, in the process of becoming highly profitable, radio has gone from being entertainment to serious business.

“Because of price tags being paid, all of a sudden there’s enormous pressure to really get the business to pay off all these debt services, so now it’s not as friendly as it used to be,” said Bill Sommers, KLOS-FM’s general manager. “Radio is strictly a business, it’s not fun anymore.”

Whole media companies are concentrating on radio and making it their primary business.

Infinity Broadcasting, based in New York, is one of a handful of media chains that specializes in radio ownership exclusively. Some of the other notables are Legacy Broadcasting of Los Angeles and Noble Broadcast Group in San Diego.

In the past, many stations were family-run businesses .

“It was mom and pop until about 5 years ago,” said Pat Clawson, trade magazine Radio and Records’ Washington-based financial editor. Now, savvy operators brimming with business acumen are running stations, many with little or no affinity to or background in music. Rather, they are relying increasingly on market research to help them develop their programming strategies and play lists.

“I think now radio is less seat-of-the-pants than it’s ever been,” said John Dobel, Western regional manager of Birch Scarborough Ratings Service. “I think it’s a better business now than it was in the beginning of the decade. . . . There’s more money being invested in radio stations today. There’s more research being used. There’s a better understanding of what the product is.”

Said KJOI vice president and general manager Bob Griffith: “Research now plays a large role in programming decisions. This is not a fly-by-night business anymore. We changed our format (from “beautiful music” to soft hits) and we spent hundreds of thousands of dollars in research to make sure we were doing it correctly, and we will continue to spend that kind of money to make sure we’re on the right track. You can’t do things seat of the pants anymore. . . . You can’t take an $85-million product and play with it.”

Indeed, creativity and experimentation were on the wane during the ‘80s when tried-and-true formats predominated.

“The ‘80s were an uninspired decade from the creative standpoint,” Pollack said. “But they were profitable. Because of the economic realities, it’s difficult to have a free-wheeling, experimental, entrepreneurial spirit.”

Increasingly, market research concepts such as focus groups and song testing are being utilized, and such terms as psychographics and demographics are being bandied about by programmers and station owners.

A case in point is KKBT, the new “urban rock” station that rose from the ashes of Los Angeles’ only commercial classical station, KFAC, which played its last waltz in September. KFAC was purchased by Evergreen Media Corp. in January for $55 million, a record price for a classical music station. When Evergreen took over early in 1989, it spent more than six months researching formats and planning its debut.

Its general manager announced that he wanted his station to “identically mirror the demographic and psychographic make-up of L.A.” The potential audience was surveyed and each song on the play list was tested and chosen to appeal to 60% females, 40% males and a wide spectrum of ethnic groups within the ages of 25-44.

One-and-a-half million dollars was spent on programming, including music testing, consultants’ fees and focus group research. Much of the budget--$2 million--was spent on advance advertising and publicity. One million dollars was spent on billboards.

Before KKBT’s debut was the celebrated entrance of KQLZ, or “Pirate Radio,” which spent a small fortune blitzing Southern California with billboards and advance publicity. New York super-deejay and programming wiz Scott Shannon shrewdly filled a gap in local radio by playing an eclectic mix of rock and heavy metal and the station shot up to the Top 5 within three months of its debut.

While more money is spent on the acquisition of radio stations, more money is being made on radio through advertising.

Advertising revenues are at an all-time high, hitting $8.2 billion nationally in 1989, an 8% increase over last year’s $7.7 billion. Revenue growth has a direct bearing on station prices because stations are valued according to cash flow rather than assets.

And revenues in Los Angeles--the nation’s No. 1 market for ad billings--have risen markedly throughout the decade.

Each year Los Angeles ad revenues have broken new records, topping the previous year’s totals by significant sums. Los Angeles radio ad revenues are significantly above last year and are expected to exceed the $385-million mark in 1989, up from $353 million for 1988. The first six months of 1989 were the highest in history, according to J. Rae Padden, vice president of Radio Advertising Bureau.

Some of the biggest gains in money spent on radio advertising nationally included banks and savings and loans, whose radio advertising increased by 199% since 1980. Automobile dealers’ ads jumped 183% since 1980. Grocery stores and supermarket advertising grew by 173% since 1980.

Another factor that has contributed to the new-found success of radio as a business venture is the increased number of listeners in cities such as Los Angeles plagued with traffic and congestion. The majority of people listen to radio in their cars. Those trapped in traffic jams are captive audiences for radio, said Griffith.

“All you have to do is look at those freeways at quarter to 5,” Griffith said. “Every traffic jam is an opportunity to a broadcaster. You’re dealing with a medium that has very much a captive audience in the automobile. It’s bordering on the oppressive.”

In fact, the number of cars on the road has grown substantially from 1980, and the number of radio listeners has grown along with it. In Los Angeles County alone there were 729,964 more cars registered in 1989 than in 1980, bringing the total to nearly 4.5 million on the road. In addition to more cars on the road, people are traveling more miles. At the beginning of the decade drivers collectively traveled about 45 billion miles on Los Angeles County roads. In 1989 that figure had ballooned to 70 billion miles.

Each day radio is said to reach an estimated 80% of all Americans and the use of radio has grown by 16% since 1980, from 456.2 million radios in use in 1980 to 527.4 million being used in 1988. Radio sales have also gone up 47% between 1980 and 1988, from 50.4 million to 73.9 million sold.

In Los Angeles the stakes are particularly high: 82 stations vie for the ears of several million people. As the population grows, the number of stations stays fairly steady. “You’re dealing with an intense supply and demand,” Griffith said.

“You’re talking about massively appreciating assets,” Griffith said “You’re not talking about walking away with a couple million in profit. You’re talking about massive profits.”

Ironically, despite the atmosphere of deregulation and loosened restrictions, the late ‘80s were also a time in which the FCC exerted a greater degree of control over programming content than in previous decades, particularly in the realm of decency in broadcasting.

In 1989 several broadcasters were fined thousands of dollars for allowing disc jockeys to play sexually suggestive songs deemed indecent or discuss the “depiction or description of a sexual or excretory organ or activity in a manner that violates contemporary community standards.”

As the “shock jock” phenomenon became increasingly widespread during the latter half of the decade, objectionable material seemed to irk the FCC more and more.

“I think we’re getting into more regulation than we’ve had in a long time,” Pollack said. “The thing we have most to fear is the FCC looking to prevent the creativity that makes radio such a wonderful medium.”

Pollack cited the endorsement of one-third of the country’s senators applauding FCC Chairman Al Sikes’ efforts to crack down on “indecent” broadcasting.

“The decade has ended up on a very chilling note,” Pollack said. “As the freedom in Eastern Europe sends a wave of exhilaration, it looks like we’re going in the reverse direction here with decency.”