Radio used to make money through advertising. Radio stations had a motive to engage the public in order to sell their ratings to the advertisers. “We sold the advertiser [an] audience,” says veteran broadcaster Dick Fatherley. Here capitalism works because the station makes money by being relevant to the audience.
Nowadays radio, like many other industries, makes its money through high finance gamesmanship. Money is made by buying and selling the company rather than what the company produces. In this model it makes sense to cheapen the product for short term financial gains. In other words a station can fire an entire staff and then post the reduced overhead as if it were a profit. This works for a short while till the listener gets sick of automated radio. It works perpetually when they can do it to the entire spectrum because the consolidator does not have to face their biggest fear: competition. The loser is the listener, the community and the radio station employees.
Private Equity firms are not afraid to overpay for a radio station because the consequences of that overpayment will be directed to the countless employees that are fired in the name of “efficiency” (not themselves). Overpayment also allows them to buy-out competition that might embarrass them by beating them with better Arbitron ratings. This puts undue pressures on non-Private Equity companies to trim the same amount of staff because overpayment by private equity artificially balloons the price of the spectrum for everyone else. In other words, when one party overpays, it raises the price for everyone.
2 thoughts on “WHO BROKE CAPITALISM ?”
—High-profile buyouts by private equity in 2007-08: Chrysler LLC (now to be majority-owned by Italy’s Fiat Group SpA), utility TXU Corp., Equity Office Properties, radio station owner Clear Channel Communications Inc. and eye-care products maker Bausch & Lomb Inc.
Yes in in each case we see the market losing competition too.