WHO BROKE CAPITALISM ?

Radio Suicide

Radio Sui­cide or Radio Mur­der?

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 comments… add one }
  • —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.