Fri Jun 11, 6:12 PM ET Add Entertainment - Reuters to My Yahoo!

By Brian Garrity

NEW YORK (Billboard) - Controversy surrounding overnight airplay on radio is nothing new for the recording industry. But the current flap over tracks played late at night in label-sponsored "spin programs" presents a new twist on past grievances.

Just a few years ago, labels were complaining bitterly that radio programers were relegating new singles to the overnight hours. Now many labels are shelling out thousands of dollars per week to have songs played between midnight and 6 a.m.

A growing number of labels are purchasing overnight advertising time at small- to medium-size radio chains and using the time for repeated play of singles in their entirety -- sometimes hundreds of times in a given week.

These spin programs, or "spot buys," have emerged in the past year as increasingly popular tools for labels looking to influence airplay chart positions.

CHART EFFECT

No one in the industry is questioning the legality of the sponsored spins. But there are serious concerns in many quarters about their impact on the hit-making process.

For instance, while much of Nashville slept during the pre-dawn hours of May 23, Avril Lavigne (news)'s latest single was airing as many as three times per hour on top 40 station WQZQ.

The Cromwell Group-owned station played "Don't Tell Me" 18 times between midnight and 6 a.m. that Sunday, according to Nielsen Broadcast Data Systems. In contrast, the song played a total of four times during the rest of the day.

Lavigne's label, RCA, purchased the ad time though an independent promoter -- Brian Krysz, an affiliate of indie promotion firm National Music Marketing. The label bought similar blocks of airtime for the song on other overnight shifts in Nashville that week. It simultaneously employed a similar strategy with at least five other small- to middle-market stations across the country, sources say.

During the same weekend that RCA was using spot buys to push "Don't Tell Me" into the top 10 of the Billboard Mainstream Top 40 chart, Interscope was pursuing a similarly aggressive spot-buy strategy with the same independent promoter for the top 10 run of Black Eyed Peas' "Hey Mama."

How many people actually hear the sponsored spins is beside the point. The airtime is purchased to reach an audience of two: the airplay monitoring systems of Nielsen BDS (owned by Billboard parent company VNU) and its rival tracking service, Clear Channel-owned MediaBase.

"It's not about selling records, it's simply about getting spins," one major-label senior VP of promotion familiar with the practice says.

Nielsen BDS and MediaBase count all complete song plays in the data they compile, whether sponsored or not. As a result, sponsored airplay of a song can influence its position on the singles charts of Billboard and sister publication Airplay Monitor, and on competitors' charts.

With Nielsen BDS reporting that only 52 spins separated Lavigne's "Don't Tell Me" from the No. 11 track on that week's Mainstream Top 40 chart, label-sponsored airplay appears to have proved critical in securing the song a top 10 slot. It moved from No. 12 to No. 9 the week of June 5.

As for the Black Eyed Peas track, sources say "Hey Mama" -- which came in at No. 11 on the Mainstream Top 40 chart the previous week, two spins shy of the top 10 -- received more than 80 spins through spot buys to help push it into the No. 8 position.

RCA and Interscope are hardly alone. More than 25% of the singles on Billboard's current Mainstream Top 40 chart are actively supported by such label-funded airplay efforts or received similar backing earlier in their chart history, sources estimate.

Other labels that sources say are using spot-buy strategies include Geffen, Virgin, J, Warner Bros., Lava and Wind-up.

The heads of promotion at all of the labels mentioned either declined comment or did not return calls by press time.

ETHICAL QUESTIONS

Critics of spot buys say the practice creates an ethical quagmire for all parties involved.

Labels not buying commercial time to play their singles claim that sponsored airplay is affecting the integrity of chart data -- a key tool for radio programers.

Critics in the industry also charge that a label buying into a spin program for a single is equivalent to an athlete taking steroids. That is, sustained performance -- in this case, on the charts -- requires repeated use.

Michael Ellis, associate publisher of Billboard and Airplay Monitor, acknowledges that the practice affects the company's charts.

"We take great pride in the accuracy and credibility of our radio charts," Ellis says. "We are carefully studying this situation and are consulting with the industry to determine the proper course of action."

Tracks on the charts currently or at one time supported by such spot-buy initiatives include Blink-182's "I Miss You" (Geffen), Lenny Kravitz (news)'s "Where Are We Runnin'?" (Virgin), Trapt's "Echo" (Warner Bros.), Cherie's "I'm Ready" (Lava) and Alicia Keys (news)' "If I Ain't Got You" (J), sources say.

Thus far, larger station groups like Clear Channel and Infinity Broadcasting are not offering spot buys. Label sources say the controversy surrounding the system is scaring larger radio groups from participating in spin programs.

"Bigger stations aren't doing this because they're questioning not just the validity of it, but ethically if this is right," a leading label promotion executive says. "Major chains really have to play it conservative just based on the fact that they are so high-profile."

Proponents of sponsored airplay argue that the system helps labels keep priority singles afloat in tight radio playlist environments and provides valuable revenue to smaller radio chains no longer raking in fees from independent promotion.

"This is another way of reaping that promotional dollar in a legal way," says Bob Quick, operations manager of top 40 WCGQ Columbus, Ga. The Archway-owned station participates in the Krysz program.

And unlike other promotion programs that quietly trade incentives like radio concert appearances for airplay, this system is operating in the open, proponents say.

Operators of the programs and participating stations claim sponsored airplay does not violate Federal Communications Commission (news - web sites) payola rules as long as the station runs a disclaimer before or after the song that a label has paid for the airtime. An examination of FCC (news - web sites) rules confirms the claim.

Station operators interviewed by Billboard also say they accept buys only for singles they are already playing.

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JUST 'CAUSE I STEEL, DON'T MAKE ME A THIEF www.geocities.com/squire592001/jason.html

What Happened to Radio??

Good question. I asked the same question myself one night in May 2001 while driving through Washington Park on my way home from work. I noticed that the variety of songs had disappeared, that there was no longer a local feel to the radio. The DJ’s had stopped taking listener requests, contests were 1-800 numbers and every radio station I listened to happened to “mysteriously” run commercials simultaneously. I traveled frequently for business and would hear “local” Denver DJ’s on the “local” radio in Salt Lake City, Boston and Phoenix. I would go to a CD store and find that I could barely put together a handful of CD’s that I wanted to purchase. Was it because the world of musicians had just stopped producing quality music? I also found that I was missing out on events in Denver because I wasn’t sticking through the high load of commercial breaks on the radio. During my formative listening years I kept local radio stations KBPI, KAZY and later in the 1980/1990’s KTCL and KBCO on for hours every day. During my college years at Colorado State University I had KTCL running continuously for four years on my home and car radio. I knew about everything going on in Fort Collins – it was great. I listened to the music and the commercials because they flowed together. The magic was the music and what happened between the records. Anyway, back to May 2001. It was that night, sitting at the stop sign at Franklin Street and Exposition Avenue, frustrated and swearing, that I angrily switched the FM dial off. I had become a disenfranchised listener with radio and had no intention of returning. What happened to my radio station? I was so angry that I took the time to find out. The rest is history. My research changed my life and I personally entered the radio broadcast business as a part-owner of an AM station. So, here I am writing to someone else in Denver who presumably feels the same way I do about radio.

If you take the time to read this you’ll have all the information you need to understand what happened to your radio station and why this little AM station is here.

It goes back to a decision made by Congress in 1996 to pass the Telecommunications Act, signed into law by President Clinton. This well intentioned law was designed to open up the telecommunications market to more competition against all the “Baby Bells” (US West, Verizon, Southwestern Bell, NYNEX, Bell Atlantic, Bell South and Ameritech) that had monopoly domination over telephone and most data services. Good plan – more competition means more providers of service, which means telecom and data prices go down for consumers. Sounds like good reasoning to me. However, a small provision was tucked away within the Telecommunications Act that just happened to deregulate the multi-billion dollar radio industry. Most people/listeners in the American public were completely unaware that this provision was included in the bill – including me, the guy writing this. What was amazing to me was to read the bill and find that the bulk of radio deregulation was detailed on one page of this comprehensive act of Congress; see it for yourself on page 67 of the 128 page bill http://www.fcc.gov/telecom.html.

Previous to this law a radio company could only own 40 stations nationwide and no more than two FM and two AM radio stations in a market. The new ownership rules allowed a company to own as many radio stations as it wanted across the country, up to eight stations in a medium to large market and four to five radio stations in smaller markets. These rules are still in place today (Denver is considered a medium/large market; hence Clear Channel owns eight stations here in Denver). So on one hand the Telecom Act created competition in the telecom business and on the other hand it took away competition in the radio business by letting a few companies dominate a local market. I digress again, back to 1996.

The flood gates opened within days of the Telecom Act becoming law. Consolidation inside the radio industry kicked off and the land rush began for radio stations on the FM and AM bands. Companies started to pay unimaginable prices for radio stations (16, 20, 22, 26, and 28 times broadcast cash flow). This is still happening today. In 2002 Entercom paid $88M for Denver based 105.9FM (Alice 106) KALC which has an estimated cash flow of $4M per year. Do the math here. $88M divided by $4M is 22 times cash flow. That’s crazy you’re thinking. I know – it is. That means that it’s going to take 22 years to pay for that property if revenue and profits remain the same. “Unbelievable” you’re now saying. It gets better. Entravision purchased 96.5FM KXPK (The Peak) from Emmis Communications in 2002 for $46.5M which was thought to be losing money or barely breaking even at the time. Is an FM station worth $46.5M in Denver where the total advertising spent in the market in 2003 is $190M?

The next question probably going through your head is how in the world do these companies justify spending that kind of money for radio stations and how do they expect to pay their debts off after buying radio stations at these prices. Well, if you’ve made it this far you can’t turn back now. The following details explain the business model that was created by radio consolidation and most importantly, what happened to your radio station.

Let’s go back to the prices companies were paying for radio stations – this is the underlying reason why radio has changed so dramatically. Any industry (not just radio) that goes through consolidation becomes focused on quarter over quarter results. This kind of short term thinking is consistent with most large public companies. You have shareholders, bankers and investors who expect a return on their money (sooner rather than later). I’m fine with investors expecting a return on their money. Do you expect a bank to pay interest on the money you have in your savings account? Probably. Companies should make money and be profitable. It’s good for everyone. I have a company. No revenue and no profit means we’re out of business. Let’s face it; most of us are employed by companies that pay our salaries, mortgages, education, etc. Companies make the American economy run. Radio is a business. The FCC is around to manage the public’s airwaves but the companies that own the radio licenses (not the U.S. government) build, maintain and program the infrastructure of radio broadcasting. The simple fact is that during radio ownership consolidation (which still continues today) companies paid huge sums of money to control radio assets in markets throughout the U.S, Denver included (the 22nd largest radio market).

You have two ways to pay back the money you borrowed to buy these radio properties – the first is to increase the radio station’s advertising revenue and the second (which is much easier) is to squeeze every expense possible out of the operation. The biggest expense in any business is usually employees – including KCUV, my company. There’s a finite amount of radio advertising dollars in every market so you know where this is going. Prices for radio stations went up and the major radio companies paid big bucks to control markets. Along with these radio acquisitions came the large payments to service debt obligations and the necessity of generating a profit to stay in business. Is it all starting to make sense?

There’s no problem with wanting to improve revenue or to control expenses within a company (we think the same way). That’s Business 101 in any industry, in any country. The issue comes down to when have you crossed the line and gone too far in cutting expenses at the expense of the product you produce. Everything in life comes down to balance. Anything taken to one extreme on the left or on the right is unhealthy. What’s happened to radio is that most of the large radio groups are now forced to raise revenue and decrease operational expenses to stay in business – at your and the advertiser’s expense.

How can you raise revenue on a radio station? There are two main ways. The first is to charge more money for a commercial on the station. But what happens when the advertiser, who also has a business to run (profitably) doesn’t think your advertising fees are reasonably priced? Then you have option number two for raising revenue - run more commercials per hour than you used to. Sound familiar from the first paragraph you read at the beginning of this document? The question that I have is whether that’s the right thing to do for the advertiser? Shouldn’t it be a two way street for the consumer and the business? Don’t you expect results when you advertise? Are you getting results when your message is lost in 16 to 20 one-minute commercials per hour on the FM dial? What would you think if it were your business, your event, your non-profit organization that was trying to let listeners know on the other end of the radio speaker?

How can you reduce or eliminate certain operational expenses? There are multiple ways, but the number one expense reduction for consolidated radio groups has been in employees – specifically the programming department. “Smart” people figured out a long time ago that with certain technology you could achieve greater economies of scale if you made radio programming more regional or national. You now find a program director who is programming multiple stations across the state of Colorado or U.S. The “local” DJ is now voice tracked into multiple markets (this technology inserts out-of-town voices between the music you hear to make it sound like the DJ is local) reducing the need for DJ talent at each station. Have you ever wondered why you don’t hear every DJ talking about the local events, weather and information on the air; or why a call-in number is rarely given out (or with the local area code)?

The large radio groups, by design, have become analogous to the fast food industry. They know how to make programming that is cookie-cutter, generic and homogenized enough to be mass appeal. All formats are scientifically researched to provide a taste that’s palatable to the greatest number possible. Did you want fries with that? Travel to any city in the U.S. or on the Front Range of Colorado and you’ll hear it (if you haven’t drawn that conclusion already for yourself). Programming used to be a balance between art and science – which has clearly gone to the side of science since 1996. Isn’t radio supposed to be a local medium? Is local defined as having a station licensed by the FCC to operate in Denver? It shouldn’t be but that’s basically what it’s become. Are all parts of the U.S. culturally the same? No, but you’re getting the same programming as Boston and Atlanta are. When’s the last time you heard a local artist getting local air play? That’s only some of the art that’s now missing from your radio station.

Since 1996 the large radio companies have transitioned from the local radio business to the real estate/franchise business. This is the world and the situation that their business model has created to ensure profitability. Admittedly these groups are profitable and do please a number of people with programming that plays the hits in high rotation. What does that means to you, the listener who took the time to read this? Expect more of the same programming that’s had you inactively listening for seven years on FM radio. The large radio groups are able to sustain this type of programming because they own the majority of FCC licenses in Denver. If listeners had more choices in the market you know they’d be voting by clicking the radio dial to programming that was authentic to Denver and our community. Consumers figured out a long time ago how to vote with their dollars when a business wasn’t serving their needs.

I truly believe that the majority of the rank and file employees at the major radio companies don’t enjoy the product they put out to their listening audience. I’m certain that there are still a great number people inside these radio groups who are as passionate about the listener and quality programming as I am. Unfortunately this is the reality of their circumstances. The good news is, there are still some independent local radio operators left. They are still in business because they haven’t deviated from the first rule of radio: the local listener comes first. If you’re reading this outside the Denver market I hope you have a radio operator who shares these principles in your community. For those in Denver, you have us and the answer to your question “what happened to radio?”

So here we are, KCUV, 1510 on the AM dial. Literally one of the only places left where a company can operate a business and simultaneously place the listener first by delivering high quality local programming. The FM stations in Denver don’t take music on the AM dial seriously. The good news is that the choice is yours to make. Are you willing to trade FM’s fidelity and homogenized programming for authentic local programming on the AM band? That question is one that only you can answer. You the listener make the ultimate decision. If you’ve found us, welcome back to the way radio used to be.

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"Bigger stations aren't doing this because they're questioning not just the validity of it, but ethically if this is right," a leading label promotion executive says.

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Those Clearchannel guys have some nerve talking about "ethics" ! Right now if your tune makes it through there market research it costs around $250,000.00 to have a tune placed on there playlist. They are the scum of the earth.

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They are the scum of the earth.

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Cheers!
Dave

Now every play is payed for and if the centralized computer generated radio personality says the name of the tune or artist they pay extra.

BTW: I liked Times Square better before the Disney mob ran out the Italians.