The Radio Industry in 2023: What’s happening and what lies ahead for the earliest form of electronic communication?

History of Radio Industry

The radio industry traces its origins to the early 20th century as the first form of electronic communication. In the 1920’s, companies banded together to urge the government to regulate the industry to establish order in who accesses each frequency. This led to the establishment of the Federal Communications Commission (FCC). Initially, radio operators struggled to tap into the potential for monetization of the new technology, but eventually by the 1930’s, the advertising driven model took off for radio. As television became a dominant medium in the 1950’s, radio continued to thrive the rest of the 20th century largely with the combination of music, news, sports, and opinion talk radio.
In the early days of radio and telecommunications regulation, the industry was much more restrictive about how much ownership one company could control in the marketplace. More specifically, one company could not own more than one station in any given broadcast medium such as AM, FM and television in the same community. However, one company could own one of each of those mediums. The FCC held the view that the more diversity in licensees the better. But in the late 1980’s and early 1990’s, the FCC gradually began to relax this standard and a full-blown shift in the industry took place with the passage of the Telecommunications Act of 1996. The law very significantly decreased the limitations on radio and television station ownership. It allowed single entities to own up to eight commercial radio stations in a given market and relaxed limits on radio-TV combinations. The law encouraged more deregulation within the FCC. This law led to eventual significant consolidation of the radio industry that brings us to a modern era where a small number of players control the entire market. In a similar deregulatory vein, in the late 1980’s, President Ronald Reagan’s veto of Congress’s codification of the longstanding “Fairness Doctrine” led to the FCC repeal it all together giving rise to a robust and lucrative opinion talk radio industry led by figures such as conservative firebrand Rush Limbaugh.

A Consolidated & Mature Industry

The barriers to entry for radio are quite high. The industry is quite mature, and by most standards, a dying industry. While, remarkably, Pew Research reported that in 2020, 83% of Americans aged 12 and older listened to AM/FM radio in a given week, that number is down from 93% in the year 2011. With the laws that allowed for greater consolidation of the industry, it has resulted in a small number of big players competing for the scraps of a dying industry. Currently, the two far and away for-profit leaders in the radio industry are iHeartMedia and Audacy, two large publicly traded companies. When browsing through their annual reports respectively, these two major players cite advertising heavily as their primary revenue driver which has historically been the case for radio.

Expenses & Profit

In iHeartMedia’s annual report for 2022, some of the expenses they cite include on-air talent, sales and other staff salaries, royalties and licensing fees, real estate, restructuring expenses (the company filed for bankruptcy in 2018). Audacy cites in their annual report that the most significant expenses are employee compensation, programming and promotional expenses, and audience measurement services, as well as interest and depreciation.

Profit has been a struggle for these two major companies. Both companies have had annual losses in fiscal years 2020-2022. It is likely COVID-19 played a role in this as losses gradually improved for both companies from 2020. However, it should also be noted Audacy fared even worse in 2019, while iHeartMedia had a very profitable year in 2019. Both companies have been trying to make recent pivots that may also be having substantial impact (see table below for more).

At the moment, it appears the major players in this industry are struggling for profit and growth. IHeartMedia states in the introduction of their most recently available annual report that there are two primary sectors in the audio industry: ‘music collection’ which was what was replaced by downloads and CDs, and the second the ‘companionship’ sector that includes radio and podcasting personalities that operate as “trusted friends and companions on whom they rely to provide news on everything from entertainment, local news, storytelling, information about new music and artists, weather, traffic, and more.”  IHeartMedia brands themselves as a part of the latter category, and in an era of seemingly endless means of communication, the competition in that sector is fierce.

iHeartMedia financials (Yahoo! Finance)
Audacy financials (Yahoo! Finance)

Competition in Radio Industry

Increased competition is the primary hurdle for this industry, and it is less from other players in the identical industry, but I believe best summed up in iHeartMedia’s most recent annual report: “We compete for share of our listeners’ time and engagement, a challenging task in today’s fragmented and multi-tasking world. We believe our national reach, the strength of our brand and assets, the quality of our programming and personalities, and the companionship nature of our medium allows us to compete effectively against both our legacy competition-cable and broadcast television, and other broadcast radio operators-as well as newer, digital competition, including streaming music and video services, social media, and other digital companies.” Radio was certainly first threatened by broadcast television, then cable television, the Internet and now smart phones have really made the slice of the pie smaller for all legacy competitors in the media industry.

Satellite radio was also a notable competitor to terrestrial radio and probably would warrant its own individual analysis. IHeartMedia, when under their former name of Clear Channel, previously was an investor and collaborator with SiriusXM until 2013. The collaboration included Clear Channel offering feeds of its most popular regional stations and shows for a national audience via satellite radio. This was presumably a hedge to be a part of an industry that was once viewed as a very serious threat to traditional terrestrial radio.

The current digital age is extremely competitive and it’s highly unlikely any new players will try to enter the terrestrial radio turf. It is likely that the remains of this field will continue on a path of further consolidation. For example, Audacy, under their previous name Entercom, was collaborative with CBS Radio but eventually ended up merging with CBS Radio as CBS spun off its radio division in 2017. This trend that, as previously mentioned, began with the deregulations in the 1980’s and 1990’s will likely continue leaving very little room for any new entries into the market until there is no meaningful amount of money left to be made.

The Future for the Industry and its leaders

For this report, I spoke with a friend who worked for Audacy until 2021 and previously was in a part of CBS that worked with the radio division prior to it transitioning to Audacy. He characterized their strategies for the future to be centered around digital to “stay alive and relevant”. He said that it seemed they were trying to operate in two phases: one, to make existing stations streamable, and two to invest heavily in podcasts. Frequently, there were cutbacks to staff and morale was low. Most of the money was still primarily from advertising.

How little confidence does Audacy have in the future of radio? Consider that Audacy, previously known as Entercom, used the website as their primary hub for matching web users with their stations. When Entercom rebranded to Audacy, they retired and now the web domain is for sale on GoDaddy and still has yet to find a buyer. It is clear they are trying to pivot to digital and looking at the growing popularity of podcasts as a vehicle. One of the companies higher profile moves this last year was bringing on a podcast with popular sports personality Stephen A. Smith for a non-sports but personality driven current events and pop culture podcast.

For Audacy, it could all be too little to late. Recently, a market analyst who follows the company said they would need to “cut costs into the bone” to survive the next year.   

It does not seem the number one industry leader, iHeartMedia, is faring quite well either. In March 2023, a leaked employee memo from iHeartMedia Chairman/CEO Bob Pittman and President/CFO/COO Rich Bressler laid out the follow cost cutting measures: temporary suspension of 401(k) matching “until the advertising marketplace improves”, only backfilling mission critical roles, and stopping or reducing all discretionary spending including non-essential travel, overtime, outside vendor spend, and temporary contractors. However, the memo characterizes these measures as a part of a temporary overall economic slowdown and not as a part of a larger industry struggle. The obvious question is, however, is there any recovery coming to reverse this retrenchment?

The Verge recently published an interview with iHeartMedia’s CEO of the iHeart Digital division, Conal Byrne. In the excerpts, taken from a live interview from a podcasting summit held in February 2023, Byrne lays out the below path for iHeartMedia’s survival reflecting on his beginnings in 2018 when iHeart was linked to Conal Byrne by way of acquiring his podcast company, Stuff Media: “iHeartMedia came along and offered us two or three things specifically. One was just investment. ‘Make more shows, make more great content, and level up the stuff that you’re doing.’ Number two was this massive marketing machine. Broadcast radio is a mass-reach medium still today. iHeartRadio, through its broadcast radio stations, reaches nine out of 10 Americans a month. That’s an insanely large but insanely accurate number. We wanted access to that to shout really loudly about the stuff we were doing. The third thing they let us do was have a sales team. We had three or four people who were our formal official sales team at Stuff Media. iHeart has 1,300 salespeople in all 50 states across 160 or so markets as we’ve divided up the country. Those three things let us go from 2018 to 2028 in our own trajectory almost overnight.”

The conclusion that can be drawn is that the industry will likely try to lean in on digital growth strategies by way of podcasts and extracting what can be drawn from the embers of terrestrial radio. A report from Grand View Research demonstrates the power of podcasts: “The global podcasting market size was valued at USD 18.52 billion in 2022 and is estimated to expand at a compound annual growth rate of 27.6% from 2023 to 2030.” But as the report notes the big players, it mentions both iHeart and Audacy among them, but also industry giants such as Amazon, Apple and Spotify. It’s an excellent move for the traditional players to be in the podcasting space but it could all be too little too late.

It is likely the scraps of the terrestrial radio industry will be squeezed until there’s nothing left with cutbacks and employees expected to do more with less in a way that is probably like the print news industry. If Audacy fails, will iHeart buy the remains of the radio operation? Will the FCC approve such a large consolidation? Could the industry giants fail entirely like large bookstores and record stores did between 2006-2010? For example, perhaps it could be a similar situation to the book or record store industry where if the big media companies fail to find value in radio that small mom and pop operators could regain control of the airwaves much like independent book and record stores have filled the void with the failures of companies like Tower Records, Borders Books, etc.

The radio is still widely used and easily accessible even as anachronistic as it seems. I recently rented a Tesla Model 3 when visiting family in Florida over Spring Break. My first time driving a Tesla, I felt like I was experiencing a pivotal futuristic moment akin to the first time I used an iPhone. And yet, when it came to choosing how to pass the time on the traffic laden drive on Interstate 4 from Orlando to St. Augustine, amongst a sea of buttons on a touch screen, I pushed a little icon that looked like a vintage radio to power on the FM radio, the easiest, fastest, and most passive way to entertain myself. I would imagine that is a similar route to which many of the other aforementioned 82% of Americans over age 12 tune in each week but it’s difficult to tell how long it will last and will certainly be a rocky and challenging road for the industry in the years ahead.


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