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October 27, 2006

Look Out Radio Advertisers - There's Truth to Clear Channel Rumors

We've commented many times in this blog on various aspects of Clear Channel's (NYSE: CCU) strategies to rebound from flat radio advertising revenues. Their "less is more" strategy and 30 second ad approaches have struck us funny.

Recently we reported on rumors that Clear Channel might be taken private.

Today news outlets are pointing to a press release from Clear Channel stating that "its Board of Directors is evaluating various strategic alternatives to enhance shareholder value. The Board of Directors has retained Goldman, Sachs & Co. as its financial advisor in connection with its evaluations."

Shares of Clear Channel jumped by 7.9 percent before the opening bell on Wall Street this morning, as a result of the announcement. This means that the investing community views Clear Channel's current strategies for growth and profitability as sub-optimum.

This is great news for radio advertisers. Fresh perspectives at Clear Channel are just what's needed to enhance their ability and willingness to accomplish the goal of reviving the company. It seems clear that "legacy" radio veterans can't get the job done.

As we've stated in prior posts, Clear Channel - all of the radio media industry - is over-reacting to the threat of iPods and satellite radio. What would a company be if every time a competitive threat came along, the response was to try to mimic the offering of that competitor? Every industry would be full of a mashing of different approaches. No, the correct response to a competitive threat is to carve out a part of the market where you're competitively BETTER at meeting customers needs.

Let's look at another industry where a similar situation occurred. What if Dell Computer had abandoned it's direct business model - the source of nearly all facets of its competitive advantage - and charged off into retail distribution when threatened by Gateway's retail stores back in the late 1990's? I can tell you the discussion did take place, about once every quarter there for a while. But had Dell done that, it would have had disasterous results. Instead, management decided to use the advantages of the direct business model to drive down prices and force Gateway (and other competitors) into financial hardship.

As a result of Clear Channel's choice in dealing with iPods and satellite radio, they've lost touch with just what they're in existence to do, which is to aggregate homogenous groups of people so advertisers can reach those people as efficiently as possible. To do this, they need to understand the psychology behind why people listen to the radio. It's for entertainment, distraction, to feel good in some manner. And therefore Clear Channel won't be successful unless they become focused on creating compelling content that gives listeners what they want from entertainment options. Go back to your roots, Clear Channel. Back to the basics. It's really quite simple from there.

Posted by Jeff Small & Brett Astor at 11:49 AM | Permalink