Unexpectedly Intriguing!
April 22, 2005

Update: Wow! I never expected to get the pole position (the first post) in the Carnival of the Capitalists! Welcome readers, and if you're new to Political Calculations, please take some time to look around, as we're chock full of some neat stuff around here!

P.S.: Welcome Motley Fools!

Instapundit recently pointed to Brian Anderson's commentary in the Los Angeles Times Why the Liberals Can't Keep Air America From Spiraling In, in which he outlines the reasons he believes the "left-wing and proud of it" radio network will ultimately fail. The business junkie in me thought it might be fun to look at the strategic planning alternatives that the radio programming network's brass might now be seriously considering for its seemingly troubled enterprise.

For this kind of big-picture analysis, one of the most useful tools available to analysts is the business strategy matrix that was developed by General Electric, the Boston Consulting Group and McKinsey & Company. The matrix allows the analyst to lay out the selected organization's relative competitive strengths against the overall attractiveness of participating in a given market or industry. Where a company or organization falls within the matrix suggests certain strategic alternatives that may be appropriate for planning the enterprise's future. A similar matrix exists for non-profit entities.

We'll start this "bird's eye" analysis by looking at Air America's competitive strength. Anderson notes Air America's ratings in key markets:

And look at Air America's ratings: They're pitifully weak, even in places where you would think they'd be strong. WLIB, its flagship in New York City, has sunk to 24th in the metro area Arbitron ratings — worse than the all-Caribbean format it replaced, notes the Radio Blogger. In the liberal meccas of San Francisco and Los Angeles, Air America is doing lousier still.

Anderson's article incorrectly attributes Radio Blogger for the ratings comments. The comments are actually those of Brian Maloney, who published them on March 31, 2005 at his blog, Radio Equalizer. [Does the LA Times actually have four layers of fact checking? - ed. Mickey Kaus doesn't believe it either....]

Not wanting to take this editorial comment at face value, I looked into the Arbitron ratings for the Air America affiliates in the Top 20 national radio markets, which I've presented below:

Air America's Ratings in the 20 Largest Markets
Market Station(s) Rank Share
New York City WLIB 24(T) 1.1
Los Angeles KLTK 39+ -
Chicago WAIT1 - -
San Francisco KQKE 25(T) 1
Dallas - Fort Worth KXEB 36+ -
Philadelphia WHAT 25(T) 0.6
Houston - Galveston - - -
Washington, DC WWRC 28+ -
Boston WKOX, WXKS 28(T) 0.6
Detroit WTDW 28+ -
Atlanta WWAA 25+ -
Miami - Ft. Lauderdale WINZ 24 1.1
Seattle KPTK 23(T) 1.2
Phoenix KXXT 22(T) 1
Minneapolis - St. Paul KTNF 16+ -
San Diego KLSD 23(T) 1.6
Nassau-Suffolk (NY) WLIB 26(T) 1.1
St. Louis - - -
Baltimore - - -
Tampa - - -
Source: FMQB.com Arbitron Ratings Library. A (T) in the Rank column indicates the station tied with at least one other. A (+) in the Rank column indicates the station did not record high enough ratings to be recorded among the indicated number of stations in the market. A (-) in any column indicates no data was available through the FMQB.com listed ratings.

1 Chicago affiliate WAIT is expected to begin broadcasting Air America programming in April, 2005. Reference: Wikipedia, and Radionewsweb.com.

As may be seen in the Arbitron ratings, Air America's affiliates rank either in or near the bottom of nearly every market in which they broadcast. In looking at the ratings in detail, there are a few markets where Air America has gained audience share over the past year, but more often than not, they have either lost significant share or have not improved. This drop in ratings may be partially attributable to the recent national election, which would have tended to attract more listeners before the election and lose them afterward, but the ratings at other stations broadcasting politically-oriented talk shows have not decreased as much as Air America's has in the same local markets.

Air America has also had difficulty in recent times in meeting its cash flow requirements, which impacted its ability to broadcast in both Los Angeles and Chicago, leading to both ownership and management shakeups in the middle of last year combined with changes in the network's business model. Air America has also recently replaced its CEO and president again within the last two months. When taken together with the network's low ratings in nearly all its markets, Air America's enterprise strength may be considered to be LOW.

The next question that must be answered is "how attractive is the radio broadcast market?" At present, the trend within the radio broadcast industry is one of consolidation. This trend is largely driven by relatively recent regulatory changes that have increased the number of stations that may be owned by a single entity within a given radio market. This trend toward increasing consolidation may be seen by looking at the ownership of stations within various major radio markets across the country, with many stations within many markets owned by large corporate entities such as Infinity, Clear Channel, etc.

As a general rule, the presence of consolidation within an industry indicates a high degree of maturity with little organic growth occurring. This state precludes a high level of Industry Attractiveness. This trend toward consolidation also indicates that outright withdrawals from the marketplace are not occurring, which would be the case if the Industry's Attractiveness was low. Consequently, the Industry Attractiveness factor is MEDIUM.

Air America's competitive position within the Business Strategy Matrix is indicated in the following diagram:

Air America's Competitive Position

Air America falls into the cell indicating Medium Industry Attractiveness and Low Enterprise Strength. As such, the Business Strategy matrix indicates that the organization's leadership should pursue a strategy of withdrawing from the market in phases. According to the Boston Consulting Group's online strategy matrix, Air America's executives should:

  1. Act to preserve or boost cash flow as the business is exited.
  2. Seek an opportunistic sale of the business.
  3. Seek ways to increase the business' strengths.

It should be interesting to see what steps Air America's executives will pursue to deal with the radio network's business. As noted above, Air America is still adding stations to its network and has recently signed a new satellite broadcast deal, and has inked another deal to bring television talk show host Jerry Springer to its airwaves, which indicates that the third option is the preferred alternative at this time.

What is yet to be seen is whether or not Air America will be able to sustain the ongoing cost of its operations based solely upon the revenue generated by those operations. Currently, the network primarily obtains revenue from operations by selling its programming to distributors, such as Clear Channel, who then seek to recoup their expenses and make a profit by selling advertising slots for the broadcasts. Air America also sells some of its own advertising.

The question of whether or not Air America is viable as an ongoing business may then only be answered by looking at three additional questions:

  1. What "critical mass" of stations or ratings is needed to generate the operating revenue required for the network to become self-sustaining without additional investor capital infusions?
  2. Can the network grow fast enough to reach that level of self-sustainability before having to fold?
  3. If the network cannot achieve operational profitability, can it convince its current or new investors to provide more capital to keep it afloat?

As Air America does not make its financial statements public, the answers to these questions are only known to the network's major investors and its senior management. For the rest of us, the clock is ticking toward the ultimate answer.

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