Limbaugh's Success Contrasts With Radio's Woes

POCKET OF STRENGTH

While Industry Falters, Conservative Talk Remains Strong







Too busy venting their anger over Rush Limbaugh's unprecedented contract renewal deal, the talk titan's traditional mainstream media foes have provided almost no critical insight into why such an agreement would be made in the first place.

In the face of a wildly- troubled broadcast radio industry, how could anyone, including Rush Limbaugh, warrant a nine-figure advance?

Over the past few days, we've the seen the "is he really worth it?" question raised by many, but answered properly by almost no one.

It's simple: the deal is justifiable because he remains as popular as ever. In addition, Limbaugh has a sales group that knows how to successfully market conservative talk radio.

That's no accident: Rush himself has worked to make sure his team fully understands the product it is selling.


Meanwhile, at broadcasting's most troubled firms, "programming" managers lack experience in the medium, left- leaning execs openly badmouth conservative talk hosts and almost no effort is made to build a sustainable future for the one format that can survive the iPod and other threats to radio's future.

In that environment, how could sales execs sell controversial talk when they don't understand the medium's public appeal?

Radio is only dying when and where incompetent managers attempt to force listeners to embrace unappealing programming. Several large broadcast companies are so unwilling to grasp this basic concept that they may soon fail. At the moment, some radio stocks are selling for as low as a dollar per share.


At MSNBC, this Motley Fool piece argues that Limbaugh has just signed the last big radio deal:

...this could be the last time that the radio industry waves around a nine-figure deal.

Why?

Well, terrestrial radio's appeal is waning. Hardcore commuters have switched to the mostly ad-free satellite radio, while the portability of digital music, podcasts, and Internet radio have created pocket-sized alternatives to firing up the AM and FM bands.

Even more importantly for terrestrial radio's fortunes, the merger between XM Satellite Radio (Nasdaq: XMSR) and Sirius should close later this year.

XM and Sirius have opened up their billfolds in the past to ink pricey deals. Whether they were wooing Stern, Oprah Winfrey, or Martha Stewart Living Omnimedia's (NYSE: MSO) namesake star, the satellite broadcasters have won over celebrities with big bucks and the unshackled freedom of reaching a premium radio audience. Professional sport leagues and college conferences have also been at the center of bidding wars, with XM and Sirius jockeying for eardrum magnets.

That will change. Stern is unlikely to command the same $100 million-a-year payday he's averaging today, even though Sirius' ability to close the subscriber gap with XM since Stern's arrival certainly suggests he deserved the money. The key is that Sirius-XM won't bid against itself. Limbaugh's deal is a record for terrestrial radio, but it still averages out to just $50 million a year, and that's if performance incentives are hit.

Your Radio Equalizer sees no reason to compare this deal with Stern's. The big money involved here reflects radio's sobering realization that talk radio is the only land- based format with a viable future. And Rush remains its biggest player.

As young people have abandoned terrestrial FM music stations in large numbers, their air personalities are not signing huge contracts, are they?

The one change we are likely to see in the next few years for talk radio is a sudden shift from the AM band to FM. The model may prove to be "Rush Radio", the New Orleans- based WRNO-FM. It's in sync with the audience: personality- driven.

Broadcast firms have a choice to make: they can either embrace talk radio and respect its audience, or fail. Simply because one disagrees with talk's viewpoints, why fight the one chance for success?

It's just plain irrational.


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