Deceptive Advertising: Translators as “Metro Stations”

More evidence that the market in FM translator stations is maturing quickly.

Saga Communications, a radio conglomerate that specializes in mid-market acquisitions, owns 91 stations across the country. Of these, some three dozen are FM translators: second-class radio stations limited to a power of 250 watts or less that rebroadcast the signals of other stations.

Saga is an aggressive player in the practice of using FM-HD Radio signals to feed programming to analog translators. Since very few people actually listen to HD Radio, these mini-signals appear to be "new" stations, though in most cases they’re completely canned programming of a format that wouldn’t otherwise be profitable on a real full-power FM station.

The giveaway of an FM translator is its weak signal, resulting in a smaller broadcast range and some increased difficulty penetrating into buildings.

This practice of treating second-class stations as primary services completely warps the intent of the translator service itself, and allows conglomerates to gain "new" stations that aren’t counted against FCC media ownership limitations. It has also led to a massive market bubble for translators that has been developing for more than ten years. We’re now seeing the results, where these weak rebroadcast-sticks are leased or sold for tens to hundreds of thousands of dollars apiece.

Saga’s latest yearly SEC filing notes that 87% of the company’s gross revenue comes from local advertising, so you can see how adding FM translators to the mix has the potential to turn a buck or two. Over the years, Saga’s become adept at branding translators as "new" stations: browse the company’s stations list and look for the stations marked -HD2 or -HD3. These all have their own analog translator outlets now.

Obviously, the broadcasters engaging in this practice have to figure out a way to market these stations to advertisers–and it’s best to try and play down their second-class nature. How best to do that? Lie.

A corporate directive to Saga’s ad sales staff says translators should be sold to clients as "metro signals." As Saga CEO Ed Christian explained to the Clear Channel-owned trade publication Inside Radio, "It improves their reception [to clients] and makes them sound more legitimate."

Caveat emptor.

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iBiquity CEO: The Future of Digital Radio is Analog

Every so often, iBiquity Digital Corporation CEO Robert Struble pens a column on iBiquity’s corporate website. His latest missive actually (and unintentionally) puts a very fine point on the malaise that is the U.S. digital radio transition.

"The one constant for all successful media transitions has been the passage of time, and that patient strategy is working for HD Radio Technology as well," writes Struble. He claims that HD receiver penetration is on a strong upward trend, with a new digital radio sold "every six seconds."

As I’ve written before, such claims are specious: iBiquity will not provide raw data on receiver sales, so there’s no way to fact-check them. According to Struble’s latest column, there are more than 13 million HD receivers in circulation—most of them found in new cars and trucks that include HD compatibility as standard equipment. This passive uptake tells us nothing about actual listener engagement. According to Arbitron’s most recent radio-listening overview, 5.4 million people listen to an HD Radio station weekly. So less than half of all HD receivers sold are actually used: that speaks volumes.

But Struble’s big news is his discovery of the "innovative" use of analog FM translators to relay HD programming. "In effect, it’s like getting another unique analog FM signal for a tiny fraction of the cost of a new station," he writes. "Get that translator’s antenna up high enough, and it’s basically a new [station] for the cost of the HD Radio upgrade."

There are two fatal flaws to this logic. The first is Struble’s apparent misunderstanding of what FM translator stations actually are. Simply put, translators are an extremely finite resource. While there has been an explosion of new translator stations in the last 10 years—part of which has been fueled by HD-adopters seeking some sort of return-on-investment—this boom is now drawing to a close. The FCC only accepts applications for new translators during designated filing windows (the last of which was in 2003) and there is no new window on the horizon.

Thus the vast majority of available translator stations for this scheme are already in play, and it costs a pretty penny to play—a point Struble acknowledges by referencing the "large and small local and national operators who own multiple translators (think religious broadcasters) that have been willing to sell or lease them"—for tens or hundreds of thousands of dollars apiece. That’s remarkable considering that FM translator stations are a secondary service in the eyes of the FCC: they must accept interference from neighboring full-power FM stations and can even be bumped off the air by them. It doesn’t happen often, but this risk should be factored into any translator investment.

The second flaw is the belief that putting digital-only programming on analog translators entices anyone to migrate over to HD Radio itself. Struble brags that, over the last two years, two-thirds of all new HD station-implementations "have involved an HD Radio-on-Translator initiative." If the prime selling point for adopting FM-HD technology is to feed programming to an analog outlet, that does not say much about the merits of HD itself as radio’s future end-state.

In the end, Struble thinks of the HD-on-translator strategy as "training wheels that allow a seamless transition from analog to digital while bringing listeners along for the ride." He believes it will help solve HD Radio’s perennial chicken/egg problem, in which broadcasters are reticent to go digital because nobody’s listening.

As a broadcast strategy, it’s a clever loophole to acquire additional analog stations in saturated markets or provide a niche format that would be unprofitable on a real, full-power FM station. It’s also a pretty convoluted way to try and turn a dime, and does nothing to advance the inherent utility of HD Radio itself. I understand that Struble’s position requires him to be a glass-half-full kind of guy, and he has invested nearly 20 years of his career in the HD system—but I do have to wonder just what’s in the glass these days.

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The Health of Radio: By the Numbers

With what seems like increasing frequency, media-pundits are dropping rhetorical bombs riffing on the notion that radio is dying. This inevitably sets off a tizzy within the radio industry itself. But there are still strong signs of life, especially if one steps back and looks at the big picture.

stationtotalssmEvery quarter, the Federal Communications Commission issues a report on the number of licensed broadcast radio stations in the United States. The graph at right compiles the last 21 years of these reports (from 1992 to 2013). Clicking on the graph will spawn a new window showing a larger, more detailed version.

These FCC reports are available here. I used the agency’s mid-year totals, released every June 30th, for year-to-year consistency. (2000 and 2007 are asterisked because there was no June 30th report archived for those years; these figures come from the FCC’s third quarter (September 30th) report.)

Although the oldest available report is from 1968, there are no archived totals covering 1971 to 1989. I started with 1992 because that’s the first year for which June 30th reports are available.

The numbers speak for themselves: more than 9,000 new radio stations took to the air over the last 21 years. This includes 1,923 new full-power commercial FM stations and 2,409 full-power noncommercial FM stations.

Only two classes of radio station exhibit any decline: AM and LPFM stations. On the AM side, there’s been a net loss of 237 AM stations (about 5%) over the last 21 years. Note that this has not been a consistently downward trend, either, with small upticks around the turn of the century, most likely due to the FCC’s expansion of the AM band in the 1990s.

Because the FCC’s broadcast station totals only count fully-licensed stations (not stations under construction), LPFM stations don’t appear on the books until 2005. The number of licensed LPFMs peaked at 864 in 2010 and has fallen to 797 this year (a decline of about 8%). With the coming of a new LPFM filing window this fall, there will be a surge in the number of these stations over the next few years.

What’s most remarkable is the growth of FM translator and booster stations. The majority of these stations are translators, and you can see how they exploded following the Great Translator Invasion a decade ago—nearly reaching numerical parity with commercial FM stations in the 2008-09 time frame. Although their numbers have dwindled (by about 100) since then, more than 1,000 new translator construction permits will be issued soon, so expect a positive swing in this trajectory as well.

It’s also quite illustrative of the extremely vibrant marketplace for FM translators that now exists. A cursory overview of just those transactions noted in Tom Taylor’s daily industry newsletter over the last month alone turns up some 20 translators that changed hands in 12 states for nearly $2 million—or an average of $99,914 per station. The actual sale price of stations ranged from $17,000 (for a 250-watt translator in Iowa) to $350,000 (for a 225-watt translator in Florida). Of the 17 transactions covering these translators, six of them were for more than $100,000, and all but five of them were for more than $50,000.

The fact that the net number of radio stations continues to rise—and in the case of FM translators, so much money is chasing so few watts—does seem to suggest that the demise of radio is grossly exaggerated. That said, it doesn’t mean that concerns about the medium’s future have no merit. In concrete terms, the inherent value of legacy radio broadcasting lies in the spectrum it occupies, and with a growing hunger for wireless broadband there is the possibility that in the future, radio might very well abdicate its exclusive patch of the airwaves.

In 2011, Radio World asked National Association of Broadcasters president Gordon Smith whether there was "any immediate threat" to the radio spectrum; he replied, "Not immediate, but if they can do it to your neighbor [broadcast TV], they can do it to you eventually." A straight-up cynic might see the growth of radio as claim-staking for this eventuality, but there’s still too much money to be made in the status quo…even if it may very well not be inherently sustainable.

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Translator Market Comes Out of the Shadows

Playing end-of semester catchup: the Clear Channel-owned trade publication Inside Radio recently published an article quoting a station-appraiser who likens the booming market for FM translators to the birth of the Internet. Documents for more than three dozen translator sales have been filed with the FCC this year, compared to just three at this time in 2012.

Single translator stations are now regularly sold for tens of thousands of dollars, and can fetch even more if they’re within spitting distance of major markets. This results in a market for FM translator spectrum potentially worth millions of dollars per year. (Clear Channel itself is quite invested in the translator market, especially when it comes to simulcasting its AM stations.)

The market for translators will only grow once the FCC approves "substantially more" than 1,000 new-station applications still pending from the Great Translator Invasion of 2003. To put the growth of this market into perspective, keep in mind that the FCC’s station totals report more than 5,000 FM translators on the air, compared to 802 LPFM stations. The majority of those translators care less than 10 years old.

The product of rampant speculation on the part of (mostly) religious broadcasters, the FM translator market is finally out of the shadows, and all signs point to the FCC modifying the service’s rules to encourage its growth.

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Do AM Blowtorches Really Need FM Translators?

In 2009, the Federal Communications Commission promulgated rules allowing AM radio stations to utilize FM translators to supplement their coverage areas. The original intent was to help "beleaguered" stations, like those that must dramatically reduce their power at night, or suffer from increased interference (from a variety of causes, including consumer electronics, traffic signals, and HD Radio sidebands).

As of today, many AM stations have taken advantage of this rule to supplement their signals with some 400 FM translator simulcasts.

But some broadcasters that are far from "beleaguered" have hopped on the translator bandwagon. These include WLW, a 50,000-watt station in Cincinnati owned by Clear Channel Communications, the nation’s largest broadcast conglomerate.

WLW’s AM signal comfortably covers several states – yet the station is now also simulcast on a 99-watt FM translator which only reaches central Cincinnati.

Other 50,000-watt AM powerhouse stations around the country have also hooked up with micro-powered translators:

WFLF-AM, a Clear Channel-owned station in Orlando, Florida, can also be heard on a 221-watt FM translator, acquired from a religious broadcaster with a history of translator speculation.

KTCN-AM, another Clear Channel property in Minneapolis, Minnesota, simulcasts on a 175-watt translator.

KEX-AM, a Clear Channel right-wing talker in Portland, Oregon, also touts a whopping 99 watts via translator.

—Anchorage, Alaska’s KFQD-AM, owned by Morris Communications, can also be heard on a 250-watt translator.

There are undoubtedly more; these are just the fruits of a cursory search.

It’s hard to classify these stations as "beleaguered," as they operate at the maximum power afforded AM stations. So why do the translator-dance?

One reason is that many AMs are simulcast on FM nowadays – though most of these arrangements involve full-power FM stations. Broadcasters like to trumpet the "crystal clear sound" of FM, which many younger listeners prefer. It’s also an easy way to solidify a station’s ratings with a simulcast.

Another (more likely) reason is due to broadcasters’ push for HD and FM reception in cell phones. Considering that the hybrid analog/digital version of AM-HD causes more problems than opportunities, stations find a better return-on-investment by simulcasting on FM, even if it’s at flea-power.

In addition, there are no concrete plans on the horizon to make cell phones AM reception-capable. This way at least people might be able to pick up the station’s translator signal if they so desire (and have a handset that contains FM reception capability).

Still, it’s hard to rectify the FCC’s intent with this rule as practiced; another sorry case of good intentions gone awry.

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