Macquarie's Lifestyle Dilemma: Once more unto the Breach

I really don’t believe there are any serious players in the Australian radio industry who’d envy the massive task now lying ahead of Macquarie Radio in the wake of the ‘Talking Lifestyle’ fiasco. While the ‘pile of poop’ they’ll now have to clean up is entirely of their own making, turning around decimated AM radio stations is a task akin to ‘turning water into wine’; it needs a superhuman effort. Unless they can do a ‘Lazarus’, and literally raise the old Magic stations from the dead, Macquarie’s credibility within the industry will be in tatters for years to come. At the beginning of last year, against all industry advice, Macquarie rolled out 2UE's Talking Lifestyle programming to its former Magic music stations in Melbourne and Brisbane, and, in doing so, drove those music stations into the ground. What had previously been mediocre, but viable, audience figures in each city were reduced to rubble and the talk format they’d put so much sway in failed to attract any appreciable audience outside of Sydney. Let’s call it what it was: a disastrous error of judgement – not just for Macquarie, but with potential ramifications for the entire commercial radio industry. Every radio executive wants to see their station rate Number 1. We all love the idea of watching the opposition eat our dust, but no one in this business really wants to see any commercial radio station wiped from the face of the Earth. Australia’s capital cities each have between six and ten commercial radio stations. People who work in the industry look on these stations differently from listeners. They not only see these stations as information and entertainment centres, but as sources of employment. If one station in a capital city were to fail, you’d expect that about 10-percent of the industry’s employment opportunities in that city would also disappear; that’s a real concern. The shakeout of the ‘Talking Lifestyle’ gamble is, to the best of my knowledge, unprecedented in Australia’s nearly 100-year broadcasting history. Two metropolitan radio stations, in two separate markets, with audiences that dropped to under a 0.5 share, is getting too close for comfort to a complete wipe-out. Macquarie Media’s top executives Russell Tate and Adam Lang are serious businesspeople. Both have long, impressive and successful histories in running various types of businesses but neither came from radio programming backgrounds, and have, to all intents and purposes, been learning the radio programming side of this business as a form of ‘on the job training.’ This doesn’t make them bad people or incompetent, but what it does mean is that they often take a different perspective on the way commercial radio should run. Figures in Macquarie’s recent annual reports suggest that their management style is more about making profits by focusing on cutting costs than driving revenues. Within Macquarie Media, ‘learning as you go’ decisions have taken their toll on the lives and careers of many talented professionals in the radio industry, some of whom spent decades acquiring and refining the skills necessary to create audiences and generate sales; understandably many of those people are still very angry about the decisions made. One of those business decisions was introducing ‘Talking Lifestyle,’ which appears to have been an attempt to increase operational efficiencies by using a single Sydney-based program across three markets. Without so much as the aid of a crystal ball, experienced people in the industry could see well in advance what was going to happen to the existing audiences on the Melbourne and Brisbane music stations, and, the predicted destruction of the stations’ audiences rolled out like clockwork. Pushing ahead with ‘Talking Lifestyle,’ on what appears to have been a senior management hunch, has potentially jeopardised the viability of two major commercial radio stations. Now, 12 months down the track, Macquarie executives have seen the error of their ways and are changing direction. ‘Talking Lifestyle’ is now a dead man walking; but that’s only half the equation. The big question that people in the industry have been asking each other in recent months, is ‘what programming could Macquarie possibly put in its place?’ The options for AM stations are extremely limited. When you are dealing with unprecedentedly-low ratings, the safest and most cost-effective format would normally be some form of music that could run, voice-tracked, from a computer in the rack without a great deal of cost. However, Macquarie Media has not chosen to go in that direction, instead making another bold and ‘courageous’ choice – Sports. In the right hands, that would not be too bad a choice, but my concern is that Macquarie executives may not have learnt anything from their recent horror show. Sport is ostensibly an even more niche talk format than ‘Talking Lifestyle.’ There’s no doubting that Macquarie Media know one form of sports programming well through their commitment to NRL, and this, possibly, has influenced their decision. However, as a programming subset, a Sport format is highly labour-intensive, and very expensive to produce, particularly, as it often involves the payment of rights to various sporting bodies. For many years, Macquarie has run NRL and the Continuous Call Team on 2GB, where the historical cash flows have been extremely strong, and where they have an existing audience driving advertisers to their door. However, when you commit to a fulltime Sports format, it has to be built on more than an allegiance to a single sport. It’s essential to have access to a whole range of sports, some of which may not have general appeal, but need to be covered to offer the audience a proper balance. Pacific Star’s 3AK in Melbourne took on Sports, as SEN (Sports Entertainment Network), around 2004, also migrating from a previous news-talk format. Originally, SEN was produced by an outside production company, but, they couldn’t make a fist of it. Pacific Star then took over SEN, but, it should be remembered, it took them many years to get their ratings to where they are today. Recently, Pacific Star merged with Craig Hutchison’s Croc Media, which, by coincidence, happens to have been named as the partner of Macquarie Media in this new Sports venture. In recent years, Craig Hutchison has proven to be a master of branded programming, pairing numerous advertisers with sports programs, and then, paying radio stations throughout the country a share of advertising revenues to carry those broadcasts. I’m sure ‘Hutchy’ will initially bring in quite a few sports-focused advertisers for the new tri-city sports network, but will it be sustainable? The reality is that following the fallout of ‘Talking Lifestyle’, there are now fewer than 2000 listeners to each of the Melbourne and Brisbane stations (average audience, Survey 1, 2018), and, many of those existing listeners may not be fans of sports broadcasts. This means the critically-low audience numbers that are currently tuned to the old Magic stations could be reduced even further before things start to turn around. The big question is: how long will advertisers be prepared to back the new format, if they aren’t getting the results they expect? Advertising success works on frequency and reach. There is really only one way to increase the reach of the Melbourne and Brisbane stations, and that is to appreciably increase the audience size. With stations that are currently so short on listeners, there is not enough momentum amongst their existing listener base to grow a worthwhile audience through word of mouth. If Macquarie Media is serious about pushing their new Sports format, the company must be prepared to commit at least millions of dollars, and potentially more than $10 million, in external media advertising to lift the audience numbers quickly enough to ensure their advertisers will be kept satisfied. A sports fan shouldn’t be able to turn on a television in Sydney, Melbourne or Brisbane during the first few months of the format’s release without seeing an ad for the new Sports station. Every newspaper in those cities, every Australian sports magazine, every major sports ground, every sports website, and hundreds of buses, trams and billboards need to be constantly driving home the message across all three cities. An all-encompassing marketing strategy like this is very expensive. What board of directors in its right mind is going to commit many millions of dollars on what is clearly a very high risk strategy. One of my fears is that Macquarie executives may be expecting to limit the promotion of the new Sports network to 2GB, 3AW and 4BC, their primary talkback stations, and try to build an audience organically, hoping they won’t have to spend a lot of money externally. This would be foolhardy, and if they do try to implement Sports on the cheap, I suspect that in 12 months time, they’ll be back in the same position looking for a new format and licking their wounds. With the introduction of a labour-intensive format like Sports, the cash burn is going to be extremely high from day one, so, to succeed, they will have to put the new network in front of as many potential listeners as possible, as fast as they can. Had Macquarie taken the safer path, with some variety of music format, they could have run the operation very cheaply and let each of the stations build by word of mouth, but, I suspect it would have taken a very long time to get them back to profitability. The course they’ve chosen is clearly a far higher risk strategy; but with high risks, potentially, come high rewards, if you are successful. Unfortunately, what tends to happen with many of these types of ambitious, labour-intensive projects, is that, despite all the best intentions, their costs are more often than not, under-estimated. When implemented, they burn cash and run seriously over-budget, boards panic, and, front line staff end up having to cut critical elements from the original strategy as funding dries up. What may have started out as a great concept ends up a shadow of what it should have been, and the end product fails to resonate with a wide audience. Pacific Star’s Ron Hall reportedly had to personally contribute more than $10 million in additional funding to keep SEN in Melbourne alive, and, it’s important to remember that SEN was a single city market that started with an audience share of around 2%; many times more than the current audience for Macquarie’s old Magic station in that city. However, if Macquarie Media do manage their new Sports format well, they could be very successful, lowering the age of their target demographic and giving their AM stations extended life. But, without wanting to sound like the Merchant of Doom, I’m not at all optimistic that that’s what’s going to happen. I have this nagging doubt that Macquarie Media’s board has neither the risk appetite to commit the vast sums of cold hard cash that’ll be needed, nor the patience to wait, possibly many years, before the new format finally becomes successful. I hope I’m wrong.