Comment from Brad Smart

I’ve seen a lot of posts on websites and social media since the announcement on Friday that Pacific Star Network (PSN) had acquired 2CH in Sydney.

Many of them were highly optimistic that 2CH would remain a music station and continue on its current path.

I’m sorry to burst your bubble, but the way I see it, that’s just not going to happen.

Nobody pays over $11-million for a loss-making AM radio station, unless they have a very definite and immediate plan for it.

Over the past 12 months, PSN and Crocmedia have been buying up every radio frequency they can get their hands on.

It was a couple of years ago now that Craig Hutchison, the public face of Crocmedia, got his hands on the Melbourne station SEN (previously 3AK) and its sister station, 3MP.

3MP was an oldies music station and has subsequently been converted to SENTrack, a more specialized sports format.

Originally, 3MP was licensed to cover the Mornington Peninsula with a transmission site at Noble Park, in the far eastern suburbs of Melbourne.

The station’s signal strength has always been reasonably weak in Melbourne’s CBD and the inner suburbs, so it really hasn’t been able to crack the general Melbourne market for years.

Parallel with the 2CH deal, PSN is now off-loading 3MP to ACE Broadcasters.

Since acquiring SEN, PSN has bought 1629 in Adelaide to run its sports programming, some of which is locally-generated.

In a buying spree, they’ve added to their arsenal many of the radio frequencies that were owned by Rete Italia in NSW, WA and Queensland, for which they reported paid $6.25M.

These frequencies included Brisbane, Perth and Wollongong.

They recently acquired an AM licence in Gosford, and the Spirit AM station in Bunbury, WA from Southern Cross Media.

At none of these stations have they suggested implementing or retaining a music program. They’re all going sport.

Craig Hutchison makes no bones about it.

Crocmedia is rolling out a nationwide sports radio network, not dissimilar to ESPN in the United States.

Now, back to 2CH.

Oceania, the South African venture capital group, wanted to buy up as much Australian radio as they possibly could, but radio in this country is very tightly-held, mostly by networks that have no intention of parting with any assets.

After buying SEA-FM and MIX-FM on the Sunshine Coast, their appetites were whet, but there was nothing around until Macquarie Media merged with Fairfax, to form the Macquarie Radio Network (MRN) in April 2015.

With three stations in Sydney, this put the newly-merged MRN in a position where it had to dispose of 2CH or be in breach of the Act.

When Oceania bought 2CH for $5.5-million, allegedly, they didn’t get everything they thought they’d be getting.

On paper, its revenue didn’t look great, but it looked reasonable.

Once they took over, the new team quickly discovered that a lot of the advertising was contingent on those advertisers also being on 2GB, and they didn’t automatically transfer across when 2CH had to stand alone.

As an oldies station, with a demographic to match, 2CH is almost entirely dependent on direct advertising. Most metro AM radio is.

Despite having people on-board, who really know what they’re doing with that music genre, Glenn Wheatley, John Williams, Rod Brice, Cherie Romaro and breakfast host Tim Webster, it’s simply been too hard an ask for them to lift 2CH, from its minute revenue base to profitability.

No one has infinite patience, particularly investors. The 2CH team has been running against the clock, and the losses have been mounting.

The $11.2-million price PSN is paying, isn’t a windfall profit on Oceania’s $5.5-million purchase. Industry talk is that it just cover the accumulated losses of the last four years, and they’re probably very lucky to get it.

What this says to me is that there aren’t enough direct advertisers, even in Sydney, to support the operating costs of a standalone oldies station on AM, despite the best efforts of some of the industry’s top operators.

Why then, would PSN and Crocmedia leave a loss-making station playing the same music format that’s generated those losses?

I noted one comment suggesting that Crocmedia would probably be reluctant to introduce a sports format into the Sydney market, because of what happened to 2UE with Macquarie Sport.

Other than the format being Sport, there are really no similarities between the two.

Macquarie Sport and the decimation of 2UE’s ratings were the results of a series of poor management decisions under previous regimes at MRN.

It started as far back as Melbourne Talk Radio, when in 2010, Macquarie tried to enter the Melbourne talk market, using 3MP as their vehicle, in a joint venture with PSN.

At the time, 3MP had been playing an oldies music format.

The conservative talk format, Melbourne Talk Radio, drove the music listeners away.

Despite buckets of money being thrown at the new talk format, it could not get enough traction to build a worthwhile audience before the partners decided to pull the pin in 2012.

That experiment allegedly lost over $20-million.

Despite the massive losses, Macquarie management, at the time, apparently didn’t learn anything about doing research from that costly experience.

Nine months after merging with Fairfax, they took another shot in the dark, introducing ‘Talking Lifestyle’ on their news-talk station 2UE and the music stations, Magic in Melbourne, and 4BH Brisbane.

Being a dramatically different format from music, in just a single survey the new program managed to drive down the ratings in Melbourne and Brisbane to figures that Australian commercial radio had never seen before.

With Talking Lifestyle, 2UE, had simply gone from news talk to soft talk, and didn’t fare anywhere near as badly as the music stations. In fact, it even gained in some surveys.

After 12 months, Macquarie’s powers-that-be finally realised their mistake with the lifestyle programming, and instead of finding an inexpensive placeholder, like voice-tracked music, they staked everything on Black 26 and said ‘let’s spin the wheel.’

That was the birth of Macquarie Sport, a labor-intensive and incredibly expensive format.

The Melbourne and Brisbane stations were already on their knees, but the unpleasant hidden surprise for the network was about to be, 2UE.

It had survived the moderate shift in talk programming the previous year, but now Macquarie management unleashed a quantum change on its audience, taking 2UE to an extremely niche format for Australian radio.

Admittedly, it was still talk, but it was a far cry from what most listeners were used to.

As most experienced industry people expected, the audience fled from 2UE in droves almost immediately, well before they could build a new audience for the Sport format.

This type of audience loss is not unexpected with a dramatic change in format, but unfortunately, MRN management hadn’t learned this lesson from any of their previous dramatic program changes.

By compounding Talking Lifestyle with Macquarie Sport, MRN had created a significant loss-maker in all three stations that they depended on to make that network profitable.

So, knowing this history, why will Crocmedia and PSN jump headlong into Sport on 2CH.

I think the answer is, unlike the previous management at Macquarie, Crocmedia don’t need to care that a large slab of the older 2CH audience will desert them.

They won’t be dependent on 2CH to give them a profit in the short to medium term.

Craig Hutchison and his partners in Crocmedia have developed such strong connections with sponsors in the world of sport, that they should be able to survive what Macquarie Sport could not.

They don’t need a large audience share in Sydney; they just need an outlet.

Crocmedia is looking for ‘dots on the map’, and they’re doing it very successfully.

It’s a lot easier for their sales teams to go to a sports-focused advertiser and impress them by saying “we’re in 20 markets, including the five big metro markets – Sydney, Melbourne, Brisbane, Perth and Adelaide.” It makes the buying experience a lot easier to justify.

If your station is not lucky enough to have a large, well-targeted audience in a single metro market, which is what most stations rely on, the next best thing for a niche broadcaster is to be able to offer an advertiser with a national presence, access to many markets through a single buy.

With the ongoing credibility and cash-flow that Craig Hutchison has built up from within the sports industry over the past decade, I doubt that Crocmedia will be daunted at all by the problems Macquarie Sport inflicted on 2UE.

Sure, at this stage, they may well be publicly saying that 2CH will continue on as normal, but that’s most likely to help contain the concerns of the staff, until settlement takes place.

PSN doesn’t take control until next month, and in financial deals, things can go wrong.

When everything is considered, I would be extremely surprised if 2CH wasn’t ‘SEN’ within the first 3 months.

Crocmedia is not geared to run music stations.

It does, however, know Sport, and it knows it well.

As far as I’m aware, that’s the only program format that Crocmedia and PSN are interested in delivering.

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About the Author

Brad Smart previously owned and operated the Smart Radio Network through regional Queensland.

He sold his stations to the then Macquarie Radio Network.

He has been a journalist, broadcaster and film producer for over 30 years.

Brad’s articles and podcasts are also available through his website www.bradsmart.com.au 

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