A 'radio gypsy' keeps local stations rocking

(FSB Magazine) -- Radio isn't exactly rocking nowadays. It's a 100-year-old technology, and many operators cling to tired ways of doing business. Financial results have been about as flat as an old 45: Total revenues for U.S. radio stations, at around $20 billion, have increased less than 1 percent over the past six years.

Enter Joe Schwartz, 54, the founder of Cherry Creek Radio, (cherrycreekradio.com) a three-year-old firm in Denver. Schwartz buys underperforming stations in small communities, mostly in the American West. He encourages each newly acquired station to focus on community news and interests, which Schwartz considers radio's competitive advantage, while pursuing more aggressive sales techniques - namely going after the local newspaper's share of the advertising pie. "Cherry Creek tends to buy stations in places that you need an atlas and a flashlight to find," says Bishop Cheen, a radio analyst with Wachovia. "Then it runs them really well."

"Our radio markets tend to be very down-home and very community-oriented" --Cherry Creek Radio founder Joe Schwartz

Ana Alicia Torres Varga, DJ at KZHR-FM, Cherry Creek's Spanish-language station at Pasco, Wash.

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Today Cherry Creek owns 60 radio stations that it bought with around $50 million in private-equity backing from Arlington Capital Partners (arlingtoncap.com) and a bank line of credit worth another $70 million. Schwartz says the closely held company earned about $10 million last year, on total sales of $30 million.

A self-described "radio gypsy," Schwartz founded Cherry Creek after spending 29 years running radio stations in dozens of markets across the country. He often surfs Chamber of Commerce Web sites in search of struggling stations in towns where the population is growing or where new businesses are taking root. If a market looks like a strong candidate, Schwartz pays a visit. "When you've done this as long as I have," he says, "you get a feel just driving around and looking for new construction, seeing how much dirt they're moving."

As soon as Cherry Creek buys a station, it puts its staff through an ad-sales boot camp run by Dan Gittings, 60, who is Schwartz's deputy and a former petty officer in the U.S. Navy. Gittings gathers the managers in a hotel for an intensive two-day workshop. His main message: Go to war with local newspapers.

The advertising pie in a typical small market breaks down as follows: 25 percent radio, 25 percent TV, 50 percent newspaper. In markets without a local TV station (there are plenty), the breakdown is more like 33 percent radio, 66 percent newspaper. Radio ad salespeople tend to believe that those percentages are set in stone, Gittings says, and that the easiest way to increase their revenue is to steal from other radio stations - even though many newspapers are vulnerable, with declining circulation and aging readership.

Local radio stations aren't known for aggressive ad-sales operations. Gittings helps his charges develop a standard sales pitch, highlighting the strengths of their stations and the weaknesses of local papers. Then he gets them fired up. "Go out and get your accounts to up their ad spending," he urges them. "Go knock on the door of businesses that have never done a radio spot." Targets of opportunity include car dealerships, furniture stores and local outlets of retail chains such as Sears (Charts, Fortune 500) and Wal-Mart (Charts, Fortune 500).

Cherry Creek in 2004 bought four stations in and around Lamar, Colo., an agricultural area with about 35,000 inhabitants in the southeastern corner of the state. The stations were in trouble, having posted a revenue decline of around 20 percent over the previous four years. They have since turned around - largely by stealing ad market share from two local papers, says Schwartz - and their revenues rose by about 25 percent last year.

Charlie Anderson, a sales manager for the La Junta Tribune-Democrat, conceded that her paper's ad revenues were down in 2006. But she maintained that the drop-off stemmed more from a weak local economy than competition from Cherry Creek. Still, she's well aware of her new rival. "I'd be silly to sit here and tell you I'm not concerned," she said.

Cherry Creek rarely gets rid of personnel at the stations it acquires; the company has laid off only two managers so far. The reason: Existing managers are considered an invaluable asset for their ties to the local community. Ron Korb, 40, was general manager of four stations in and around Great Falls, Mont., when Cherry Creek bought them in 2004, and he retains that title. "They provide - I guess you'd call it 'coaching' - in some key areas," he says, referring to Gittings's boot camps. "In other areas, they don't really breathe down our necks."

Notably, Cherry Creek rarely tinkers with a radio station's programming. Most Cherry Creek stations provide plenty of community fare to address the concerns of their small-town audiences. For example, KMON-AM in Great Falls offers country-music standards and agricultural news and talk shows, much as it did under the previous ownership. Other Cherry Creek stations broadcast local staples such as school lunch menus. "Our markets tend to be very down-home and very community-oriented," says Schwartz. "They're not racy, and they're not controversial. Howard Stern would never fly here." But Cherry Hill's go-for-the-jugular sales tactics obviously do.