Canadian Business,  April 1997

Brian Steel is a radio DJ. Every weekday from 9 a.m. until 2 p.m. his smooth, rich, confident voice tumbles out of speakers in cars, kitchens and Walkmans all across the land. It punctuates short sets of safe, palatable “adult contemporary” pop tunes: Michael Bolton, Seal, the Eurythmics. Steel’s main job is identifying the tracks in each preceding set and the artists who perform them. It’s called the “back sell.” He’s also responsible for “programming” — all the patter that isn’t back sell. “To me, it’s just radio,” Steel says of his material, culled mostly from “nonsense books” and wire stories. “You have to sound like you’re having a good time.” Folks in Oshawa, Ont., like Steel. Folks in Lethbridge, Alta., Sydney, NS, and dozens of other Canadian cities and towns like him too. Better yet, he’s just as popular when he gets back on the air an hour later and launches into an afternoon of “good-time oldies” format under a different name — his real name, Bill Hayes. “That one is more of a memories thing,” he says of the show’s “top 40 prior to 1974” rock music format. “It’s a little more music intense.”

Brian Steel. Bill Hayes. It doesn’t really matter. In either case, in every place, listeners think of Steel/Hayes as one of their own. In this, he fulfills the first paradigm of successful radio: it’s best when it’s local. That he is able to do it all while stationed in a small bunker in Mississauga, Ont., fulfills the essential business paradigm behind the Pelmorex Radio Network, a five-year-old market upstart that is determined to find new dollars on the old dial. Its strategy: fake local, think global. According to Tom Tompkins, a Pelmorex program director, Hayes embodies the Pelmorex ideal as it angles for a healthier share of Canada’s $775-million-a-year commercial radio market: “You listen to this guy and you think, Jesus, he’s talking to me.’” Except he isn’t.

The Pelmorex network concept was created in 1991 by Pierre Morrissette, the 50-year-old president and CEO of privately held Pelmorex Inc. It is also the product of a decidedly modern coupling: digital hardware (computers, satellite) and precision-tested, focus-grouped, market-researched software (music such as Seal, programming like Hayes). Typically, when Hayes and any of the other 22 Pelmorex “hosts” sit in the studio, they’re facing a microphone and several computer terminals. With the exception of the “oldies” format show (where the older recordings sometimes present timing difficulties), you won’t find any turntables or CD players in the booth; the computer plays all the music, as well as the commercials, the weather forecasts and the prerecorded local station identifications for each of Pelmorex’s more than 230 affiliates. Depending on where you plug in your radio, Hayes can be heard saying anything from “This is Oldies 900 CJVI Victoria” to “You’re listening to Ottawa’s Original Oldies, 1310.” Stations pay an average of $750 a month for the Pelmorex feed — digitally pure sound delivered via satellite.

Pelmorex Inc. was brought into being in 1990, when Morrissette, after leaving the top job at pioneer satellite broadcaster Canadian Satellite Communications Inc. (Cancom), bought up the Mid-Canada Radio Group — 7 midsized and small stations in northern and central Ontario. Even now, people are more likely to recognize the name of Pelmorex’s other big property, the Weather Network, which it bought from Lavalin Inc. in 1993. In 1991 Pelmorex debuted its network radio service, starting with the adult contemporary format. Last year the company bought the Satellite Radio Network in a seven-figure deal from Rogers Broadcasting Ltd., built five new studios at its faux-Georgian headquarters and diversified. Now, in addition to the adult contemporary format, it offers “today’s hot new country” for FM stations, “country music radio” for AM, good-time oldies and a late-night national all-request oldies program called Goldline. This year Morrissette is aiming for radio network revenues to hit $5 million. And that is only the beginning. With stations in the US and the Caribbean now asking about hookups, Morrissette says there is plenty of room to grow, and that providing content via computer and satellite is where the money and the company’s future lie.

To get there, Pelmorex is already easing itself out of station operation and ownership, and concentrating on providing content. This year it has sold four of its owned-and-operated stations and is negotiating with potential buyers for a few more. Getting rid of radio stations in order to reach a wider audience is just one more Pelmorex paradox. Purists may scream, but in a market where rising costs and stiff competition for advertising revenue are hurting conventional radio’s profitability, the Pelmorex concept could be a winner. “Radio networking in Canada was really underdeveloped,” says Morrissette. “It’s the niche we decided to focus on and to assume a leadership position in.” Is it also the future of radio?

At one level Pelmorex is merely sustaining a lengthy tradition. Radio has been around for more than 75 years; experts have been predicting its imminent demise for 50. It has survived by finding new arenas to exploit as it is crowded off older turf. That survival comes at a cost — if you want bigger profits, take fewer chances. That means more market research and a shorter, more predictable playlist.

In Omaha, Neb., in the 1950s, Todd Storz noticed people in the bar where he was drinking chose the same songs on the jukebox repeatedly, ignoring others completely. Storz adapted the idea, called it “heavy rotation” and sold it to radio stations as a programming concept. In the early ’60s, Bill Drake surveyed several thousand Los Angeles teenagers and compiled a playlist of their 40 favorite singles, refining Storz’s ideas further. With the short-lived exception of free-form FM in the late ’60s and early ’70s, radio formats continued to tighten.

These days, programming services or consultants tell radio stations what songs and artists to play in every radio format. Pelmorex uses Vancouver’s Pat Bohn & Associates and Toronto-based Solutions Group to determine playlists for its formats. Every selection is a guaranteed surefire crowd pleaser: “If it doesn’t cut it in the research, it doesn’t get onto the playlist,” Morrissette says.

For a time, such tightly focused, sure-thing product was enough to pull radio revenues out of a nosedive. It has been widely thought that during the ’80s radio listener numbers dwindled. In fact, audiences remained steady; they’ve actually been increasing a little each year. Now, however, stations’ profits are suffering again, even as their ratings remain solid. Costs keep rising, and there is new competition for advertising: specialty-TV services, Web sites and the like. Enter Pelmorex, with a way to cut those costs back and boost bottom lines — news that is especially welcome in a business where you can expect to turn much of your profit on only one-eighth of the work you do.

Radio stations make most of their money during three hours of the day. From 6 a.m. to 9 a.m., when people are waking up and getting to work, they’re also listening to the radio. In the business, it’s called “morning drive.” Morning drive shows feature a lot of information (traffic, news, weather and sports), some comedy, upbeat music and the most expensive commercials on the clock. Morning drive is the only part of the day Pelmorex doesn’t offer programming for — no client would want it. And for about 10 percent of Pelmorex’s affiliates, that’s the only time they get off the Pelmorex network feed.

A look at small-station economics shows why. If you’re running a radio station without the Pelmorex network, you still have to pay people to play music, do time and weather checks, and back sell the music for the other 21 hours in a day. And those people often vary wildly in quality, presence and ability — an unwelcome variant in an otherwise tightly structured format.

Hayes, on the other hand, has a resume comprising more than 20 years in every format in the country’s biggest markets. For $750 a month, suddenly C-whatever-FM in Tiny Town gets a big-time professional. And it can put its own Jimmy the Hapless Boy, who has been limping through the overnight shift, to work as a producer instead — one more person to help perfect the best possible commercials and programming for that all-important morning drive slot. For the rest of the schedule, Pelmorex gets to sell and keep two minutes of commercial time every hour for itself. The local affiliate gets the other eight-and-a-half minutes.

When Hayes sits down to do his first show of the day, he can concentrate on his performance. Everything else — news, weather, commercials and the music itself — is the responsibility of a chain of computers. Every second of the Pelmorex feed is mapped out digitally on a computer hard drive. The drive runs a couple of massive CD players containing that day’s part of the network’s music library. Hayes has a track list, along with a cue sheet that tells him when he is expected to talk. The same computer program triggers local playback: promos, national commercials and station identifications, switching between sources and routing content to affiliates. Pelmorex offers news at the top of the hour from Broadcast News (BN), the radio arm of the Canadian Press wire service, and weather forecasts from its own Weather Network.

At the top of each hour, stations can run Pelmorex’s BN, take a network-supplied “filler song” or sell the time as commercials. Some stations are equipped to broadcast the correct time; in other cases Peltnorex’s on-air talent serves the country’s different time zones by referring to where the minute hand is in relation to “the hour,” without specifying which hour they’re talking about.

Individual station IDs, public-service announcements and market-specific elements are recorded separately for each affiliate. Every one of Pelmorex’s on-air personalities records different IDs for each one of the network’s 230 clients. Liz Zlabis, in charge of affiliate relations for the Pelmorex network, says local events (parades, fairs, tractor pulls, fishing contests) are a popular hook, especially if the affiliate is sponsoring them. Stations will often supply promotional copy to make it seem as though the Pelmorex jocks are hometown folks: “Tomorrow at 6:14, right here on CHUB, there’s gonna be a four-car pileup on the hilarity highway, because the two zaniest guys in radio are on a collision course with wackiness. Don’t miss the madcap antics of my misshapen cohorts, Bill and Marty . . . ”

These promos, IDs and liners are fed out in bulk to the respective subscribers, each of which has its own digital address and a local server on which they’re stored. “Addressable tones” trigger the different IDs, promos and local inserts so they match whichever network jock is on the air at a given time. Only Hayes’ voice will intone station IDs when Hayes is on the air. The triggering is seamless, fractions of a second separating prerecorded elements and live on-air performance.

“Everything I learned in every radio station is completely opposite here,” Hayes says of the skills he needs to make Pelmorex work. “When I started out in Calgary in the ’70s, I was taught, ‘Be local, you gotta be local.’ But here, you can’t say any of that stuff. A guy called me yesterday about a traffic accident [where he lived]. That’s fabulous. But I can’t mention it. So far as listeners know, we’re their radio station. You call a seven-digit local number to talk to the local radio station, and you get Mississauga. You’re thinking, ‘What the hell happened here?’” Not surprisingly, Pelmorex wants its jocks to help the feed sound like it’s coming from right there in town, regardless of whether “town” means Victoria, BC, or Yarmouth, NS.

Pat St. John is a regional manager for Power Broadcasting Inc., running Ontario-based stations in Oshawa, Collingwood, Guelph, Cambridge and Barrie. Guelph’s Magic 106.1 and the other Power Broadcasting affiliates have been running Pelmorex product for more than two years now. St. John couldn’t be happier with the results. When Magic 106.1 switched to the Pelmorex adult contemporary feed, he says, the number of employees remained constant — some staff were let go, but others with different skills were hired in their places. “You don’t need to pay somebody thousands of dollars just to push a button every four minutes,” St. John says. “This way, we can be very customer-focused. We can spend more time paying attention to our customers’ needs. We can put together good, solid presentations and focus more on the product.” When St. John says “customers,” he’s not talking about listeners; he means advertisers.

So what’s next for the future of radio? According to Jim Davis, manager of research and business-to-business marketing for Pelmorex, the network’s main task is cementing its work as a content provider while signing up new affiliates. “The next objective is to keep expanding the network,” he says.

There’s expansion, too, on the program menu. Pelmorex is looking to add formats to its roster. But a lot of what determines those decisions comes from research, and while the field has been narrowed, it’s not conclusive yet. “Right now we have four music formats, 24 hours a day,” Davis says. “Some of the formats we’re looking at include talk, and possibly a dance format. We are a content provider; as we see opportunities, we will move into the area of providing that content.”

Morrissette moved Pelmorex’s studios from Sudbury, Ont., to Mississauga in 1995, but he remembers his roots. “Having been in retail radio, we understand the needs of retail radio — particularly mid-market retail radio,” he says. Not only were smaller stations the foundation for his own company, they now constitute the majority of his network’s affiliates. Meanwhile, the sell-off of Pelmorex’s own stations continues. “We’ll probably be left with a core group of four or five FM properties and one AM property,” Morrissette says. “We’ll keep those properties that we hope [will] contribute to our profitability, but our main activity will be the distribution of national services such as our radio networks.”

Competing services will inevitably arise. Already in the US, for example, there are national services that provide stations with customized local news, weather and sports broadcasts. Beyond that, the main thing that threatens Pelmorex is the very technology that makes it possible in the first place. Digital radio is still in its infancy. The market fragmentation that plagues the TV industry may yet ravage radio. Yet, for now, Pelmorex is right where it wants to be: ideally situated to take immediate and lucrative advantage of any new opportunity that comes along. It’s up to Morrissette to keep it that way.

“New technology will add digitally transmitted signals to the existing analog signals,” Morrissette says. “As that transition happens, you’re going to find a host of new audio products and services being made available. At the national networking level, it’s going to create opportunities to package and distribute information in new and interesting ways. It’s going to be an exciting time.”