Here’s a simple question that many people get wrong: What does (terrestrial) radio sell?
Think about it for a moment before answering.
If you are like most media consumers, your answer will be “advertising.” Since Radio is media, and most media rely on advertising, it’s a reasonable conclusion.
That answer, however, is wrong.
What Radio sells is you. You are the product. At least, you, as a member of a larger aggregated package. Sure, it’s demographically dissected, cross marketed and discounted — but its still what Radio sells. You may think of yourself as a consumer when you listen to radio, trading your time in exchange for music, news, weather, talk, etc. But that’s a false, if common, misunderstanding. You are what is consumed. Advertisers are the actually consumers.
If you understand that simple perspective shift, than the decline of entities like Clearchannel Radio (previously discussed) becomes apparent and inevitable. The stock is off some 33% since April of this year – while the S&P500 is appreciably higher.
After the 1996 telecommunications reform act, which gave the green light to Clearchannel’s massive acquisition spree, the industry started shifting, in a way that alienated their audience dramatically. That the largest player in radio failed to understand this simple concept is rather telling. The consolidation led to the gradual shift in lifestyle — listeners of music no longer relied on radio. The audience found ready substitutes — it was easy, especially since the internet was gaining broad penetration.
I suspect that this decline — this lifestyle shift — will be irreversible.
Why? The Hamburger Helper Effect.
Consider the modus operandi of all consolidators: Purchase assets, eliminate redundant administrative functions, achieve economies of scale. Clearchannel did this – and more — by firing local program managers, DJs, eliminating formats, and tightening playlists – all of which ultimately reduced the amount of varied music on the radio.
In effect, they lowered the overall quality and breadth of what they were playing. Equate this to a hamburger chain introducing meat extender. It will certainly lower costs, and increase profits – but only short term. Over time, the patrons of the restaurant simply will stop coming. Revenue slides, repeat customers go away, so the business tanks.
That’s FM radio today.
What’s fascinating is how quickly the audience’s “Screw you guys, I’m going home” attitude has manifested itself. As noted above, what radio sells to advertisers is their audience. That audience, tired of Hamburger Helper, has shifted away, easily finding the all beef burger: iPods, internet streaming, P2P, and satellite radio.
The audience didn’t even change stations; Rather; they shifted media entirely.
Grandpa, you used to listen to music on the radio? What was that like?