I’ve been thinking about music and radio a lot lately, especially given all buzz recently on Satellite radio. (Recall we visited this topic over the summer).
Here’s a simple question that many people get wrong: What does (terrestrial) radio sell?
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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.
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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.
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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.
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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?
I do not find the rapidity of the Eric Cartman response puzzling, because commercial radio had long skirted the edge of relevance, probably starting some time in the 1980s. However, it had retained its audience, through a combination of being “good enough” and the lack of viable competition.
Not only did Clear Channel’s cookie-cutter policies push radio over the edge of usefulness, but its timing was also poor. Filesharing, CD-burning, satellite radio, not to mention DVDs, the web as entertainment and others entered the scene just as CC had finished its program of rationalizing radio formats and playlists. So, precisely at the moment competition heated up, CC kneecapped its own entry.
The lesson for radio is pretty clear: fix it, it is broken. The lesson for other oligo-/monopolist providers is that good-enough products needs to improve before new competitors enter, not after. The lesson for investors, of course, is to watch their holdings in such providers and to be ready to sell early.
For the record: I avoided investing in Clear Channel because I hated their programming and their executive politics, not because I was smart enough to work this out ahead of time. I do hold investments in oligopolists, because until market threats materialize I enjoy being a landlord.
The identification of radio as “you,” we the people etc. becomes fundamental to seeing one major development. This is why I stress cellphones. While other forms may dominate where 3g does not go, in the areas with the largest sections of population, web based stations and group streaming (equivalent to SMS) will play an increasing role. People will make their own radio stations and musicians who make their music easy to use (not necessarily free) will have advantages.
Subcultures and the artists nested within them will have the power to control the medium. It would not surprise me if this bursts out in mass adaption in 2 to 4 years right at the point satellite radio is getting profitible.
Understand this medium. The cellphone is now the most widely owned electronic device. It has acquired a billion users in a decade. It is a clear example of a technology escalating. It makes the PC revolution look lumbering. The relatively low costs of cellphones means that they can go through “generations” several times as rapidly as computers. The medium is disigned for “multi modal” forms of communication (eg. symbol, picture, sound and increasingly the conversion of one to another,) it is useable by the illiterate and the elderly (which means they can have their own music channels, maybe interspersed with talk from down at the senior center.)
Radio and music is only one area it is taking on, watch sales have fallen in the third world, we have note books, phones of course, email, it goes anywhere. Go into a classroom and kids are using t9 to talk to friends elsewhere. It is becoming a credit and debit card, you name it… the net in the pocket… Captain Kirks communicator.
Barry, spot on. I was thinking about this in my car yesterday en route to see the Indianapolis Colts take the Titans out behind the woodshed. I turned on my iPod and connected it to my car stereo and began wondering why it was that I no longer listened to the radio (well, I do listen to NPR and occassional sports talk but no music formats). It’s because radio ceased being relevant about 10 years ago.
Why did this happen? For some of the reasons you mention but also because PDs stopped looking at local musical tastes and variety and simply started swallowing the Billboard segment charts wholesale. I remember being a kid in school in the 1980s and radio was quite diverse; all the AOR stations played everything from the Who, Led Zep, etc to “modern rock” and punk acts like U2, the Cult, even some Duran Duran. Now everyone’s niche marketed and the music gets recycled ad nauseum. There’s nothing new of note there. Many of my colleagues lament that pop music is either too syrupy or too angry. That sounds about right to me…
What Does Radio Sell?
Barry Ritholtz has a great post about the radio industry as it stands today.You are the product. What Radio sells is you. At least, you,…
As Director of Communication for a 150 outlet company, I have voiced strong opposition to the FCC (and Congress) about the continuance and further expansion of multi-outlet media companies, e.g., Clear Channel, Cumulus, Infinity, et al.
This out-of-control media ownership presents pervasive and detrimental rate control
power in the hands of these mega-media giants. As a single, egregious example, Clear Channel Communications, Inc. owns 14 radio stations in San Diego, CA including 4 stations in Mexico which broadcast “over” San Diego.
I am concerned about undue media concentration and control and, as an outgrowth, the artificial rate inflation which unduly increases radio advertising rates for businesses in my company’s area of operation.
Examination of recent ARB radio survey figures reveals the following imbalanced audience listenership control (AQH Share) held by Clear Channel Communications, Inc. in just one of my markets, Lubbock, TX (6A-7P Monday-Friday)**
Clear Channel Radio Stations: KKCL, KFMX, KFYO, KZII, KQBR, KKAM
* 39% of listeners (Persons) 18-49
* 29% of listeners (Persons) 25-54
* 36% of male listeners 18-49
* 24% of female listeners 18-49
* 35% of all listeners 12+
* 32% of male listeners 25-54
* 33% of female listeners 25-54
* 37% of male listeners 35-64
* 38% of female listeners 35-64
* 35.6% of male listeners 12-24
** Figures based on Spring 2004 Arbitron Radio Market Report
While I realize that some dual ownership in certain markets can enhance audience diversity and rate economy for media buyers (particularly AM/FM combos), I feel that all mega-media conglomerates should be evaluated thoroughly, hopefully to the point of restricting ownership of vast numbers of radio stations in single markets in order to ensure that excessive media control does not occur by a single/group owner.
Increased advertising rates due to multiple ownership entities represent undue restriction of advertising placement for the smaller, local businesses across the country.
Barry, here’s something interesting.
In Jon Markman’s column for today on MSN, he says:
The music options sound much better for Sirius, including the Howard Stern contract, but… XM has contracts for standard factory options, with General Motors and Honda, where as Sirius still has not got the contract signed yet with Ford.
So where does this leave sat-radio as a direct competitor to regular radio?
http://moneycentral.msn.com/content/P101820.asp
I don’t listen to any Clear Channel stations any more, my breaking point was when they removed Howard Stern from the local station. I was hard to find a station that wasn’t owned by CC in the area but I found one that was worth listening to, they have real DJs, locally owned, play a good mix of music….unlike what the CC owned stations became.
Boy, you sure are smart–Chomsky’s been saying this for years
Look at CC from another perspective…the reason to dominate a market is to drive the cost of advertising up. I work for a AAA station in NY and we butt heads with CC all the time. Daily I hear CC offered me commericials for $20 a spot…why should I pay you $40? Good question…problem is you beleive you are paying $20 a spot…in fact you are paying $130 a spot…divided over 6 stations…most of which have such low ratings that if they weren’t bunched in with other stations you wouldn’t give any thought to spending advertising budget with them.
CC has gone as far as to air their “lite” format playlist over 2 local stations…the same songs playing at the same time, all day, every day…NO REGARD FOR A LOCAL MARKET AT ALL!
They even went as far as to host a “nurses night out” in a local strip club…WOW!!!
I guess I am thankful they make selling advertising on my station easy!
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Satellite Radio: The Hype is Understated
Much has been made recently about the growth of satellite radio, and its impact on conventional stations. But for once the hype is probably understated. In conventional radio, funded by sponsors, the audience is not the consumer. It is the…
I am thinking about getting into Radio Advertisment for a local broadcasting company. After reading this page, I’m wondering if I’m making the right choice.
Your thoughts serve as a useful prologue to the real question: what’s next?
Terrestrial radio IS irrelevant. What, then, is the new direction for the money-makers and money-seekers? Does the old radio sales paradigm simply get shifted over to newer media like cell phones and mp3 players? Will listeners tolerate that?
Is internet radio the real next step as opposed to satellite? What does wireless internet technology do to leverage internet radio into the vacuum created by terrestrial radio’s irrelevance?
I have a talk show on am radio and the signals are not great at all. I have sponsors for my show, WIth the shift in the radio market I am wondering if I should shift to satelite, XM radio or even internet radio, but if I do how would that effect the sponsorship for the show, as for what I have found satelite and xm are commerical free. What is your suggestion.