07/27

Who is Kagan Research talking to?

Here’s how news happens.

Kagan Research releases a report which very few people see. But they also release some headlines which are oft-repeated. And in this case, the headline reads like this:

As the HD rollout continues to gather steam, the industry is expected to benefit from positive buzz while preparing itself for future revenue streams….HD radio is expected to generate $1.6 billion in revenue by 2011, the bulk of which is expected to come from advertiser based secondary channels.

I would love to review the original report in its entirety to give it the kind of analysis it deserves, but it seems like much of this opinion is based on reports from radio industry sources. And here’s what I hear from the industry sources I talk to:

- There is no established model for how stations or groups plan to derive revenue from HD radio. “Nobody knows,” is what the experts say on industry panels.

- There is no plan to spend more than subsistence sums on investments in HD radio programming.

- There is no guarantee that these radios will be offered by the automakers because they want to provide only what their customers want, and audience based demand is so far lacking. Nor are they looking to add expense unless they’re confident that expense can help move cars.

- There is widespread confusion about the benefits of HD radio among consumers, let alone “what HD radio is”

- HD radio exists in anything but a vacuum. The trend in technology is toward more control by listeners, not more control by broadcasters. The trend favors audience creation, not industry rules.

- There is no desire to add inventory soon on HD because the industry is trying to entice listeners to buy radios with an attractive introductory offer (no spots). Meanwhile, the number of radios in circulation is small. And with a small number of radios in circulation there is no demand for HD radio spots from advertisers, anyway.

- Even with millions of HD radios in circulation there would be no “local sales” model since millions of radios nationwide don’t amount to any significant numbers at the local level.

- There is no strategy regarding how the radio industry can sell HD radio without cannibalizing listeners and dollars from the very stations which are now the cash cows. Remember, you have to go through the current station to get to its HD-2 channel. And who is most likely to go there first? The ones who go to your current station, of course.

- The success of HD radio is based on the premise that more choice will be more popular, but we know that much of the relative success of satellite radio is driven by its premium content and especially its lack of commercials on music channels – not by choice per se (in fact, if you want Howard Stern, you don’t really have any choice, do you?)

- There is no evidence to suggest that listeners are sufficiently displeased with what they hear now that they will pay for an alternative, especially with much of the low-hanging fruit already in satellite’s hip pocket. In fact, the evidence is very much to the contrary.

- There is no consensus and little discussion on how Internet radio will affect plans for HD radio development. Even as the Internet is considerably more universal than HD radio and communities across the nation are edging ever closer to border-to-border WiFi.

- There is plenty of evidence to suggest that the focus on HD radio is distracting broadcasters from focusing on obvious web opportunities, and this is causing us to lose ground on the web relative to other radio alternatives which might be much more potent in the future than satellite or HD.

- New technology products succeed because consumers want them, not because an industry does. Sony wanted BetaMax, but the market didn’t. Philips wanted Laserdisc, but the market has spoken. Today this is playing out in the video world with the race between Blu-Ray and the ominously titled HD DVD, and it’s far from certain that either of them will be successful. And here’s why: For the average consumer, some things are just good enough.

Is radio one of those things?

So here’s my question to the good folks at Kagan Research.

Who are you talking to?

* = required field
  • http://www.precipice.wordpress.com Jeff Schmidt

    Slam dunk Mark

  • http://www.mercradio.com Mark Ramsey

    Thanks Jeffrey!

  • Steve Rivers

    Were in Agreement Mark. HD Radio will be Stillborn if Radio doesn’t get it’s act together. These stations could be great labs for experimenting—but they’re collecting dust. Let the content drive the way and the trendssetters will help spread the word. Meanwhile, radio should clearly promote HD and spell out the benefits. Give out the damn things!

  • George

    Some research companies do research. Some research companies use the word “research” to do PR. From what I see, the $1.6 billion figure is an industry figure, not a Kagan figure.

  • http://www.mercradio.com Mark Ramsey

    I’d sure love to see the evidence that says you’re wrong, George.
    But I bet I never will.

  • http://www.donkeith.com Don Keith

    Exactly! It’s possible that the worst thing that could happen to traditional radio broadcasting would be HD radio becoming wildly successful. What if the already-diminishing audience is divvied up three more times among various HD channels? Where’s the pricing model for “spots” when shares of even the highest-rated stations are tiny percentage points and ratings are point-zero-something? Can YOUR sales staff make a living selling numbers like that? Can you grow revenue with no more (or even less) inventory and fewer and fewer sets of ears to sell?
    No? So what are you going to do to get numbers they CAN sell? Or what do you plan to do to package the audience you will have in such a way that it will be attractive to advertisers?
    If HD radio doesn’t revolutionize the industry, shares may remain relatively stable. The FCC is not creating many more new stations between 550 and 1700 AM or 92 and 108 on FM. But ratings…percentage of the population listening to your station(s)…WILL drop lower and lower and lower. Especially as measurement becomes more accurate, passively collected, and multi-media-oriented. (Advertisers don’t buy “”Cool 102 listeners”…they buy “potential widget buyers.”)

  • George

    “What if the already-diminishing audience is divvied up three more times among various HD channels?”
    As long as they’re all under the same roof, you sell the aggregate audience. If they go to satellite or ipods, then you can’t. That’s the sales advantage to HD.

  • http://www.mercradio.com Mark Ramsey

    You certainly can’t sell lost audience, but nor do I know any broadcasters who relish the idea of selling several low-rated stations rather than one high-rated one, even if the former adds to the latter.

  • George

    They may not relish the idea, but they’re doing it.
    How is sharing the audience with the internet less damaging to the mother ship than HD?

  • http://heartsofspace.typepad.com/spatialrelations Stephen Hill

    Mark,
    Your observations about the strange disconnect between industry spin and the realities HD radio is facing are all correct, but you politely stop short of the obvious conclusion: HD is DOA.
    The only reason it has gotten this far is that such an amazing amount of time and money has been invested in it by iBiquity, with support from radio industry stake holders and receiver manufacturers.
    Many radio folk were skeptical from the beginning; promoting HD as a quality upgrade (source of the HD moniker) was obviously bull — the typical Internet music stream is already higher quality than HD and can be upgraded easily as deliverable bandwidth gets cheaper. HD reminds me of DCC (Digital Compact Cassette), another attempt by a mature industry to administer life support to a sunset format. That didn’t work either, and today almost no one even remembers it.
    Promoting the increase in channels on HD sounded good until the usage reports came in and it became clear that with an IBOC system there really wasn’t enough additional bandwidth on AM and FM to do the job properly. The U.S. really needed microwave digital radio spectrum like they got in Europe, so new radios could simply add a band. And nobody really figured out where the money would come from to staff and operate those new channels at an effective level, even if they actually worked technically.
    And then there was the little matter of the hardware upgrade…it might have had a shot if the Internet wasn’t evolving several orders of magnitude faster, the FCC approval happened three times faster, the manufacturers were more agile, and the public had a clear reason to do it. But of course none of these conditions were met and today we still have the ~$500 standalone HD radio and the ~$250 upgrade fee for a new car radio.
    Of the major usage trends that are driving the growth of Internet radio — new “long tail” niche and alternative content, on-demand delivery, user-created content, podcasting (subcriptions and portability), and time-shifting — only time-shifting is even doable with HD, and then only in a relatively crippled way due to memory and interface constraints. Even this undermines the one incontestable advantage of conventional radio: ease of use.
    Your observation that HD is “distracting broadcasters from focusing on obvious web opportunities” is also true but only partially. Pumping up the station workflow to produce multiple audio streams and additional content is worthwhile whether the output is HD or web; and learning how to use the legacy air channel to promote web features and services is already being done by many stations with varying degrees of success.
    I work mainly in Public Radio, where these issues have been conscientiously debated for the last five years, while progress in both HD and web delivery has been (with conspicuous exceptions like NPR.org, KCRW Santa Monica and handful of other large stations) painfully slow and scattered.
    But system thought leaders and power players are finally united in the realization that digital delivery will happen most powerfully online and will do a far better job of supporting the underlying public service mission of the industry. They are now actively working on a comprehensive plan to do it by aggregating both infrastructure and content to support emerging composite business models. These will include memberships, underwriting, grants, and paid services with a sophisticated revenue-sharing model that involves all the participants and gives a powerful new role to the stations, who would otherwise face slow, painful dis-intermediation.
    Sound familiar? Commercial broadcasters actually have the greater distance to go in unlearning the old rules of the road and meeting the challenge of the digital transition. The process is retarded by the understandable imperative to operate their current franchises until the last dollar is earned. Public broadcasters have only their survival at stake, not billions of dollars of sunset ad revenue.

  • http://www.donkeith.com Don Keith

    Stephen, I don’t know if I’d say “HD is DOA,” but it is still in real danger of being stillborn. Your post is right on, though, and very well thought out. Aren’t most of us simply saying that depending on some long-overdue technology to bail out radio (and most of what we are saying applies to TV, too, BTW, with the original “HD”) is a classic example of too little, too late?
    At risk of oversimplification (never stopped me before!), what we are really saying is that potential listeners don’t care where their entertainment, information, companionship or whatever it is they are seeking comes from. They just want what they want, when they want, as cheaply and easily as possible, and they want it to sound good–not necessarily perfect–and be compelling. They want some control over it…or at least feel as if they have some control. They will migrate toward whatever that source is and they will do it in enough numbers to have value to advertiser-supported media.
    The web is not the only answer. Few have figured out how to use it so it’s not just radio. I know Clear Channel has lots of stuff on their station sites, but it’s mostly blinking ads and links to buy music, along with pix of the morning team. I see no reason for me to visit my local CC stations’ sites. No, I listen to streams from KFOG, KGSR or KTCZ when they are available because I like what they do, but I’m of no value to the advertisers in San Francisco, Austin or Minneapolis, and even if I was, they have no way to measnure me.
    The medium or delivery mechanism that wins will be the one that supplies the above the most effectively, packages and prices its audience in a way that gets results for advertisers at a reasonable, guaranteed cost, and has some way to measure the size and qualitative value of that audience in an accurate and believable way.
    Nobody said it would be easy. But if you want radio to go the way of Life, Look, The Saturday Evening Post, UPN, the WB, and thousands of banner-supported web sites, keep putting all your eggs in one basket (HD), convince yourself you can package your AC, country, and urban gospel stations together because they all reach 25-to-54s, keep skimping on programming, talent, and research, and rely on the sixty-second spot in an 8-unit break to grow your revenue 10% a year!

  • Annie MacDougall

    Is HD Radio going to be successful?? I dunno…your guess is as good as mine. However, let me make a distinction regarding HD Radio, it’s retail product, and it’s programming.
    Some folks, including Mark Ramsey, seem to correlate HD Radio with other failed efforts, like BetaMax, DAT, LaserDisc, etc. To me, those failures were not only because the public said no to that equipment, but also because the consumer didn’t like the players. And beyond that, it required the consumer to purchase the player AND the playee! In other words, you had to buy tapes (discs, etc.) AND buy the players you needed to listen to those tapes, discs, etc. With HD Radio, you just buy the receiver and that’s it.
    Did I ever buy any of those above-mentioned products which died an ignoble death? Heck no. In fact, as I look back to when I was a kid, I completely ignored 8-track tapes because I couldn’t understand why anyone would want to listen to a song that faded out in the middle and then resumed on another track. To me, that was like picking up the needle on a record, waiting a few seconds, and then putting it back down and resuming with the song. Are you kidding? That’d be goofy. And insane. And it’d kill the mood of any song. So as a kid, I was cassette-only (and vinyl, obviously) from the very beginning.
    Let me make a correlation regarding HD Radio. If this is weak, feel free to blast me.
    When TV made it’s move beyond VHF/Channels 2-13 and it began to broadcast UHF/Channels 14-81, the new UHF stations came on the air and the viewing public had to decide whether to purchase new TV’s so they could get this new programming that wasn’t available otherwise…and the programming was FREE. Well, it was free other than having to purchase those new receivers. And our family bought new TV’s and jumped right in. I went through all of this with TV as a kid. Now, we don’t even look at TV as UHF, VHF, etc.
    And I went through all of this with FM as a teenager, including getting FM converters (car and home), because FM offered programming I couldn’t get anywhere else, and it sounded great…and it was FREE.
    To me, HD Radio may have the same result. Folks will find out about it, they’ll understand that it offers new programming (let’s hope!!), and most importantly, it’s programming that they want to hear!! And they can get it for FREE!! All they need to do is purchase a new receiver. Am I gonna buy one? Yeah, probably this fall. First for the house, then maybe for my car for Christmas. BUT that depends on whether there’s programming available that I want to listen to. Otherwise, I’ll wait till 2007.
    Is the future rosy for HD Radio, with success coming down the pike in a couple of years??? Maybe. Maybe not. I just thought the comparison might be somewhat valid.

  • http://www.mercradio.com Mark Ramsey

    Wow, Annie, I appreciate all your commentary.
    For the record, I am not compring HD to Betamax and the like. I’m only making a point about the consumer-centric nature of demand.
    I wish HD well. But I also wish the powers behind HD would address some nagging marketing facts that would give all of us great comfort.
    Finally – and I should write about this more sometime – I do not think the AM to FM / FM to HD analogy is valid at all. What made you want that FM adapter was the fact that your generation’s most popular music either wasn’t available on the radio at all or wasn’t available at a level of audio fidelity that sounded as good as your record player’s.
    Neither of those is true today.
    Plus, what were your options back then? Now they are numerous.

  • http://www.mercradio.com Mark Ramsey

    George, the answer to your question:
    “How is sharing the audience with the internet less damaging to the mother ship than HD?”
    The Internet is there, like it or not. “Sharing your audience” there is defending your audience. Because if your audience is there but you’re not you will lose them.
    For HD, the audience is not there. And if it is, HD stations will sponge off existing FM stations by design and soak up their audience – meanwhile the Internet front will continue to grow without radio’s involvement.
    Sounds like a worst-case scenario to me.

  • George

    To me, people are people. It’s not one group on the internet and a completely different group listening to FM Most people seem to do it all. At least that’s what I see from all the charts and studies you publish here. They listen to the internet at work. They listen to FM for the commute. If they don’t go to HD, they’ll go someplace else. Because what stations are doing with the mothership isn’t able to suit the fringes. So you do what most radio companies are doing, which is create HD channels that also stream on the internet. You know most people aren’t convinced to buy the new radio yet. But they can sample the content on the internet. Still, these are all current or former FM listeners, so you’re canabalizing FM. Maybe you lost them 5 years ago, but you still lost them.

  • http://www.mercradio.com Mark Ramsey

    George, it is one thing to follow listeners to wherever they wish to go. It is another to chase them there. Listeners are already on the net. Period.
    And it is quite a fact that nobody wants to sell an aggregate of tiny shares. Not one single client of mine has ever asked me to optimize their portfolio of stations. They want larger shares, all.
    Triple the number of options and larger shares will be a thing of the past.
    Of course it’s right to leverage your offerings across channels – I have always said that. Nor do I argue that “HD is a bad thing.” I have never said that.
    But the realities are the realities and they are inarguable. And your bosses aren’t interested in the discussion.

  • http://www.donkeith.com Don Keith

    The VHF-to-UHF argument doesn’t work either. The government required TV manufacturers to include UHF. And now the FCC is requiring all TV broadcasters to go digital by a certain date because they want their analog spectrum space. Radio opted for IBOC digital for a number of reasons, thought I can’t quite understand any of them. So far neither the FCC nor anyone else is hinting that they will require digital radios…or force radio stations to go digital.
    And George, I was just listening to an internet stream at my desk from a non-over-the-air source. I missed the last eight or ten spot breaks on whatever radio station I might have been listening to had I not had that aural option. If someone was trying to reach me with an ad message in one of those breaks, they missed me. And miliions of others who only had radio for a listening option at their desks a short while ago but who can now pick and choose from a much better stocked buffet. If I could have found something more to my liking on the radio, I have one sitting right over there, and I would have turned it on. Same with HD. If somebody puts something on HD that I prefer over the internet stream, my iPod, or the sound of silence, I’ll listen to that…providing I think it’s worth buying the radio. I’ll even buy commercials on it…provided it’s my target, there are enough of them to make it worth my while, and they are priced competitively with other media.

  • http://www.musicbiz.com/news/archives/2006_08.asp#005200 Hot News

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  • http://myspace.com/apolloxviii Chance McClain

    I just stumbled across this spot on post.I work in radio, I am the Executive producer of a sports staion in Houston. It is fascinating watching the people in my industry prepare to make this mistake. It is like there is this behemoth (The radio big leaguers)that cannot slow its own momentum. They spent the dough to develop the technology (and took far too long to develop, so long in fact that other cheaper & superior technologies breezed by)and now they are stuck with rolling it out to an apathetic audience. Apathetic is too strong of a word. they are rolling it out to an audience that has absolutely no desire to embrace it.

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