10/28

5 Lessons Radio can learn from Blockbuster

Blockbuster once defined the video business.  Now in bankruptcy, it has shuttered thousands of stores and fired thousands of employees.

Flash back 25 years, and Blockbuster was revolutionary.  All the videos most folks wanted – and all in one place and easy to rent. Blockbuster quickly became THE way to experience movies at home.  It became the established way.

The analogy to radio is obvious.  The established way to consume content – check.  Purveyor of the hits most people want most of the time – check. Conveniently located and part of your daily habit – check.  Local to your community – check.  A vast network of outlets nationwide – check.  Thousands of employees and managers all clinging to the status quo – check.

And like radio, Blockbuster drifted into a business model that calcified over the years.  With tremendous scale and tremendous profitability comes a sense that you can do no wrong – that your way is the way, come Hell or high water.  With scale and profitability comes a sluggishness to respond to change and competitive threats.

Competitor Netflix was once a flea on Blockbuster’s butt.  After all, they were the upstart – a virtual company mailing DVD’s to people at home and later, laughably, actually streaming content online.  Let’s see, an industry confronted by a competitor streaming content online…where have I heard that before?

Now Netflix’s profits are up 25% in the past year.  They continue to ramp up deals with the Hollywood content-makers and are likely to offer a streaming-only option soon.  Today, Netflix streaming accounts for 20% of prime-time Internet traffic.

Meanwhile there’s another competitor that brings the best of the Blockbuster experience to a corner near you with even greater convenience and an even lower price:  Redbox.  In the second quarter alone, the “DVD services” revenue of Redbox’s parent corporation were up 44%.

Blockbuster could have responded to all this; indeed it eventually did in efforts that are generally viewed as “too little and too late.”

So back to radio, the established way to consume content featuring the hits most people want most of the time, conveniently located and part of your daily habit, local to your community, with a vast network of outlets and thousands of employees and managers working with a calcified business model.

What are five things radio learn from Blockbuster?

1.  Pay attention to the way habits change

People didn’t wake up one day and start ordering DVD’s online or streaming them direct to their TV’s and mobile devices.  It happened gradually over a decade.  But the habits were changing decisively, and Blockbuster generally ignored them until it was too late.

Like Blockbuster, radio broadcasters proclaim the dominance of their reach and give primarily lip service to the changing behaviors of the listening audience.  When 75 million Americans are registered to use Pandora, you can assume that behaviors are changing and the wind is no longer at your back, radio.  Like Blockbuster, radio’s investments are too little.

One hopes they will not be too late.

2.  Don’t buy your competitor until you invest in your future.

How did Blockbuster respond to weakness in their sector?  By trying to buy their competition, Hollywood Video.  That acquisition fell apart in 2005, well into the growth curve of Netflix.  In other words, Blockbuster focused on buying more outlets like themselves rather than investing in the future consumers were heading towards.

If deal money were available to radio, would we use it to invest in our multi-platform digital future?  Or to buy more radio stations?  You and I both know the answer to that.  Hello, Blockbuster!

3.  Act fast and with commitment

Netflix began renting DVD’s by mail in 1999. Blockbuster introduced an online DVD rental service in 2004.  Naturally, Blockbuster is dwarfed by Netflix in this space.  That’s what happens when you’re five years late to the party.

Redbox began to sprinkle its kiosks around the country in 2004.  Blockbuster created its own kiosk business in 2009. Naturally, Blockbuster is dwarfed by Redbox in this space.  That’s what happens when you’re five years late to the party.

What trends is radio five years late on?  Frankly, what trends are we not five years late on?

The key is not only to act, but to act fast and with commitment.

4. Talk to consumers about the experience they want, not the one you’re giving them

Value is in the eye – and the ear – of the beholder.

Netflix and Redbox are both more valuable than Blockbuster to a growing number of consumers because they offer a different and richer value proposition:  Greater convenience, greater choice, lower cost, greater personalization, etc.  Blockbuster viewed the problem as a “how do we maximize profits from our customer base and get new customers into the store” problem, rather than a “how do we increase the value of our offerings to consumers who can and do have choices” problem.

Today, radio is in a similar dilemma.  Consumers want value, not “radio.” They want music and information content on their terms, not yours.  It is the wise broadcaster who understands the difference.

Do you know how many times a broadcaster has asked me to provide a research-based roadmap to the future consumer for the kind of content radio provides and to map out how that broadcaster can satisfy that consumer regardless of distribution channel?

Zero.

5. Recognize that you’re not in the business you thought you were in

Part of the reason why Blockbuster was so slow was that they envisioned themselves as being in the “brick and mortar” video rental business, when in fact they are in the business of “distributing entertainment content to consumers any way consumers want it.”

That’s a huge difference with huge implications for strategy and action.

Radio, meanwhile, sees itself as being in the “radio business,” the business of selling spots to agencies to reach listeners who are measured by diaries or meters.

Instead, radio must recognize that it’s in the business of connecting local consumers with clients via the megaphone of the broadcast.  Where these two groups meet and how they meet and what medium brings them together may be propelled by your radio tower, but it is not limited to it.

Yelp and Google Local are growing at your expense.  Groupon is growing at your expense.  Pandora is growing at your expense.

Until you understand what business you’re in, you won’t even recognize your competitor when he steals your consumers from under you.

Hello, Blockbuster.

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  • Jim Kerr

    6. Don't focus on fees, focus on the market and revenue those fees deliver to you.

    Netflix would be nowhere today if it was afraid of writing significant checks to access streaming rights from Hollywood. When Hollywood played hardball with day and date releases, Netflix negotiated wider access while giving in on this point. Their focus, at all times, was on paying for content they knew consumers would find valuable and thus they could monetize. Today, Netflix writes enormous checks to Hollywood… and generates enormous revenue.

    Radio has the opportunity to crack into digital agencies and offer targeted advertising via their audio streams, something impossible with terrestrial broadcast. The price? Writing checks to the labels. The value? Significantly higher revenue as targeting rolls out.

    Like Netflix, radio is in a position of negotiating with the rights holders. Unlike Netflix, however, radio focused their negotiations on defending brick and mortar businesses than pushing a strong deal forward on streaming.

    Netflix is now writing big checks and generating even bigger revenue. Radio is aiming to write smaller checks and watching revenue sputter along.

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

    Great added point, Jim! Thanks!

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

    Great added point, Jim! Thanks!

  • http://twitter.com/scottstjohn Scott

    Another great wake up call! This along with the one I had 5 minutes ago. Listening to a Top 10 market station have almost 15 minutes of two audio events playing at the same time.

    I kept thinking… took that long for anyone to notice, no one was in the studio – it was on auto-pilot. I remember the last time I heard something like…. late 70's, some automated station in a small town. Never could I imagine that a Top 10 market station would have the same issue 30+ years later.

  • Johnford

    7. Have content

    The last time I was in a brick and mortar Blockbuster, about 2 years ago, I was looking for a movie to rent with my special other. I was amazed at the lack of videos available. Wondered around the store for about a half an hour until we both came to the realization that there was noting available on the shelves we wanted to rent. We both said the hell with it and went home and found a couple of torrents. Yea, don't run your 'store' so that it looks like you ARE going out of business.

    On a completely unrelated note, here's something for broadcasters to check out. Rainbow is a new plugin project for Firefox. Uses a few lines of javascript enabling web developers to access local video and audio recording directly in the browser. Look Ma no flash! Seems someone out there could come up with a use for this (wink).

    http://mozillalabs.com/rainbow/2010/10/28/cloud-meet-rainbow/

  • http://twitter.com/SEANFX Sean McMenemy

    Mark, I always enjoy your insights on this subject and I don't even work in radio. But I believe your message is relevant to all kinds of content creators. Whenever you talk about local value I'm always amazed how radio and TV stations seem to ignore podcasters and people making videos on shoes string budgets. Now granted not all of this content is good but a lot of it is very good. Most of these shows fall into that idea of local value that can be connected to advertisers and brands in all kinds of ways.

    Podcasters are creating shows about restaurants, movies, fun places to go, plays to attend and recreational events the list is endless as I'm sure you know. To me this is a prime opportunity for broadcasters to find new content that can help their local message and really reach into the community. Seems like a inexpensive way to try out new content and add content value at the same time. Who knows some of this content might lead to the next big thing. If the show doesn't do well, well Podcasters will just go back to their passion and make podcasts but with maybe some new insights about what they are doing.

    Podcasters are always looking for ways to build their audience and a lot of these shows would be new to radio listener not to mention the back catalog of shows a podcaster might have that may still be relevant when talking about a local hot spots. I guess to me it seems like the perfect place to bring these two worlds together.

  • Frank Absher

    Bravo. I often enjoy clicking thru to your stuff from RadioDailyNews. This is one of your best.

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

    You guys have added two additional macro points.

    I should have solicited this!

    Any others?

  • Vito Fnib

    what a great article.. being involved first in radio and now in advertising.. this says it all .. this is pure gold”Radio, meanwhile, sees itself as being in the “radio business,” the business of selling spots to agencies to reach listeners who are measured by diaries or meters.

    Instead, radio must recognize that it’s in the business of connecting local consumers with clients via the megaphone of the broadcast. Where these two groups meet and how they meet and what medium brings them together may be propelled by your radio tower, but it is not limited to it.”

    thank you I am going to share this with all of my friends

    Vito Capaccio

    Pittsburgh, PA

  • Matt DuBiel

    I feel the same way Mark! Blockbuster is radio to a tee.
    I didn't break it down the same way, but I wrote about it on my blog on 6/3/10 after a visit to Blockbuster.

    http://mattonair.com/?p=52

    Your new site looks great!

    Best,

    Matt DuBiel

  • Jim Ryan

    It's been about a year ago I last visited your blog Mark. I mention this because as I read your analogy to Blockbuster, it only reinforces what I realized three years ago. Local radio media outlets and their parent companies have had the greatest of all opportunities because they had the boots on the street and the relationships with their constituents of listeners and advertisers. They only needed to look around them and see where the migration of local ad spend was headed and then make a business out it. Now, it's too late. The boat has left the dock. Other media and marketing sectors are far ahead in moving to fill the marketing needs of local businesses. I witnessed first hand this past year, the failure of just such a business initiative by a major radio company. Though new initiatives aren't assured to succeed, I can tell you this, the reasons for its failure are the same reasons radio is doomed as a business model. They are inherent and unfortunately endemic throughout the industry. Little vision to rebuild the core and even less commitment to building and executing a plan.

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

    I don't think it's ever too late for a good idea well executed that is designed with current realities in mind and with an eye towards the future (note that I said an “eye,” not an “ear”).

    But…you are right, the click is ticking. And vision is in perilously short supply!

    Thanks for the comment, Jim!