08/12

Radio’s Wrong-Headed Performance Royalty Plan

Dear National Association of Broadcasters:

I know you guys mean well.  I know you are listening hard to your constituency of broadcasters and trying your best to serve their will.

But someone in your esteemed organization needs to stand back and assess what’s in the best long-term interests of the medium you are sworn to represent.  Someone at NAB needs to admonish the kids at the broadcaster’s dinner table that just because they want a milkshake for dinner doesn’t mean it’s good for them.

Yes, I’m talking about radio’s performance royalty plan.

I am no expert in this matter, but I have long predicted that radio would pay more in one way or another to the labels for their product.  I have predicted this largely because I have no confidence that the radio establishment can adequately argue in favor of its considerable value proposition – the free publicity it provides labels and their artists – in ways that will play as authentic and legitimate rather than tone-deaf and shrill.

And I have so far been right.

But be that as it may, I want to focus on two elements of the supposed “deal that nobody has agreed to”:

1.  The inclusion of radio chips on all mobile phones

2.  The resolution of AFTRA issues which will presumably enable stations to simulcast 100% – including commercials – on web streams

Radio chips on all mobile phones

In a list of the dumbest things I’ve ever heard of this one takes the cake.

Polls which indicate radio listeners want radios on their mobile phones are wrong.  A simple review of market realities shows that phones which already contain radios are not flying off the shelf faster than those which do not.  The idea that radio receivers on mobile phones is a consumer-driven need is simply not supported by the data.

Where does it come from, this notion that “we have to have radio chips on mobile phones”?  Where is the evidence that this is how people want to consume radio in a world full of readily available radio apps?

From Inside Radio:

A just-released study found 47% of female radio listeners (15-54) report they’d buy a cell phone if it had an FM receiver built-in. CTIA says 25 handsets currently offer FM.

So you say you want it, it’s there for you, and you don’t buy it anyway.  ‘Nuff said.

We should worry less about getting a radio receiver on a mobile phone and worry a lot more about creating mobile experiences that audiences want to flock to. The days where broadcasters push their wares at audiences who have no choices are over.  The audiences are in control.  They have choices.  Today it’s not good enough to simply live on the nice street – you also have to have a nice house on that street.

Focus on making better products and better experiences and match the experiences to the media where those experiences live. This, by the way, is exactly what Pandora does.  And it’s working pretty well for them without legislating receivers in devices that don’t need them or want them.

If consumers want radios in their mobile phones, let the marketplace prove it. This is the perspective of the phone-makers, and they’re right.You broadcasters are not in control, we consumers are. Get used to it. Because this principal is key to your future, assuming you’re interested in having one.

Besides, the big battle for radio will not be the mobile device in your pocket, it will be the one in your driveway. And the Internet is coming to that mobile device long before a radio chip comes to your phone, mark my words.

The resolution of AFTRA issues

I get the idea.  And the idea’s all wrong.

Here’s the theory:  Wouldn’t it be great if we could rid ourselves of AFTRA issues and match what we do over the air to what’s on our stream? Think of the benefits:

  • “Life is easier – no longer do we need to worry about selling ads specific to the stream.  Because selling ads is hard and nobody really wants to do anything hard.”  Well, you got me there.
  • “Ratings will be higher, hopefully” – In any given PPM market it is a sheer act of randomness which may (and rarely does) result in a listener with a PPM device being in the proximity of a radio station stream.  We can’t even accurately measure listenership to the over-the-air station reliably and on a consistent basis.  Do you really think we can do that with any accuracy whatsoever to the stream?  In San Diego, there is one period in six months where the stream would have added any value whatsoever to a station’s ratings, and that was for one station.  So do you want to stake your future on a chance event that has a one in 50 chance of striking every six months? Why not just go play the lottery and shut down the stream altogether?
  • “We can add the stream to the over-the-air station as added value to the advertiser” – Sure!  And that means they will get it for free.  So as the pool of revenue available to your brand shrinks – as more dollars flow to accountable, targetable media and out of mass media – you will be sure to maximize your share of a smaller pot.  Well done!

What broadcasters still don’t seem to grasp is that audiences are using the Internet for audio entertainment because it offers MORE than what they can get over the air.  More personalization, more connection, more dimensionality to the experience.  If broadcasters have any hope of competing effectively in this space then it needs to be on the audience’s own terms, not yours.

Consider the value of separate streams and stations:

  • You can run ads that are targeted to the individual hearing the ad. That means the ad is more relevant, more effective, and worth a lot more money to you and the advertiser.  Radio’s ability to gather the personalized information that will enable this value creation will become a reality over the next six months.  You don’t want to miss that boat.
  • You can stream more stuff and add more value to the listener experience. One of the keys to winning traction online is to stream more than just your own radio station.  The online radio space is an opportunity only if you create the content in that space that will draw audiences, regardless of whether that content reflects what’s on the air on your station. This is a hugely important point still lost on most broadcasters. As we all know, the Internet has created an abundance of entertainment distractions, all of which will nip at your audience. The idea that we would dive into this marketplace with the same “one station” we offer to a captive market of car radios is absurd.
  • A separate stream means you will be forced to pay attention to that stream and focus on creating and building content. In the long run, you need to exercise your ability to create content or lesser, hungrier pure-play companies will do it for you.  They will win and you will lose.
  • A stream doesn’t need ratings estimates because it has accurate and precise listenership metrics.  And metrics – precise ones – are driving the flow of ad dollars to the Internet.  If broadcasters turn their backs on these metrics and the advertising solutions they enable, they will be turning their backs on the primary source of ad revenue growth for years to come.

Okay, let’s pretend the AFTRA rules change tomorrow and allow you to match the station to the stream exactly.  You should still create MORE streams with more content matched to nothing other than the audience they serve and the advertisers who want to reach them.

If radio is in the content creation business, then create content!

If radio is in the “one station across all platforms” business, then say your prayers.

You’ll need them answered.

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