10/25

Radio is about to Make a Very Bad Bet

Theoretically it makes all the sense in the world:

The labels want higher licensing fees from radio?  Fine, then radio wants a faster and easier path between its past and its future.

Sounds good – assuming radio has any sense whatsoever as to where its future lies.  Unfortunately, recent history has indicated that nothing could be further from the truth.

From Radio Ink:

Under the terms approved by the Radio Board, broadcast stations that play music would pay between .25 percent and 1 percent of net revenues. A law requiring cellphones to include a radio chip — with an “acceptable phase-in period” and the inclusion of HD Radio chips when that is “economically feasible” — is part of the term sheet, but if that can’t be accomplished right away, radio would agree to an initial performance royalty of .25 percent of net industry revenue.

Thereafter, the performance royalty would mirror the penetration of radio-capable cellphones. Once market penetration reaches and maintains a level of 75 percent, broadcasters would pay a full 1 percent performance royalty.

If a law requiring radio in cellphones passes, the streaming rates for simulcasts, webcasts, and other non-terrestrial music transmissions would be reduced through 2016. If that’s not achieved, the streaming rates would not reduced until 50 percent of cellphones have radio chips.

In other words, elements in the radio industry are ready to mortgage our future on a speculative and sporty bet:  That getting radio on mobile phones will be worth subsidizing via dollars you earn from monetizing radio that is not on mobile phones. That premise is a sketchy guess at best and dead wrong at worst.

What’s more, it’s a bet that exhibits no insight into the wants and behaviors of digital consumers and even less insight into the direction of technology trends.

Let’s unpack this a bit:

Cell phones would theoretically be required to contain radios, conventional and eventually HD.

Note that this doesn’t mean consumers would use or even want those radios – sadly that can’t be legislated.  Nor does this speak to what this radio content might be or what consumer problems this content solves that it doesn’t already solve on 800 million radios in every home, work, and car.  And it certainly doesn’t speak to how any of this can be monetized (let alone measured).

Fundamentally, successful technologies are about solving consumer problems, present or future. And “I can’t hear my local radio station wherever I go” is generally not one of them – that’s what the 800 million radios are for.

This is all caused by the radio industry’s obsessive belief that “we have to be on cell phones” even though nobody seems to understand what “we” is, nobody seems to understand that a “cell phone” is just one flavor of a variety of digitally-connected gadgets that are not redundant to radios, and nobody seems to understand what it means to be “on” one of these devices in an age when being “on” something means being connected to it, not being factory-installed inside it.

“We have to be on cell phones,” the thinking goes.  Try this experiment:  Ask your clients if radio’s problem is that it doesn’t reach consumers who own cell phones.  Go ahead, ask.  I’ll wait.

I’m still waiting….

Has the idea occurred to anyone on the Radio Board that the best way to sustain relevance in a digital media age is to create content and digital solutions which are, in fact, relevant to that age?

Evidently not.

But let’s go with the Radio Board here…Once market penetration of radio-capable cell phones reaches 75% (of what?  of all phones manufactured?  Of sales? Of time-spent-using mobile devices?) broadcasters would agree to pay a bonus for performance royalties even though there is zero linkage between this additional presumed distribution and the industry’s ability to monetize that distribution.

Meanwhile, streaming rates would not be reduced until one out of every two cell phones (do they still call them cell phones, by the way?) was equipped with radio chips.  That means broadcasters would essentially tolerate onerous streaming rates until there are enough FM chips on these devices that they “don’t need” to reach mobile phones via streams, as if streams were an inconvenience rather than the shape of radio to come.  That’s placing a bet that FM chips on mobile phones will outlast Pandora and its like on these same devices.  Good luck with that one.

And speaking of Pandora, does anyone wonder why Pandora isn’t lobbying Congress to install a “Pandora chip” on mobile devices?  Perhaps the answer is that Pandora is pulled by consumers, not pushed by an industry which too often ignores them.

Meanwhile, Radio Ink adds, the term sheet would include:

The resolution of the long-standing “AFTRA issue,” by MusicFirst and outside the legislative process, so over-the-air radio commercials could be streamed over the Internet.

Brilliant!  As I and others have long argued, one key value of Internet delivery is to match messages to consumers which are relevant and accountable.  The idea of repurposing over-the-air spots on digital streams using the same one-size-fits-all radio model is like buying a new Mazerati and putting a saddle on it!  And I don’t mean a saddle custom-made for your butt, either.

Again, go ahead and ask Pandora why they don’t do this with their 75 million registered users, a good-sized audience to be sure.  And their answer would be “why in the world would we do that when we have age, sex, zip code, music preferences, and other personally identifiable data on 75 million consumers?!”

Your future, Mr. and Ms. Broadcaster, is being mortgaged on this deal?

Maybe you need a new mortgage broker.

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