04/25

Why are we debating FM on Mobile Phones?

Since when did I become the guy who didn’t want FM in mobile phones?  Bring it on, device-makers!  Install those chips!

Actually, I don’t care whether or not FM is in mobile phones because I don’t think it makes one bit of difference to radio’s future whether it’s there or not (radio “experiences” need to be part of the mobile device ecosystem, to be sure.  But FM chips?  Feh).

Jeff Smulyan thinks otherwise (see his reply to my post here).  I have the greatest respect for Jeff.  He’s a terrific broadcaster and Emmis is a terrific company.  He made some great points in reply to my recent posts about FM on mobile phones.  First, the background:

Here’s my original post which unpacks the concept point by point and does it more thoroughly than I’ve seen done anywhere else.

Here’s a second post where I asked some survey questions about the power – or lack thereof – of FM in mobile phones to motivate the purchase of those phones.

Here’s the one where I wrote about the Apple patent that reveals what FM might look like on the upcoming iPhone.

Here’s last week’s post which wasn’t really about FM in mobile phones at all, but rather was about NAB’s weak campaign to create the appearance of stoking public interest in something the public has yet to display interest in. “Radio Rocks My Phone” – I am talking about you.

Jeff and I spoke personally about all this last year.  And I understand his point of view quite well.  He is charged with maximizing the financial performance of Emmis and has to make tough decisions every day about how to spend his money and what works in his business.  My interest is different.  I believe that every opportunity available to broadcasters begins and ends with the consumers and what they want. In other words, Jeff sees the world through the broadcaster’s lens.  I see it through the consumer’s.  I believe that if we see the world the way real people do, we can make better decisions based on reality, not on what we wish to be true (HD radio, anybody?).

Let’s dive in to the discussion.

From Jeff:

I’ve just read another of Mark Ramsey’s blogs about FM chips and I decided that it is time for a vigorous response.  When Mark asks, “Does NAB know the magic of streaming already makes radio available to those same devices and does so with features enabled by technology that no FM chip can match?”  I feel compelled to answer for the NAB, and the rest of the radio industry,  so Mark, here goes:

Based on the numerous comments I have received from every corner of the industry, Jeff speaks for many broadcasters to be sure.  And I don’t doubt that he speaks for NAB.  But he does not speak for an entire industry.  We should acknowledge that authentic differences exist, and that is a good thing.

Yes, I know all about streaming. Like thousands of other broadcasters, I’ve been doing it for nearly two decades.  I don’t know if anyone else has made money at it, but we haven’t, and I haven’t heard of anyone else who has.  At Emmis, we’ve invested millions of dollars in our interactive ventures because we want to be where our audiences are, but we are also realistic about economics.

Well I do know that  people are making money with streaming.  I have even posted one of the successes in this blog.  If we don’t know if anyone has made money streaming, then we should learn more about people who are making money streaming.

Streaming is a one-to-one, interactive medium, which does allow us to do lots of great things, but there is a tremendous cost to that. The best example I can give is to compare streaming with over-the-air transmission. In our Los Angeles station, KPWR, we reach around 2.8 million people a week.  Our annual electric costs from our transmitter are $39,500, a cost that does not rise if we serve one person in Southern California, or all 16 million within the reach of our signal.  If we were to take down our transmitter and reach every person we currently reach through streaming, our cost to disseminate the signal would be nearly $1 million per year!  Is there enough value in making a broadly based entertainment medium a one-to-one medium?  That’s the current debate in this country, and I would submit that consumers haven’t found that value yet.

Yes, streaming is expensive.  Too expansive thanks to our occasional friends, the music labels.  Indeed they are doing their level best to strangle the online radio baby in his crib.

But “expensive” is also relative.  And “expensive” is also about value, not just cost.

It may be more “expensive” for the broadcaster to stream than to broadcast, but it may be less “expensive” for the consumer to access content via streaming than via radio if what he or she wants can be gotten only one way and not the other. Want Rush Limbaugh now instead of when it airs?  Go to Tunein.com and find it.  Want your own personalized mix of music?  Pandora has it ready for the taking.  Jeff is arguing from the industry’s perspective and I am arguing from the consumer’s.  And in the long run, the consumer is the one in the driver’s seat assuming you can form a business model around those desires.

Likewise, it may be more “expensive” to deliver content via streaming, but it will also be far easier to target messaging and measure the results of that messaging.  That will increasingly have value to advertisers and that value will count against the greater “expense” of streaming.

And why are we only talking about streaming?  Radio will be a many-flavored interactive experience, not simply a dumb stream.  How we create that experience is a conversation we can never have if we’re lost down the rabbit hole debating FM on mobile phones.

As Seth Godin said to me recently, “If you don’t want the ‘more expensive’ dollars, don’t chase them.  But you do want those dollars.  You just don’t want them to be hard to get.”

Consumers haven’t discovered the value yet, and they really haven’t been paying the true cost of streaming, but that is about to change dramatically.  Almost every mobile data plan has unlimited usage; most plans cost $30 per month.  However, with AT&T’s data usage growing by over 5,000 percent in just three years, the company (and every other carrier), admit that this growth is unsustainable.  Carriers are going to metering, and our question is, how will people feel about streaming audio and video when their bills grow from $30 to $60 per month, or more? Remember, the average smart phone uses 15 times the data of the standard cell phone, and the average iPad uses 30 times the data of a smart phone. Is there any wonder that the carriers are demanding spectrum from our TV brethren?

Consumers are paying the true cost of streaming assuming they are paying for data – tiered plans are a form of metering, and those are very much already here.  Indeed, the dramatic recent growth of Pandora has been happening in the presence of increasingly capped and pricier data plans.  Consumers will pay for value.  Just ask a SiriusXM subscriber.

Meanwhile, Jeff’s argument is conflating streaming online radio usage with all data usage as if they are one and the same.  They are certainly not.  In fact, you would need to stream four hours of Pandora every day in order to hit your data usage cap on an iPhone, assuming no other data usage.  It is, in the words of Pandora’s Joe Kennedy, “a thin stream.”

When Mark talks about “phone makers understand(ing) what drives the consumption of their devices while the NAB does not,” he demonstrates a frightening lack of comprehension on this subject.  In the beginning of my work on this project, I talked to one of the largest manufacturers of phones in the world.  They have sold many millions of phones.  Their comment was succinct.  “When people know they can have radios in their phones, they buy them. It is a very cheap addition, and people love the feature.” That’s why nearly one billion cell phones all over the world have been sold with radios in them!

Why haven’t we seen this in the US?  Because unlike most of the rest of the world, the major carriers control phone sales in our country, and they have deliberately kept radio chips out for years.  Today, radio chips are becoming ubiquitous all over the world as evidenced by a recent TNS Global Mobile Life study showing that nearly 70 percent of people outside of the U.S. have an FM/AM radio feature on their phone, and nearly 43 percent use them. In fact, millions are shipped in radios in this country, but they are deactivated.  iPhones are just one of the models where an FM radio exists but isn’t allowed to be used.

So the argument is that consumers would choose mobile phones that feature radios if only they could find them – yet device-makers refuse to build them in, thus sacrificing a proven competitive advantage and the profits that accompany that advantage. It’s hard to believe that the profit-maximizing folks at Sprint and Verizon would act contrary to their own interests, but if you say so.

If people will buy the phones that have radios once they know they’re there, then show the evidence of this in the US market for the phones which have FM receivers built in and functioning.  Show the evidence which suggests that FM radios are a feature which will drive mobile phone purchase choice among consumers.  Rather than provide anecdotes, let’s see the proof.  Not surveys.  Proof.  These phones exist.  Show the sales.

Jeff’s right that the mobile carriers in the US are incredibly restrictive compared to other corners of the world.  But if we’re going to compare the US to other corners of the world we should compare more statistics.  For example, the number of stations, the number of alternatives to those stations, the number of radios owned per household, Internet penetration, Internet usage statistics, etc.  We need to see the full orchard in order to compare apples to apples.

Streaming consumption is a good complement to over the air listening, not a replacement. The interactivity coming to all media will prove this without a doubt.

Again, this is argued from the broadcaster’s perspective.  From the consumer’s perspective the content I want can also be a replacement for the content that doesn’t ideally suit me, no matter how ubiquitously it may be delivered. It’s like arguing that viewing movies over Netflix is no replacement for seeing them in a theater. But what if I could see a summer tentpole movie at a premium on Netflix or see it cheaper in the theater?  This model is coming.  Like my example, streaming is both a replacement and a compliment.

We have to stop seeing the world in broadcast-colored hues and start seeing it the way consumers do. Only by anticipating that future can broadcasters excel in it.

But here’s the most important point:

This should not be a debate about radio on mobile phones.

The “FM on mobile phone” issue is fundamentally an argument about distribution, something which American radio does not lack with some 800 million radios in every home, workplace, and car.

Instead, the larger debate should be about how to leverage our enviable consumer relationships across platforms in an era when consumers are pulling all the strings.  Let’s not fight the distribution skirmish when we should be fighting the relevance war.

“Be not the slave of your own past,” wrote Emerson.

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