When you are a consistently top-ranked station in a top-ranked market taking in advertising dollars hand over fist it’s bound to skew your view of the future given your enormous stake in the present.
The inability of today’s leaders to see tomorrow squarely is as old as industry leadership itself. Just ask our friends in the music business.
How else to explain the opinion of Jerry Lee, a renowned broadcaster who some time ago did away with streaming and is now trying hard to convince you he’s right and you’re wrong.
“The reason we stopped streaming,” says Lee “is that it’s a bad business model.”
This is incorrect.
What’s true is that it’s not as good a business model as the one that has driven ad agency/broadcaster relationships for all the years broadcasters had the exclusive license to the ears of the audience. Not yet, anyway. This is a point Seth Godin made quite clearly in our most recent conversation (which I invite you to take another look at).
In fact, the vast majority of broadcasters have never even explored a sensible business model around streaming. And the ones that have have profited as a result.
What Jerry isn’t saying is that the dollars are following the audiences, not the broadcasters. The dollars are following accountable ways to reach those audiences, not one-size-fits-all interruptive ads. The dollars are flowing out of traditional advertising and into other digital and marketing platforms. For example, in the ten years between 1997 and 2007, the portion of Nike’s ad budget invested in traditional ads plummeted from 55% to 33%. Brands are building relationships with consumers today and their media decisions are becoming more complicated, more cross-platform, more social, more accountable and more response-based.
What Jerry isn’t saying is that you can match ads to much more precise targets using digital media, including streaming, than you can using the traditional radio buy where every listener is viewed as identical to every other.
What Jerry isn’t saying is that spots are worth a lot more when they can be targeted more effectively for more effective outcomes.
All of this depends on this marketplace being nurtured, of course. But there are important forces at work to nurture this market and I have seen them firsthand.
In my own research I can see online radio rank, in some cases, near the top of the listening choices in a market. It is only a matter of time before advertisers react to this reality and carve out a slice of the pie for the real radio marketplace, the one that includes streaming.
Jerry continues:
If you take the combination of the cost of streaming and the royalties you are paying now, it is a stiff dollar. You are paying a lot of money versus, roughly, 3% on terrestrial radio to BMI and ASCAP. The problem is going to get worse, because the royalty tribunal has no incentive to do anything but raise rates. They can do anything they want. As an industry, we have absolutely no negotiating power.
No negotiating power?! Are you kidding me?! Does radio not sell music? Does radio not sell shows? Does radio not create stars? I’m here to tell you that the radio industry has tremendous negotiating power but not if it opens a negotiation with “okay, you win!”
That’s when Jerry transitions to the inevitable mention of HD radio:
With HD you will be able to do things like couponing and you will have interaction between the listener and the station. The beautiful thing about this is, it’s not taking up any bandwidth. All of the major carriers are doing away with bandwidth or they are starting to charge for bandwidth. That’s where it’s going to go. In my opinion, streaming is going to fade out. There will still be some niches like the Pandora’s of the world. I don’t think terrestrial radio, in the long run, will continue to embrace streaming, when they can have this great signal on their cell phone with HD radio.
This is a flight of fancy worthy of Steven Spielberg.
What HD enables will be irrelevant if consumers fail to accept the technology. Since HD sprang stillborn from womb of iBiquity we have watched numerous technologies explode: From Facebook to smartphones to Groupon and more. Each became a phenomenon because consumers willed it to be so – not because an industry interest did so. The radio industry is no different from any other: We cannot force our will on consumers. Rather, we need to solve the problems of our consumers in the way they want those problems solved such that we leverage our particular strengths along the way.
Jerry is, like many broadcasters, assuming what you stream should be just what’s on the air and nothing else. This, too, is wrong. If we are in the relationship business with our consumers, then we have the ability to stream a variety of different content depending on the interests of those consumers. And not all of it would be music.
Jerry adds:
The money comes from selling commercials. Put all of your energy there. The Internet does not create desire. Radio and television create a desire. The internet is a great fulfillment mechanism. The Internet is a great information mechanism, to get more data on what you want to buy. It performs a great role. It does not create a desire for the product.
Is there anybody out there who feels they’re not putting sufficient energy into selling commercials? I doubt it. It’s just that we can’t all be Jerry Lee.
“Radio and television create a desire,” says Jerry. Again wrong. Consumers create desire and that desire may be sparked by media, but not necessarily by radio or TV. And media need not be the same kind that have existed for generations, just as music need not come from the local Tower Records.
Indeed, if radio stokes desire (and it does) then any audio advertising at large enough scale can stoke desire (Pandora, I’m talking about you). To imagine otherwise is to see the perfect world of 1999, not the mixed up mediaverse of 2011 and beyond.
If radio opts out of streaming it will do so at its own peril. It will surrender that market to the pure plays which will very gladly snap it up. It will stand by as advertisers awaken to the notion of targeting and accountability and buying audio around radio. Radio will be responsible for crafting its own distribution ghetto.
What you’re witnessing here is a fundamental friction between a broadcaster who has had great success in traditional terms and a mediascape which is evolving out of his and our control.
What you’re also witnessing is an industry desperate to be told “it’s all okay. We can ride this out if we uphold our business traditions and stick to the knitting.”
We can’t.