top of page
mramsey1

Radio’s Perfect Storm – Part I

This is the first of two parts. Today, I tackle some of the issues contributing to radio’s “perfect storm” of woes. But I don’t want you to leave this post with pessimism. There are options for us, and those I will cover in Part II later this week or next.


Picture, if you will, this scenario:

1. The economy goes south

Oil is zooming towards $100 a barrel, the mortgage crisis continues to haunt us, odds are the holiday shopping season will be lackluster, fears of recession abound, and the stock market has the shakes and shivers.

In times like this, consumers tend not to part with their money, assuming they have money to part with. This means they’re not buying the categories, such as automotive, which are key to radio’s profit equation.

End result: Reduced demand for radio inventory.

2. Fallout from the Writer’s Strike

What does the Writers’ Guild strike have to do with radio? Plenty – eventually.

The last time the writers stopped working there were only 17 ad-supported cable channels. Today, says the Los Angeles Times, there are more than 100. And that doesn’t count the ever-present distractions of video games, DVD’s, the Internet, and DVR’s.

Says the Times:

Ratings have fallen precipitously. In 1988, the top series — “The Cosby Show,” on NBC and “Roseanne” on ABC — were seen by about 25% of the U.S. homes with TVs. These days, TV’s biggest shows, “CSI: Crime Scene Investigation” on CBS and “Grey’s Anatomy” on ABC, are on in about 13% of households.

The 1988 Writers’ strike created much of the sampling that led to the explosion of basic cable and the fledgling FOX network. Today, there are many more destinations for an already splintered audience to splinter to further. And splinter they shall.

The issue is this: As goes the audience so go the advertising dollars. Invariably, a reduced network viewing environment brought on by less original, “fresh” content will drive viewers to other media and advertisers to other ad vehicles – especially the Internet.

And I submit this to you: The more money that shifts to the Internet the faster the growth of the Net as an ad medium and the less likely that money is to ever go back to broadcast – TV or radio. And that, my friends, is because the more advertisers taste accountability, the more they’ll like the flavor.

End result: Reduced demand for radio inventory.

3. Arbitron and PPM – better precision at a cost

Plenty of research and field experience with PPM has already shown that music stations which clean up their act between songs tend to out-perform those which are cluttered. And the easiest way to get jocks to chit-chat about less nonsense is to keep them from talking at all – or rid the station of them entirely as if they are a ratings cancer.

This, of course, is an easy, short-term solution to a ratings problem. In the short-run you get a leg up on your competitor. But in the long run you strip from the station anything that differentiates it from the lowest-common-denominator music box it has now become. And that means you make your station incredibly vulnerable to the next music-only station off the assembly line – whether it comes from the radio or online or wherever.

So clutter goes away – and with clutter goes expense and differentiation. But with clutter also goes inventory and sponsorship opportunities. Thus overall revenue may go down even as ratings go up.

And what of those ratings? PPM shows that station cumes skyrocket – and their AQH rating takes a tumble. And how will advertisers behave? Will they pay a premium for higher cumes – more reach – when the trend is away from reach and towards analytics and accountability and effectiveness?

In the long run, no.

Advertisers are demanding more individual-specific and involvement-based measurements, putting pressure on the traditional mass-market model. Two-thirds of the advertising executives IBM polled expect 20 percent of advertising revenue to shift from impression-based to impact-based formats within three years.

And what of those stations and groups that don’t like the message PPM communicates? What does it signal to agencies when broadcasters can’t agree on a measurement methodology? How comforting is it to spend ad dollars when stations are bashing not just each other, but the measurement tool itself?

End result: Reduced demand for radio inventory.

4. Radio’s new competitors jockey for position

Let’s pretend the industry gets its wish and HD radio takes off.

So now every station becomes three stations. And all three of those stations are rated. So now we have 100 stations “above the line” competing for the same audience that 30 stations used to compete for. Now we’re not worrying about 4.0 shares, we’re too busy hoping for a 1.0.

And what is the value of being top 5 ranked when there are a hundred stations in the ranker? Answer: None.

What are the odds that the top-ranked station in an HD world will have a half dozen HD-2 stations thrown its way by competitors desperate to steal some of that thunder? I would estimate those odds at 100% – at least.

Let’s now pretend HD doesn’t take off. How much time and effort and expense is being invested in chasing HD as the primary driver of radio’s future? What is the opportunity cost of this obsession? That is, what else could we have done with that money, that time, that hard-headed focus on our future? How diversified is your group’s portfolio of futuristic ideas, hmm?

Finally, consider this: The ratings deck is stacked to favor the original players. The 100-share Arbitron world is a world which generally excludes non-commercial stations (unless you look hard) and Internet stations and Satellite Radio (don’t let Arbitron’s poor attempt at satellite radio ratings fool you), not to mention video games and Internet video and all the other fabulous distractions for our eyes and ears which are carving out their own slice of the advertiser’s pie today.

Your station isn’t competing just against all other stations. It’s competing against all other entertainment distractions, some of which are likewise ad-supported. That makes them substitutes for you – your direct competitors.

Radio’s 100-share pie is getting smaller, relatively speaking.

5. Disincentives to Streaming

The way the Arbitron rules are set up, if your web stream doesn’t match your station exactly it doesn’t count as being your station. And thanks to complications between radio, advertisers, and AFTRA, many streams are not matched to their stations.

That means every time you move a listener to a slightly dissimilar stream, your ratings in Arbitron go DOWN. And that means our ratings system discourages us from streaming our stations at all – even as the Internet is the obvious destination for new ad dollar growth, is already part of every workplace and many homes, and will invariably make its way onto the American road at a pace that will leave HD radio in the dust.

6. The ears of the future

I won’t bore you with the numbers because you’ve seen them plenty of times. But the attitudes about radio and the usage of radio among persons under 35 – and especially under 25 – are dramatically different.

Listener who grow up with access to digital media are forever changed. They will not “grow into” us – we must “grow into” them.

The problem is this: It’s easier to score 25-54 when a format scores 35-54 because it’s easier to score 35-54 than younger. But if the entire radio industry begins to chase persons over 35 – as it is doing right now – then this is a one-way journey for us all.

In a sense, radio is like smoking: If we don’t create the habit when kids are young, we won’t have the habit at all when they get older. And creating that habit is about more than targeting their music needs. We need to target the entire portfolio of their interests if we’re to be viewed as relevant.

This is one of those realities which will sneak up on us slowly until one day when we stand back and realize that but for one or two stations in any given market we no longer have a foot in the future.

7. It’s all just too expensive

In radio, when business is slow, investment is slower. Radio executives are loathe to spend dollars chasing revenue gains unless those gains are not only 100% guaranteed but 100% guaranteed in very short order. That’s another way of saying that investment in our products, our brands, and our futures is virtually impossible. And that, folks, is purely an issue of leadership.

Any radio industry leader who thinks that simply working harder and cutting expense is the way to weather this storm needs to seriously have their heads examined.

And any radio leader who thinks that it’s best to wait out this tumult until retirement should make a special effort to share this strategic goal with investors in their next analyst’s call.

Part II – solutions – coming later this week or next.

1 view0 comments

Recent Posts

See All

Comments


bottom of page