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Radio's Next Big Disruption

Great companies understand that change for the sake of change is important, and that to grow and remain relevant, they need to always have a strong, compelling value proposition. Great companies cannibalize themselves before their competitors eat them up.

Revolutions in business don't happen with incremental change or by making slightly better products. They happen by upsetting the status quo, even though it's working and productive. Revolutionary businesses seek ways to deliver their product to customers in better ways, and work to disrupt costs to make their offer more attractive.

What, then, can cannibalize and disrupt our industry? What might a major player like Clear Channel or Cumulus do to dramatically alter its business? After all, cost cuts can't go much deeper under the status quo. Yet these big companies need to remain competitive and relevant to the needs of the market, and need to be where customers want them to be. They must change the game and grow profits.

I've identified the following areas that could disrupt our industry, might (arguably) make it stronger, and could make it more predictable for clients:

Changing Sales

Think about this area for a moment. It's high-turnover, high-cost (with commissions a major cost of doing business), management-intensive, and management-reliant, and it's hard to get 6,000 people trained and delivering consistent messaging and performance. The best sellers are being seduced by pharmaceuticals and Google. Sales are impacted by things like mood, attitude, and environment. So how could you change radio sales? One way would be to outsource sales to someone already doing it.

Who, not in radio, is calling on the same customers and already has those relationships? Who can do a better job? Who could leverage what they already have to create more sales by combining radio with their own offerings? Perhaps it's another radio group -- though that's unlikely. Perhaps it's local cable or television sellers, maybe it's other vendors calling on the same people, maybe it's a company like Google that's hiring sellers anyway and is seeking radio relationships to joint-venture on Google local. Outsourcing and collaboration could be a brilliant move.

Another way would be to create an automated sales environment. If a system could be developed that made buying as easy as responding to an e-mail or clicking within an app, it could be magical. Of course, we're all trained to believethat sellers make things happen, and they do. But what if you could prove automation would work as well in sales as it has on air? It works for Southwest Airlines, Geico, and Google, and automation brings better yield management, and thus lower prices for customers. With seller commissions eliminated, some of the savings could be passed on to local businesses that could save on their advertising buys, and the rest of the savings goes right to the bottom line. Even if total revenues dropped, there'd be a lot of saved commissions to make up the difference. Radio would be easier to buy -- you could buy it online in the middle of the night, if you wanted to -- and there's a very real possibility customers would be happier.

Eliminating Local Staffing

Buildings and office space are expensive. People are expensive. What if one of the big companies decided it no longer needed local program directors, local sales managers, local traffic, billing and accounting, even reception? Who would be left? One must have local engineering support and someone to care for the public file -- and it could be the same person. If a company like Cumulus or Clear Channel decided to become a true national network, decided to abandon local advertising in exchange for eliminating all local staff, including expensive management, it might still be cash-positive selling national only, and local with automated sales systems. And what can't be eliminated can be outsourced. Plus imagine the cost savings in real estate, desks, studios, and paper clips.

The End of Local Programming

If you considered all the stations and signals inside a company like Clear Channel or Cumulus, you would probably come up with no more than 30 or 40 variations on formats. Local talent is costly, and indications from the Ryan Seacrest experiment seem to show that strong national talent that's syndicated doesn't hurt ratings or business. Even if it did, the cost savings probably outweigh the losses. So why not eliminate local talent and have the best talent for each format doing all the shifts, feeding direct to the transmitter? No local payroll, no local studios, no local production, no expensive mornings shows, and huge cost savings on talent, technical support, and rent. Cumulus is already outsourcing much of its production to Benztown, an independent producer, and has consolidated much of its accounting.

Digital Revolution

It's logical that radio companies will make dramatic moves in digital in the coming months as well. The recent move by Katz to become a deeper digital rep house is probably an indicator that Clear Channel -- which of course owns Katz -- will make bigger commitments to other digital plays that aren't necessarily audio alone. Cumulus, for instance, has devoted a building and a couple of hundred employees to SweetJack, its coupon service. It's also in the magazine business. Smart firms will realize there is no such thing as a "radio business" anymore, and media is becoming all media combined. Advertisers want one solution that gives them exposure to all areas.

Don't Shoot the Messenger

Before you think I'm in favor of this, please know that I have a love and passion for strong local radio, for strong radio sales organizations, and for excellent programming. But I'm also a realist, and I tend to see where things are going. Though I have no indications that any radio company would have the guts to be quite as disruptive as I'm suggesting, my guess is that some or all of this will happen at Clear Channel or Cumulus soon. It's a logical next step, it dramatically alters the picture for radio, and it cuts tremendous costs and makes a giant, debt-laden firm strong.It could either be wildly successful or a miserable failure. Though I suspect any reader in a position to be affected by this is fuming at the prospect, it could very possibly become a reality -- and would be disruptive and a game-changer.

Radio in Three Years

I believe there will be two kinds of radio companies. Those that take the path described above (if one does it successfully, the other big guns are likely to follow, though they will follow late) and those that continue on the path of deep localism. Consolidation will continue, and you'll see companies like Clear Channel and Cumulus become bigger (or possibly even become one) and you'll see smaller independent firms like Larry Wilson's Alpha or Ginny Morris' Hubbard expand, acquire more stations (maybe Cox?), which will push the advantage of strong localism.

What Should You Do?

Though this may not bode well for the bulk of my friends employed within this industry, the only job security is to try to anticipate how to become one of the talents who'll becomes nationally syndicated, or work to get an early foot in the door at one of the companies that will embrace localism. The rest could find themselves seeking alternative employment.

Will this scenario happen? I've been wrong before, though I feel strongly this almost has to happen. When it does happen, everyone will think it's about budget cuts and won't recognize that it's a deep strategic change. Keep your eyes and your mind open.

P.S. It will be interesting if this strategy is discussed as a possibility at our upcoming Forecast conference, November 28 at the Harvard Club in New York. All the group heads will be there, and perhaps panel moderator Rita Cosby -- the award-winning journalist formerly with Fox News -- will explore the probability. As always, we've turned down numerous requests by press to cover Forecast, to encourage frank and open answers from the group heads.

The Impact Of Political Paralysis

Depression set in as I started listening to conference calls from radio companies this quarter. Business is either flat or off -- way off. Most CEOs shared their reasoning on why the third quarter was so weak, but Ed Christian at Saga said what others probably wanted to say: "I have no idea why it's off." The flat quarter was simply unexpected.

Last year at our Forecast conference, all the group heads predicted a boom in advertising as a result of political spending. That didn't happen, and now everyone is scratching their heads. On top of that, regular business is off, which also has everyone wondering what happened. Though some stations (especially political Talk radio) saw added spending, the expected broad spending did not occur.

My belief is that political spending in radio was down for three reasons:

Swing state focus: National campaigns understand that politics at the national level is to a large degree predictable -- for example, California is always going to vote Democratic, and Texas is always going to vote Republican. The money, it appears, went to the swing states, like Wisconsin, Ohio, and Florida.

Glut of television inventory: Sad to say, but candidates often select television over radio, and only increase their spending in radio when TV is sold out. Because there was a glut of inventory in the television industry, those candidates needing more airtime were not forced to shift to radio.

Stealth media is more important than ever: Many were surprised at the outcome of the national election because the polls were extremely tight in the final days, and several appeared to be favoring the Republican nominee. Though the Obama campaign did all the usual, visible things, they also spent a tremendous amount of money on the invisible. They masterfully executed an Internet strategy and a data strategy that weren't easily understood or accounted for by the media and pollsters. More and more candidates are spending enormous amounts of campaign money on "stealth" Internet campaigns.

That may explain why political spending shifted away from radio. But why is non-political down?

It's easy to blame it on the economy, which of course is part of the problem. But that's been a problem for years now. So why the sudden drop in spending? I call it "political paralysis."

In the months before an election, there is naturally a dramatic increase in political rhetoric in the media. As each party demonizes the other and works to increase the level of fear about what will happen if their candidate is not elected, business owners start to take notice. When their fear increases, their spending decreases. A month after the election, things go back to normal.

In the 2010 election, I saw it in one of my other businesses. About four months before the election, the rhetoric was high and advertisers stopped spending, but they didn't say why. We started asking and they all said, "We've decided to wait to see the outcome of the election before we spend any money." This was happening with both Democratic- and Republican-leaning advertisers. Their fear and uncertainty paralyzed them.

Before this election, we were ready with a strategy to lock up business further in advance and to offer answers that helped advertisers overcome their paralysis -- though we still saw some effects, especially in the last 30 days before the election.

My guess is that local radio advertisers were holding back until they were certain of what was going to happen. Even though half didn't see their candidate win, they will soon realize that life goes on, and business needs to advertise.

I also believe other advertisers want to avoid the noise. When political ads dominate the airwaves, advertisers don't want to be on the air for fear of not standing out. More ads mean more clutter. I personally got so tired of the political ads that I stopped watching television until the election was over.

Are there other reasons radio is off? Probably. But I think you'll find these are the biggest drivers of the reductions in this past quarter. At this stage, the most important thing you can do is get face-to-face with advertisers, get them back in the game, have answers ready to overcome their concerns if they are smarting about the outcome of the election, and make them understand that if they fear their business will go backward, it's more important than ever to increase visibility to get more customers in the door.

Also: Mark your calendars, and in the future, put your political paralysis strategy into play long before the campaigning begins.

Radio will be back. Though we can analyze it to death or wonder if there is some other reason we suddenly experienced a drop, understand that life goes on after elections and this temporary setback will end. Christmas is upon us, and advertisers need to play catch-up for those customers they lost by not advertising in the last quarter. I suspect radio will rebound to normal levels in the fourth quarter.

 

The Pittman Factor

 

Almost two years ago, when it was announced that Bob Pittman would be the new head of Clear Channel, I was thrilled. My exuberance wasn't about Clear Channel getting Bob as its leader, it was about radio feeling the halo effect of Pittman's magic. And my belief in that magic was based on his past performance.

I believed that if Bob Pittman, known as a digital genius because of his tenure at AOL Time Warner, was seen to be embracing radio in the midst of a digital world, radio would garner great benefits from his enthusiasm and evangelism. I've known Bob since the 1970s and its clear that he never touches something unless he knows he can win big.

It's popular to criticize Clear Channel. You know the story: big business, impossible debt, deep cuts, and laid-off employees who are hurting. Just by joining the company, Bob Pittman became part of what some in our industry like to consider the "Evil Empire." Some say he can't win, working as he is with the company's debt burden and the directors at Bain Capital and T.H. Lee. Others say Pittman is basically the same type as his predecessors, Mark and Lowry Mays. Time will tell. But if I were a betting man, I'd bet on Pittman pulling Clear Channel out of its downward spiral and turning its negatives into positives.

A Whole-Industry Approach
I learned decades ago that Bob Pittman is unstoppable. I never truly understood his approach and why he almost always succeeds until I realized that, unlike most CEOs who take on the task of righting a company in trouble, Bob isn't only interested in fixing the company he works for. He is interested in fixing the industry – and, now, in fixing radio.

Others might keep their plans close to the vest while competitors flounder, but I honestly believe Pittman knows and understands that unless he can motivate change throughout the radio industry, he cannot accomplish his goals at Clear Channel. In other words: Clear Channel cannot succeed alone.

A lot of people in radio have said the industry must be united for change and improvement, but few seem to actually do anything to make it happen. Rather than simply pronouncing "We have to work together" as a PR ploy, Pittman is quietly orchestrating change throughout the industry.

Can We Trust Pittman's Leadership?
What if Bob Pittman sees a radio landscape you and I cannot yet see? Are we willing to trust his instincts and experience and follow the path he wants to develop for all of radio? Make no mistake: His goal is to build up Clear Channel. But without change throughout the industry, Clear Channel won't hit its goals. That's why Bob has to convince you to change your thinking. But can we trust his instincts?

Frankly, I don’t think we have a choice. Clear Channel is radio's biggest company, Pittman is the first Wall Street CEO to bring major clout as he joins radio, and the world is watching. He has managed to get the Wall Street Journal and others to track his plans. Who else in radio has been able to get people to pay attention and believe we can really change?

The Pittman Plan
Why is Bob Pittman the co-chairman of our Forecast conference, set for November 28 in New York? You guessed it: He needs you in order to change radio. I think you'll want to hear his updated vision for radio and find out what he believes are the strategic and tactical issues we all need to employ to bring radio to the next level. If Pittman can accomplish what he plans to accomplish, we as an industry will be transformed and taken to a new level of professionalism, excellence and competitiveness.

Is It All Hype?
Over the past 20-plus years, I've interviewed every major executive in the radio industry. I've heard every possible story, every bit of hype, all the lies, some of the truths, and an endless stream of platitudes. Though nearly everyone says "building a better industry together" or "our success is based on our employees," I can smell when they don't mean it.

Either Pittman has sandbagged me, or he truly does believe radio needs to change as an entire industry for us to have a solid and viable future – a future with more revenues than any time in our rich history.

One Of Our Strongest Agendas Yet
Knowing Bob's plans for significant change in radio, and the need to freshly address several issues, I asked him to chair this year's Forecast conference. And you'll find the entire Forecast agenda to be filled with some of the greatest minds in advertising and radio. This isn't the year to miss Forecast. Bob has tapped his Rolodex and opened new doors, and this year's agenda is particularly powerful.

Co-chairing Forecast with Pittman is Bill Koenigsberg, founder, President, and CEO of Horizon Media. Bill is highly respected for his insights on media and marketing trends, and he's made Horizon the largest and fastest-growing independent media agency in the world, with billing of $3.8 billion. 

Our Big Concern
We have a limit of 200 attendees to the Forecast conference, and it sells out almost every year. This year, when word that Bob would be chair got out, we started seeing registrations from people who have never before attended. We suspect this year will be a sellout as well, and we cannot accept walk-up attendance once we've sold out. The Harvard club is strict about keeping our numbers to 200 people.

Also, this year our conference is early, on November 28, which we think will increase attendance. So our concern is going to be seating. Please reserve your place now by phoning 561-655-8778, or click here to register online.

Eric Rhoads

PS: Critics will say this is just more Clear Channel posturing. Others will say radio cannot change and has a dim future. But I have always believed that with the right leadership, radio could far surpass the revenue crumbs it has always received. I think Pittman stands the best chance anyone could of leading our industry in the right direction, helping us clearly see where our focus should lie and how we can elevate all of our people to a higher level of competence and success.

If you're running a radio station or radio company in any size market, if you're an investor in radio, if you're a CFO or in the financial sector, this may be the most significant one-day event you can attend to see radio grow and have a strong 2013. I hope you'll consider attending.

Why The 'Net Royalties Bill Should Be Considered By Radio And Labels

Jason Chaffetz (R-Utah) and Jared Polis (D-Colorado) recently introduced the Internet Radio Fairness Act, designed to change the way Internet streaming royalties are calculated. The lawmakers cited Internet radio's inability to compete because of the disproportionate proportion of revenues that goes to pay for performance rights. The goal, the Congressmen say, is to level the playing field between Internet and terrestrial radio.

The label-backed lobbying group MusicFIRST Coalition opposes the bill; MusicFIRST Exec. Director Ted Kalo called the Internet Radio Fairness Act a "Pandora subsidy bill" that will impose a government-mandated royalties rate and "break the backs of artists, while Pandora executives pad their pockets."

A coalition of radio and Internet broadcasters, including Pandora, Clear Channel, and Salem, has formed to support the bill -- but the NAB is keeping its distance this time, and isn’t part of that group.

Everyone is trying to make this about the money. But if you read the bill, it never mentions lowering rates (despite what Rep. Chaffetz said about how much Internet radio is paying). People are assuming that this bill is about rates, but its primary purpose, I believe, is to do away with the "willing buyer, willing seller" standard under which the Copyright Royalty Board sets performance royalties for streaming.

That standard was originally created as part of the Digital Millennium Copyright Act in 1998, and it has been a source of controversy ever since. During the dot-com boom, it looked like everyone was going to get rich on digital -- but that obviously couldn't be further from the truth.

Though Pandora has created a giant market cap based on the promise of success, even Pandora can't survive based on the current rate structure and other onerous DMCA mandates. Their money is coming from stockholders who are -- for now -- still hopeful.

I speak as someone who was an Internet radio pioneer. But tens of millions of investors’ dollars were lost because we finally realized the model of being "taxed" for each listener -- streaming royalties, of course, go up with each additional listener -- was not sustainable. In order to have a sustainable digital radio market that will provide income for everyone concerned -- artists, labels, and radio -- we need a system that is truly to the benefit of all parties.

The present system will not and cannot work. And though the labels want to fight the Internet Radio Fairness Act, it’s the best chance we have to create a royalties structure that will work. But, just as we see in any political argument, there’s a partisan opposition that's unwilling to consider anything new. It's the same myopic approach that's led the labels to the troubles they are experiencing today.

Royalties dollars are based on rate times volume. The labels, by way of the CRB, control rates, and radio controls volume. I don't want radio to "win: this battle. But neither should the labels win. Music and radio go together like peanut butter and jelly, and one without the other is not as tasty.

Though the music industry is of the opinion that they can fight this bill and keep everything their own way, they are missing the larger point: If digital radio can't succeed financially and streamers are forced to shut down, their high CRB rates won’t bring them any revenue. In the end, if this cannot be resolved, everyone will lose.

The Internet Radio Fairness Act would end the "willing buyer, willing seller" standard and substitute standards from Section 801(b) of the Copyright Act, which lays out key factors to be considered in determining the rates to be set for a statutory royalty. According to my understanding, these are the only things the bill would change.

The factors to be considered in setting rates:

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.

(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

In contrast, the current "willing buyer, willing seller" standard looks only at one question: ­what a willing buyer and willing seller would agree to in a marketplace transaction. Which approach makes more sense?

This battle has been raging for years, and there has been no end in sight. But a resolution may finally be possible, thanks to this bill. It would be reasonable for all parties concerned to put their anger and diehard attitudes aside and create a summit for discussion with the lawmakers who introduced the bill, the broadcast companies, and the label heads -- to make an opportunity to truly hear the positions and needs of the other side. This summit should be arranged as soon as possible so all parties have a hand in developing something that works for everyone.

Though this should be a private meeting, without the press, I encourage and invite both sides to hold a reasonable discussion at my Forecast Conference, on November 28 in New York. I’d even provide a room at the Harvard Club for a full extra day if a private meeting could be arranged. This battle has reached an impasse.

It’s time the parties seek a reasonable solution before all opportunity is lost. This bill has a chance of solving an otherwise unmanageable problem and should be considered seriously by everyone involved.

I Applaud The Secret Meeting....

but not the secrecy   

When we first learned of the secret "Future of Digital Radio" meeting at the Radio Show, our sources told us they'd been sworn to keep their participation secret. The goal, I was told, was to develop a sound digital strategy for these cutting-edge companies, to combine their resources to develop and launch a robust strategy that puts them at the forefront of the migration to digital, ensuring a strong future for radio content to be delivered in other platforms.

This consortium is smart. It allows these groups to pool their resources and compete against solutions being offered by bigger companies like Clear Channel and Cumulus Media.

But why the secrecy? Clearly these women and men want their privacy to discuss the future they are planning together. It’s understandable that they'd look for a competitive edge -- but to think they could keep something like this under wraps in the middle of a radio convention was probably not well considered.

My e-mail today has been buzzing with insulted parties asking why they were not invited, why they were not asked to present. Every person who's approached me this morning at the Radio Show has been talking about this story, revealed by our editor in chief, Ed Ryan.

This industry is ripe for change -- finally. All signs are that our strength remains our content, not any single form of distribution. Though this very morning RAB CEO Erica Farber reminded me that everyone she talks to listens to radio, including teens, it's my goal as publisher of this 20-year-old magazine to help us keep our competitive edge. Admitting that all industries change, and that listening devices are changing as well, is the first step to embracing our future. I'm thrilled these progressive thinkers who attended the secret meeting are addressing those issues.

This forum is smart, and it's critical that radio to address its inevitable future. Especially if what I wrote recently about the changes ahead comes true. Collaboration is smart, but wider collaboration is smarter. This needs to be an industry-wide initiative, a deep forum exploring where we must go and what we'll need to get there. Frankly, that’s the sole purpose of my annual Convergence conference -- attended each year by many of the leading thinkers who attended this secret meeting at the Radio Show. I encourage everyone to take this dialogue to the full industry at Convergence 2013, where we will be surrounded by the world’s leading digital minds.

Again, though I applaud the creation of a consortium in an age of collaboration, I feel a fully embraced collective industry initiative is critical. Jeff Smulyan tried something like it in 2000 with the Local Media Internet Venture, but it may have been premature, and the venture didn't end well. I hope we'll take the lessons from that visionary attempt and seek full-industry adoption. When it's time to determine the industry's future, we should all be invited to the table.

 

The Day The Transmitter Died

Radio's Best And Worst Day

Imagine for a moment you’re the CEO of a major publishing company, and you see that Jeff Bezos has announced the Kindle by Amazon. What’s your first reaction? It probably sounds like this: “People love books. They love the touch and feel and smell of paper, they like to show them on their bookshelves — plus, they won’t pay for digital words. This Kindle thing is silly, and it will be short-lived. Anyway, Sony tried an e-reader and it bombed.”

In June of this year, e-books outsold paper books for the first time.

Imagine you’re the CEO of Kodak. “Digital isn’t as good,” you say. “People like pictures, and film is better technology. It’s tested, it’s been around for 100 years. Digital photos are a passing fad.” Kodak actually invested $25 billion in digital photography but still failed to control it because they were unwilling to believe film would be superseded.

Maybe you’re a radio executive saying this: “The transmitter is a more efficient means of delivery. We can send a signal to millions of people at no additional cost. Streaming is stupidly expensive and has a cost per user. The model can never work. Plus, who wants to sit at their desk to listen? There are billions of radios, with an average of six per household. We’re in virtually every house in America and in 100 percent of the cars. The transmitter will never go away.”

What if the transmitter were no longer relevant? You say that will never happen? Here’s how it could.

The New York Times says the auto fleet in the U.S. averages 11 years old, and that by 2015 we will see approximately 70 percent of the market buying new cars. Already a high percentage of new cars, including lower-end brands, are Internet-enabled and can receive Pandora, TuneIn, and iHeartRadio. What if, by 2015, all new cars have Internet radio? It’s very possible. It’s also possible that auto manufacturers will decide to stop putting AM/FM radios in cars.

Seem silly? Car manufacturers are some of the biggest advertisers in radio, but they want exact listening data, not estimates. This is a world where Google and others can tell them exactly who saw and heard their ads. Automakers are not required by law to put radios in cars. They could make the Internet the only way to listen. That way they could track exact listening stats. No more estimates. No more panels of 150 people representing listening for an entire city.

Ask the CMO of any giant marketing company and they’ll tell you “big data” is the next big wave. Big data allows data from all places to be combined, creating a depth of information never before available. With radio listening exclusively online, an advertiser could use GPS data to air a spot for their business when you’re a few minutes away. Imagine driving down the road and hearing, “Whole Foods is just a couple of minutes down the road. It’s dinner time, why not give yourself a break tonight and pick up a pre-made meal?” or “You’re just a few minutes away from our new location, why not try it for lunch today?” Big data allows this, and it’s already happening.

Though losing our over-the-air monopoly in the automobile seems like a bad thing, a world of nothing but streamed signals could make for the biggest boom in radio history. If radio could assemble big data and tie it to the car, the biggest advertisers would use radio more than ever.

No, it’s not good for Arbitron, unless the company can insert itself into the middle of the exact-data play, and it’s not good for the transmitter companies (though you’ll probably always need a transmitter to serve the remaining analog units in the world).

Will this scenario play out? I think it almost has to. Though it seems counterintuitive, forcing all radio listening through IP would give us the best advertising environment in radio history. Losing the transmitter would be the best — and worst — day for radio. Best because it allows us to have the real-time, exact audience stats, worst because it forces us to abandon the in-car monopoly. I also think there will come a time when AM and FM spectrum will become so valuable to the government for other purposes that the FCC could force radio off the air and online.

Imagine how that would change everything. Suddenly the FCC is no longer controlling radio. Suddenly that license is no longer a concern. But it would also democratize radio even more, since any Joe can create an online station.

Shooting the messenger here is a natural reaction, and so is denying it could ever happen and defending the status quo, which many will do. I don’t blame you. And I may be wrong. But history says people who denied that such dramatic changes would or could occur were usually wrong. If you catch yourself saying, “That will never happen,” that’s a signal that it probably will.

This is in no way an indication that I don’t believe in radio. I remain our biggest champion, but I also know that change is inevitable, and at the moment, Ford, Toyota, and the other automakers hold all the cards. They know they can change the face of radio and make it exact, measurable media just by removing the AM/FM receiver from the car.

Radio’s survival, your survival, is predicated on great content, great brands, and making sure those brands are everywhere. How we deliver is less relevant than what we deliver, as long as we’re where the consumers want us to be. Call me crazy, but I think that radio becoming 100 percent Internet-based is the one move that can make this industry boom financially again.

Is Your Stream An Afterthought?

 

Radio, it seems, likes to embrace technology, but often for the wrong reasons. Our embrace of HD Radio, for instance, gained steam at a time when the media was evangelizing iPods and satellite radio. It is my belief that radio CEOs were sick of all that and decided HD Radio would give us something new to talk about. Then we put all these HD subchannels on the air, but most were badly programmed and sounded like afterthoughts. We told our PDs to program these new stations, but we allocated minimal resources, automated them in most cases, and tried to have something on the air at the lowest possible cost.

Then we wonder why HD Radio has not been embraced. Could it be that consumers considering the technology find that what's on the HD dial is less than compelling?

Sadly, we’re doing the same thing with our streams. Though in most cases we’re streaming our actual broadcasts, which means the overall quality of content is better, it seems to me that most broadcasters lack full commitment. Listen to many streams and you’ll hear that the inserted ads are mostly filler PSAs. Often stations are running outdated promos (as if they forgot they were still on the stream), and transitions back to music are bad, often cutting off spots, or spots come on when the music is playing.

It’s sloppy broadcasting.

What if your stream was your primary source of audience? Would it be an afterthought then? Of course not. But radio is foolishly ignoring streams today, when streaming will be your primary source of revenue. Yes, I said it. By some point in the next few years, your transmitter will make up only a small percentage of your listening. I predict by 2016, and there are stats to back it up, which I’ll write about soon.

Recently Warren Lada at Saga announced the company was no longer going to use ad-insertion technology because it made the stations sound sloppy, and revenues were weak anyway. Of course Triton’s Mike Agovino defended the technology. Both made valid points.

No one really knows if or when Apple’s new patent will remove commercials in a streamed environment, so that is a moot point at the moment, though it needs to be kept in mind as a possibility.

Radio must understand that the transmitter is no longer its only form of distribution and that it could become irrelevant in the future. Our world today requires you to be everywhere your listener is, which means on every device. If you’re not streaming, don’t have a mobile app, are not on aggregators like TunedIn or iHeartRadio, if you cannot be found in every possible device, you’ll dilute the impact of your brand. If people want to listen and you’re not there, they will find someone else.

Not only do you need to be everywhere, you have to sound great. It starts by paying attention -- making sure everything is current, and not filling your ad slots with the same four PSAs in every break and driving audience away. It’s inexcusable at this point not to have your technology finely tuned.

Radio must put its best foot forward in everything it does, including HD Radio, but especially in the streaming environment, because that's where everything is moving. Ignoring it is ignoring millions of listeners, and they all have other alternatives.

 

Will Apple Remove Your Ads?

There's a lot of buzz about a patent Apple just received for technology that will allow them to selectively remove unwanted elements in music streams as people listen on various devices. Will that impact radio listening and radio?

A first reaction to this news might be, "There are billions of radio devices in homes and cars that won't be impacted by this technology. Radio has nothing to worry about." At first glance, I'd agree. After all, radio reaches almost every household, with most families owning several radios and 100 percent penetration in cars.

Yet I think we had the same reaction when Apple announced their first MP3 player and later announced they would be selling music. Most people in radio initially wrote those things off as non-events, and few of us understood Apple's vision -- which turned out to be a giant success. The same thing happened with the iPhone and apps, which again changed the game. But why would Apple bother with technology to remove commercials? Perhaps they have a vision we cannot see.

Radio may have a huge advantage for a while, until this technology is implemented in the streaming environment, where it could potentially remove spots that are inserted into streams. From what I can tell by reading the patent, it doesn't appear the technology can detect a commercial inserted in real time (though I may be wrong). In other words, the spots in your live stream would play, but those in a stream where ads are inserted individually could be removed. Of course, most of our streamed content includes inserted ads.

My biggest concern about this technology is that about half of all Internet activity takes place in a mobile environment, and a big chunk of that is on iPhones. Mobile makes up a significant portion of streamed listening, so radio has vulnerability there. And if Apple licenses this technology to other mobile devices, then the impact will be ever greater.

Perhaps an even bigger concern is that radio is about to lose its command of the automobile. Yesterday Sirius XM announced that 50 million cars are now satellite radio-enabled. (This is not a subscriber figure.) My prediction was that it would take satellite years to dominate the car. And I was wrong, it took 10 years. But satellite radio isn't my concern. An increasing number of new cars are now Internet-enabled and have iHeartRadio and TuneIn and Pandora on the dash, no subscription required. Radio's biggest listening takes place in the car. So as these devices and services penetrate, eventually, most radio listening will be streamed listening, in the car.
 
The New York Times Magazine recently reported that the current car fleet averages 11 years old and that the majority of cars will be replaced -- in fact, it's expected that 2015 will be the biggest car sales year in history because of that need to replace old vehicles. And that means that, by the end of 2015, virtually all cars will have in-dash Internet radio.

Do you see where this is going?

It's possible that all in-car listening by 2015-2020 will be online listening. Suddenly that transmitter's reach is reduced to in-home units. If Apple's commercial-replacement technology covers all your ads, then radio's business model is broken.

Perception may be the biggest problem we face. Advertisers seeing this announcement may naively think that audio advertising is dead or dying and switch to other alternatives. We all know how consumers and advertisers perceive Pandora, often based on inaccurate and exaggerated press reports. They continue to buy that story, and there's no reason to think they won't eventually believe that audio ads will be covered in all environments.

What Should Radio Do?

A natural reaction would be to fight this and find a way to prevent it. That would be a typical NAB approach. After all, no one should be allowed to alter our broadcasts -- though I'm not sure it can be prevented.

Another reaction would be to make consumers suddenly like commercials. We all know from focus groups that ads are disliked, even though in the same breath listeners will tell us ads are often how they find out about things going on in their communities. Though we can make commercials better, and should, I don't think that solves this problem.

Radio needs to take a serious look at its business model. Though commercials aired over the transmitter will likely continue to be heard, we need to assume mobile and in-car listening will dominate. And therefore we need to find new ways to generate income.

Radio needs to dig deeply into its creative soul and find out how we can generate new forms of revenue on our strengths: our relationships with listeners and our ability to move products. Though we may never see the radio spot die, we should assume it will die and seek new ways to replace that revenue.

We need to look at ways of placing audio advertisements seamlessly into our programming, so they can't be detected by this technology -- and we need to do it in ways that won't alienate our listeners. Perhaps that's a product-placement strategy; television increased product placement in response to the DVR, which allowed consumers to skip ads. Or perhaps the strength of some talent or some formats will allow us to command subscription revenues?

Chances are what needs to be done has not yet been invented, and it's time to start inventing it. If these predictions hold true, the clock is ticking, and we'll need to develop a new approach within the next couple of years.

Radio remains a tremendous industry because of our loyal audiences, but we should not get complacent or arrogant. Because of our success, everyone wants to take our audiences away -- and it's predictable that fickle listeners will follow innovative solutions they feel better meet their needs. The promise of radio with few or no commercials is inviting, and it's one of the strengths of Pandora. Plus, as the generation of baby boomers fades and the Internet generation gains a foothold, there is perhaps less loyalty to radio, and that will impact listening and advertising.

Radio has a promising future. These things should not frighten us, but they should not be ignored. A proactive response is what will help us remain strong.

 

When A Tragedy Happens In Your Town

Grief surrounds an event like the one taking place in Aurora. And an event like this, or something equally tragic, could occur in any big or small town. At a radio station, you have to make a rapid decision about how to respond. If you're a News/Talker, like KOA/Denver, the natural response is to report the news and reflect the response of the community. But what if you're a normally upbeat music station? Do you keep playing the hits and pretend nothing is happening?

Very few of us will ever have a situation exactly like this in our markets, but we should always anticipate what we would do -- even if an automated, voicetracked, or satellite-fed station may not have the staff or resources to do anything in the short term other than continue to play the hits. Acting like nothing happened should never be an option.

As one who operated hit music stations for most of my radio career, I would opt to make a rapid short-term format change, having my known air personalities allow listeners to phone in to express their feelings and grief. Your youthful audience may not even know a News/Talk station exists, and an outlet will be needed for them. I think continuing to play music without some form of acknowledgement of the community's mood is simply not reflecting your proper role. Perhaps you'll lose some listeners who want music for the couple of days you change your programming, but I believe you'll be serving the larger community.

Another option is to play the music but to offer a deep, heartfelt acknowledgement of what's happening. Breaks might be longer than normal and involve listeners, or you may set a somber mood with messaging like, "We honor the men and women who died by
continuing the music without interruption or commercials." Though you certainly must not be promotional.

The other major issue is with your advertising. Is it right to carry glib commercials right after an event like this? Will advertisers even want to be on the air? Some will, because they know listening levels may be increased, but can it be done without being distasteful? During the days after 9/11, most broadcasters dropped commercials because it did not feel appropriate to break from programming.

Our hearts and prayers go out to the community of Aurora and to the broadcasters there who face these and other decisions. Sometimes we don't know the right thing to do until the time comes, yet it's always best for each of us to think it through just in case. I'll be curious to see the comments and feedback about what you think is the right on-air response for music stations.

You and I are living in perhaps the fastest-changing times in history. While much of the "old media" business still exists, the new world of media is vastly more powerful and more influential -- and it's moving so fast that even the experts cannot track the rate of change. From the perspective of my friends in Silicon Valley, you and I are employed in dinosaur media. They respect what we have done, and they want to steal our audiences and advertisers for their online audio services, but they think we're being silly when we cling to our transmitters. After all, the concept of "broadcasting" one signal to many radios is so very 1920s. They believe our model is broken, and it's just a matter of time before we lose our audiences and our advertisers -- to them. What do you believe?

Is Radio Immune To The Changes?

Many broadcasters I speak with think the radio industry is immune to the sea change that has been seen in other industries. They feel that, because it hasn't happened yet, audience loyalty has saved our industry from its digital downfall. But maybe we've just been lucky. Many buy the argument that radio has weathered the storms of other past attacks -- 8-tracks, cassettes, CDs, cell phones -- so it will weather any new attacks too.

The newspapers believed they were safe, too. And though they pretended to embrace digital and were among the first to launch websites, the mistake they made was trying to create a "hybrid media." They should have fearlessly cannibalized the print papers and developed the next big thing so they could control it. Newspapers should have put newspapers out of business, rather than allowing others to launch competing services and take their businesses away.

When you live with one foot in the old world and one in the new, the tendency is to approach every decision based on the way things have always been done. For far too long, newspapers refused to allow their news to hit their websites until after it had been in print. Is radio acting the same way?

Are You Willing To Cannibalize?

What you believe matters now more than ever, and radio's success as an industry will rely on our willingness to cannibalize ourselves. You can try to maintain the status quo, or assume that your station website is your digital insurance policy, but the real danger for all of us is ignoring facts and trends. Are you writing off Pandora, saying it won't last? Or are you looking to invent something better -- not a copy, but something consumers will embrace even more?

Though I think aggregation services like TuneIn and iHeartRadio are important and believe every radio station needs to be a part of one of these services, we also need to follow other listening trends. Though an aggregated player allows the listener to pick from a variety of station types, that's still re-purposing a broad product in a narrow, personalized digital world. The only reason we have broad formats is because there is a limit on the number of signals we can have in a market. Radio needs to be reinvented for the personalized experience of a digital environment.

Can You Say Audio?

My passion for radio began as a kid who was fascinated by stations with entertaining personalities and my favorite music. To me, radio is audio entertainment, and whether it comes from a car radio, a home radio, a tablet or mobile device, or a transmitter is irrelevant. If you're clinging to your transmitter or have an idea that you don't want to stream to out-of-market consumers, you're missing a lot of opportunity.

Are You Admitting the Game Has Changed?

I continually hear complaints about change, about how big radio companies are cutting out local personalities and changing the way they do business. Though it's sad to see so many displaced radio soldiers, the reality is that this environment, this economy, and improving technology will increase this trend. Those who are caught in the crossfire need to realize the game has changed, certain positions will never return, and you'll have to keep reinventing yourself in order to stay employable. You don't want to be an out-of-work telegraph operator in a smartphone world.

The Past Will Return. Sure

I'm a nostalgic guy, and I love to think about the days when radio personality was at its peak and we had 15 share radio stations. They were fun times. I appreciate them, but I don't pine for their return, because there is no force in this industry big enough to make that happen. Big companies are not finally going to come to their senses and add back what they've cut out over the last 10 years.

It's Time To Become Relevant Again

Every industry is facing tremendous change. Every industry is seeking efficient ways to survive through technology -- and that results in jobs lost. Those of us in radio who have seen jobs eliminated, and those who have lost jobs, should not just try to shift to another station, we should realize that change will follow us all of our careers, and the only way to remain relevant and employable is to stay ahead of change.

So what do you believe?

Though I embrace change personally, I also find myself fighting it daily. It's human nature, and overcoming it requires a personal plan to embrace and make change for change's sake. We cannot wait for our companies to implement change. We cannot follow everyone else. We as professionals need to step up and force ourselves to reinvent, time and again. The way you reinvent yourself today may become irrelevant in another year. As Bob Pittman said, "Change is in our DNA." It should be in your DNA, and you need to force it to occur in your career.

Are You a Follower Or A Leader?

I always used to think radio people were trendsetters, and some still are, but it seems that many today are no longer leading the pack. The same people who put radical FMs on the air, spat in the face of traditional AM programming, and changed the world are now the people protecting their turf rather than inventing the next radical change. Even though it's frightening, history tells us that someone else will reinvent us if we don't do it ourselves. It's happening all around us. You can't prevent it, but you can embrace it.

Radio -- audio entertainment -- will change, and if we don't each individually embrace and seek change, we will never catch up. We'll be remembered like the newspaper industry: changed, but by someone else.