Radio's Wounded Business Model

Tuesday, July 20, 2004 | 07:23 AM

Listen to music on the radio much lately?

If you answered “no,” you’re in good company. Americans are listening to broadcasts -- especially of music -- much less frequently then they used to.

And with good reason, too: Stations which were once a way to discover new music have become bland sources of uniform playlists. At present, the heavy emphasis (or over-emphasis) is on hip hop; This comes after a long dalliance with insipid boy bands. Listeners left in droves.

So it was with no small amount of amusement that we heard yesterday that radio giant Clear Channel (CCU) was announcing they were cutting back the amount of ad time they would sell on the radio each hour, to a mere 15 minutes per hour, starting January 1, 2005.

The "spin" was that the largest radio player in the U.S. Would be able to use this "enforced scarcity" to raise the value of each spot.

The reality was -- ahem -- somewhat different.

Madness to the Method Man: Lost in this charming PR hype was a simple fact -- Clear Channel’s fastest growth is behind it. When they were early in the process of consolidating and homogenizing U.S. radio, they a huge growth curve ahead of them. At an earlier point in their growth cycle, Clear Channel was able to wring out massive cost savings as they consolidated their network. That phase is now over.

This efficiency, cost cutting, and uniformity came at a cost: Clear Channel wracked up big margins with their streamlined McMusic programming, but they ended up driving away listeners, also.

Consider the state of radio before Clear Channel was given the greenlight by Congress to consolidate: There were many hundreds of local radio stations -- which required 100's of station managers, 100's of musical programmers, and many 100's of DJs. Across the U.S., you could hear music with a more local flavor. In cities, as you scrolled across the radio dial, you could hear a broad variety of songs, bands and musical genres. Even the same radio format -- classic rock, alternative, pop, etc. -- there were diverse playlists within each genre.

It may not have been "personalized" just for you, but the diversity of musical sources meant that there was likely something on the dial you wanted to listen to. No matter how obscure your musical tastes were, odds favored that there was at least one station worthy of being put into your car radio's presets.

Clear Channel replaced most of this unique programming with a handful of their own "talent." Depending upon the format the mega-station decided upon, they could simply plug in an existing show from their roster.

Local music sources were local no more.


Radio Radio
ccu_wsj_7182004170043
Source: WSJ


While this approach made them more efficient short term, it also fundamentally changed the relationship between listeners and their radio. These far away programmers -- and their greatly reduced playlists -- ultimately equaled less fans.

Clearchannel didn't only hurt radio -- they drew first blood from the recording industry also. Music fans only buy what they hear; Less music on the radio meant decreasing purchases of CDs. I'm convinced that the ever shrinking national radio playlist caused by radio consolidation is one of the key factors in the declining CD sales nationwide.

Filling the void: The market abhors a vaccuum, and in my opinion, a combination of 4 alternatives stepped into the void created by lack of Radio diversity:

1) Internet;
2) Satellite Radio;
3) iPods;
4) P2P
I personally listen via internet to Bob Harris on BBC 6 at home all the time. His show is the sort of animal I used to hear on NY radio 20 years ago. And I don't mean oldies or classic rock -- I mean a new interesting mix of new music (Supergrass, Hoobestank, Stewboss, Maroon 5, Jet). That option simply doesn't exist for me on local radio anymore. The closest I can come is WFUV (90.7), Fordham University's campus station.

Satellite Radio -- and to a smaller degree, digital music from Satellite Dishes at home -- offer consumers a broad variety of musical genres for personalized consumption. (I get a channel of all Hawaiian music in my Dish at home; All Hawaiian music, for crying out loud!). I haven't looked into satellite radio for myself -- yet -- but I am considering it for our next car.

iPods are a different animal entirely. Podders put 1,000 or more of their favorite CDs on their iPod, set it to shuffle play, and enjoy. Its as if a radio station knows their exact taste, and randomly plays all of their favorite songs. I jack in my iPod in the car -- or pop a mixed CD I burned -- and thats my radio substitute.

If we are becoming, as Newsweek declared in an article this week, an iPod Nation, will anyone ever listen to the radio again?

Well, maybe. I used to listen to the radio to find new music. But Radio has abdicated that role; Introducing listeners to new bands, songs and albums has long since been abandoned by the medium. It was considered too risky to possibly send a listener down the dial. Instead, listeners were sent away fom radio wholesale.

And that place has been the P2P networks.

P2P is the new radio: Not only can you find a wealth of tunes on any of the P2P networks, you can see how popular or well liked any particular song is: Check out a given artist -- lately, I've been listening to Jamie Cullen's cover of Radiohead's High and Dry -- and you can get a sense of their perceived musical popularity by how many copies of any given song on MP3 is.

Check out a few songs, like 'em, order the CD. Hey, wait a minute, wasn't that what we used to do with broadcast radio back in the old days?

That process used to be the exclusive purview of radio. MTV took some of it away for a brief while, before becoming a fullt ime reality TV format.

Now, thats the domain of P2P.

The great irony of this is that the ever shrinking playlists are what first impacted music sales -- consumers don't buy music that they have never heard or heard of. Now that the Clear Channels of the world have mortally wounded that industry, their methods have finally come home to roost against themself.


The long slow decline of broadcast radio -- at least in terms of music -- has now entered its final, terminal phase. The old boy may hang on for many years before finally succumbing, but alas, it is inevitable.

Broadcast music on the Radio is dying. Its only a matter of time before Radio -- as we know it -- will be dead.




UPDATE July 22, 2004, 1:19 pm
After getting deluged in traffic from Altercation, I popped on the television last night for some non-TiVo surfing (not my usual viewing habit). Imagine my surprise to see that Dish Networks has decided to throw 100 channels of Sirius Satellite Radio on my system.



Sources:
A Radio Giant Moves to Limit Commercials
By Nat Ives
NY Times, July 19, 2004
http://www.nytimes.com/2004/07/19/business/media/19adcol.html

Clear Channel Scales Back Ad Time
SPIN: Radio Industry Leader Aims to Raise Spots' Value; Others Could Follow Suit
By Sarah Mcbride
Wall Street Journal, July 19, 2004; Page B4
http://online.wsj.com/article/0,,SB109018737288866819,00.html

Tuesday, July 20, 2004 | 07:23 AM | Permalink | Comments (41) | TrackBack (10)
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Comments

Barry, great post.

But before you pound the nails into radio's coffin, consider this: while commericial radio's listenership is declining, public radio's listenership has been growing.

And a few bold commericial radio stations are trying to emulate public radio.

Check out this NPR clip:

Neo-Radio Succeeds by Cutting the Noise

http://www.npr.org/display_pages/features/feature_3057018.html

On a personal note, i listen to my radio, pretty much all day. Mainly to the college radio station out of Olympia, WA. But there are many programs on the Seatle public radio station i like to listen as well.

If i had a highspeed connection, instead of a modem, i would be listening to KCRW, which is the best radio station in America. Well, it is for me, at least. :-)


BTW: Kudos to Rick Sherlund on MSFT's dividend. And when you blow a call, consider being more like Kudlow, and pretend you never made the call in the first place. :-)

Posted by: Chris | Jul 21, 2004 2:30:46 AM

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