What is Radio Selling?

Monday, December 06, 2004 | 11:01 AM

I’ve been thinking about music and radio a lot lately, especially given all buzz recently on Satellite radio. (Recall we visited this topic over the summer).

Here’s a simple question that many people get wrong: What does (terrestrial) radio sell?

.

Think about it for a moment before answering.

If you are like most media consumers, your answer will be “advertising.” Since Radio is media, and most media rely on advertising, it’s a reasonable conclusion.

That answer, however, is wrong.

.

What Radio sells is you. You are the product. At least, you, as a member of a larger aggregated package. Sure, it’s demographically dissected, cross marketed and discounted -- but its still what Radio sells. You may think of yourself as a consumer when you listen to radio, trading your time in exchange for music, news, weather, talk, etc. But that’s a false, if common, misunderstanding. You are what is consumed. Advertisers are the actually consumers.

.

If you understand that simple perspective shift, than the decline of entities like Clearchannel Radio (previously discussed) becomes apparent and inevitable. The stock is off some 33% since April of this year – while the S&P500 is appreciably higher.

.

After the 1996 telecommunications reform act, which gave the green light to Clearchannel’s massive acquisition spree, the industry started shifting, in a way that alienated their audience dramatically. That the largest player in radio failed to understand this simple concept is rather telling. The consolidation led to the gradual shift in lifestyle -- listeners of music no longer relied on radio. The audience found ready substitutes -- it was easy, especially since the internet was gaining broad penetration.

I suspect that this decline -- this lifestyle shift -- will be irreversible.

Why? The Hamburger Helper Effect.

Consider the modus operandi of all consolidators: Purchase assets, eliminate redundant administrative functions, achieve economies of scale. Clearchannel did this – and more -- by firing local program managers, DJs, eliminating formats, and tightening playlists – all of which ultimately reduced the amount of varied music on the radio.

In effect, they lowered the overall quality and breadth of what they were playing. Equate this to a hamburger chain introducing meat extender. It will certainly lower costs, and increase profits – but only short term. Over time, the patrons of the restaurant simply will stop coming. Revenue slides, repeat customers go away, so the business tanks.

That’s FM radio today.

What’s fascinating is how quickly the audience’s “Screw you guys, I’m going home” attitude has manifested itself. As noted above, what radio sells to advertisers is their audience. That audience, tired of Hamburger Helper, has shifted away, easily finding the all beef burger: iPods, internet streaming, P2P, and satellite radio.

The audience didn't even change stations; Rather; they shifted media entirely.



Grandpa, you used to listen to music on the radio? What was that like?

Monday, December 06, 2004 | 11:01 AM | Permalink | Comments (12) | TrackBack (2)
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Listed below are links to weblogs that reference What is Radio Selling? :

» What Does Radio Sell? from BusinessPundit
Barry Ritholtz has a great post about the radio industry as it stands today.You are the product. What Radio sells is you. At least, you,... [Read More]

Tracked on Dec 7, 2004 7:09:32 AM

» Satellite Radio: The Hype is Understated from IPcentral Weblog
Much has been made recently about the growth of satellite radio, and its impact on conventional stations. But for once the hype is probably understated. In conventional radio, funded by sponsors, the audience is not the consumer. It is the... [Read More]

Tracked on Jul 27, 2005 2:49:12 PM

Comments

I do not find the rapidity of the Eric Cartman response puzzling, because commercial radio had long skirted the edge of relevance, probably starting some time in the 1980s. However, it had retained its audience, through a combination of being "good enough" and the lack of viable competition.

Not only did Clear Channel's cookie-cutter policies push radio over the edge of usefulness, but its timing was also poor. Filesharing, CD-burning, satellite radio, not to mention DVDs, the web as entertainment and others entered the scene just as CC had finished its program of rationalizing radio formats and playlists. So, precisely at the moment competition heated up, CC kneecapped its own entry.

The lesson for radio is pretty clear: fix it, it is broken. The lesson for other oligo-/monopolist providers is that good-enough products needs to improve before new competitors enter, not after. The lesson for investors, of course, is to watch their holdings in such providers and to be ready to sell early.

For the record: I avoided investing in Clear Channel because I hated their programming and their executive politics, not because I was smart enough to work this out ahead of time. I do hold investments in oligopolists, because until market threats materialize I enjoy being a landlord.

Posted by: wcw | Dec 6, 2004 12:50:21 PM

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