Pat Welsh
by Pat Welsh
In just the last few weeks, the music industry has been shaken up by a number of key developments. The pace of change has begun to rapidly accelerate. Consider these:
-iTunes surpassed Wal-Mart in January as the #1 music retailer in the world. – This should frighten the labels even more than they already are and lead to meaningful competition in the digital world.
–Jay-Z signed a lucrative (reportedly $100 million) deal with Live Nation. – The latest high-profile defection from the traditional artist-label model.
–MySpace Music launched with 3 of the 4 major label groups signing on. – The commercialization of the music community in MySpace is a natural evolution, aided by the desire of the labels to create meaningful competition for iTunes.
–Radiohead just started its own social networking site. – Remember their “pay what you want” model for the new album In Rainbows? This is the payoff. Each of those free (or really cheap) downloads of the new album meant the acquisition of another name into Radiohead’s database, leading to a deeper relationship between the band and its fans, a model sure to be followed by others.
–The FCC spectrum in late February auction netted $19 billion – This is perhaps the most underrated story of the year. It has huge implication for all media. The spectrum auction netted twice what many predicted the government would get from selling off the soon-to-be-abandoned analog TV frequencies. Once the TV stations make the transition to digital next February, the telecoms can begin building out their mobile broadband services.
Now let’s look ahead to the rest of the year on radio’s side of the ledger. What are likely to be some of the headlines this year?
- Satellite Merger Closes – This looks like a no brainer now, but Justice Department approval is not the same thing as FCC approval; a number of states have filed petitions with the FCC to apply conditions to the merger. The NAB doesn’t want to hear this, but XM and Sirius’ rationale for merging is true, there’s more competition in the digital world every day. The end game for XM and Sirius will have to be to try to get on a new platform, mobile. In fact, XM just announced a deal to make some channels available through Blackberry.
- Online Ad Spending Surpasses Radio – By some accounts, this already happened in 2007. This may be a milestone, but it’s not bad news for radio. Think of it this way, the available online advertising revenue in your market is now greater than the radio revenue. How’s that for nontraditional revenue? The business model for online is different, but it’s also bigger.
Radio should have a great head start in this space. It has tremendous reach and unique content, but it hasn’t been able to tap into the online market. In fact, when you look at the fundamentals of radio in the PPM world, you can see that radio’s reach is much larger than previously thought, with many stations doubling their cume. That means major stations are reaching audiences comparable to prime time TV in their market or the circulation of the big daily newspaper. - Arbitron PPM Rollout Resumes – The sampling problems with the PPM are real, but they’re hardly unique. Anyone who has tried to do any form of research knows how hard it has become to get people to agree to participate. Arbitron seems to slowly be working on increasing the notoriously difficult 18-34 sample. It hardly seems possible, but getting this demo to participate in the PPM has been even harder than it was to get them to fill out a diary. Arbitron will continue to make incremental progress, but they have to find a better way of building the sample and enticing people to participate.
Ultimately, doesn’t Arbitron have to figure out how to do this through mobile phones? Who wants to carry an extra device around so that someone else can monitor your media habits? How do the meager incentives that are currently provided affect the quality of the sample? Wouldn’t it be easier to get people to use a device that they already carry with them wherever they go? - HD Radio Continues To Underwhelm – There’s no denying that the rollout of HD Radio has been met with near total apathy. Most listeners don’t understand it and few of those that do see the benefits. People just don’t go out of their way to buy a new radio, except with the purchase of a new car.
Wouldn’t radio be better off trying to capitalize on other alternate delivery mechanisms that can provide a proven revenue stream? Think Internet and mobile. Both of these are considered more essential in the minds of consumers than HD Radio. Let’s not abandon HD, but let’s put even more resources into building alternate programming on the web. - Radio Goes Mobile – This is the most serious threat to terrestrial radio yet. Satellite radio’s business model is so broken, that they stand now on the brink of being allowed to merge. The irony is that, unlike with HD Radio, most consumers understand the benefits of satellite radio, but the drawback is the need to purchase new equipment. What if consumers could get the choice and quality of satellite without having to get new equipment? What if they could just pull out their mobile phones and pick any one of a hundred channels?
Now that the FCC has sold off the analog TV spectrum, mobile broadband is closer to becoming a reality. Curiously, you hear a lot more about video than radio in this space. Audio services are typically thought of as some sort of Rhapsody-style on demand service, but fully-programmed radio channels haven’t gone out of style.
Who will win this race? Will it be satellite, taking their clear benefits to a more ubiquitous platform? Will it be terrestrial radio, working deals with the Telcos to make their brands available on mobile? Or will it be mobile radio pure plays that co-opt some of each model? There is some good news for terrestrial in that the most recent stats show streaming terrestrial radio overtaking Internet radio pure plays in the last few months.
With the economy on the downswing, 2008 is shaping up as a tough year for radio ad sales. The political season will help and a general recovery in the second half would help get everyone back on track, but there’s still a definite old school approach by radio when it comes to new media. Music and print have seen a meltdown of their traditional business models, while television and the movies have tried to embrace and control new media rather than the other way around. Which model will radio follow?
Pat Welsh, Senior Vice President/Digital Content, Pollack Media Group, can be reached at 310 459-8556, fax: 310-459-8556, or at pat@pollackmedia.com.
