June 2013: Streaming and Screaming

There’s always been sharply divided opinion about streaming our audio online, and recent developments have further intensified the debate.  They range from “I need to make sure I get Arbitron to count every listener to my station” to “I only need to serve the people in my metro.”  Then there’s the new discussion about whether or not to insert spots in-stream.

There’s a short game as well as a long game here.  First, let me reiterate — I’m in favor of streaming and always have been.  I’d also like to be making more revenue from our streams while paying less to Sound Exchange for the statutory license to stream.  I’d like better technology and I’d like to know more about who is listening online to our stations.

But these are growing pains.  There is a greater goal to be attained and that is to keep our local brands viable and relevant to rapidly changing audience habits.   We are seeing the increases in listening online and the latest research indicates that some fans of our stations are now spending between 10% and 15% of their listening online.   Whether it’s at work or on a mobile device, that is listening that was going to be lost to our brands.  With online platforms we can retain our listeners’ loyalty.  We need to be wherever they want us to be.   There are new battlefields — the digital dashboard, the mobile devices we all carry, and the desktop computer.  Our brands must expand to be able to provide service to all of them as well as reach beyond the 6 or 9 counties that define our broadcast signal.

A lot depends on how we define our business.  If you are in the broadcast business, it may not matter to you that Pandora has 200 million registered users.  It may be a distraction that Apple is about to launch an ad-supported music stream.  But if you are in the communication business, these and other online competitors should keep you awake at night.  The gravitational pull of online and personalized music services is strong, especially for listeners below the age of 30. We are challenged to compete with them not by imitating their qualities, but by making our unique brands just as easily available at all times to our listeners.  We are competing to remind our audience every hour that there is much more to their favorite station than the music mix; that we are a connection and reflection of their hometown and their favorite music format.

There are those who will stand by their judgment that “streaming is not a business” or “Arbitron has to change the simulcast rules”.  They are not mistaken in the present or in the short term.  There are no riches in streaming audio today, when it’s not yet a widely-accepted market.  But it’s growing faster than broadcast revenues and will continue to grow.  Arbitron struggles to adapt their estimate system to a delivery system that doesn’t need estimates.  Online audio can provide an accurate measure in real-time, counting exactly how many listeners are active at any time.  It will not be long before we can not only count everyone, but we will be able to describe their exact location, their habits, preferences and other details revealed by the ocean of data that is being assembled in the digital world.

Don’t get me wrong; we should fight today’s battles as aggressively as possible and get every listener estimated and get every online spot sold for as much revenue as we can produce.  But if we look a few years down the road, we will be competing in a dramatically-changed marketing landscape, where big data and real time buying combine to change radio budgets to audio and exponentially increase competitive forces.  We no longer have the luxury of regulated competition within a defined piece of real estate; we have to make every effort to entertain and deliver to advertisers as many highly targeted listeners as possible, wherever we can acquire them.  Platforms, geography, delivery, media-buying and media usage are all changing and we have to keep pace. This is the real definition of our competitive landscape.

The good news is that we have established relationships that many digital services would die to have.  Notice who Pandora has hired in many markets to proclaim how “they’re radio too”?  Ex-radio salespeople and managers.  Wonder why Apple is announcing that they can target the audio ads in their music service?   Disregard the rhetoric; they are serving notice that they are competing for our relationships.   Radio has proven to be amazingly resilient to date in the digital revolution, and if we tend to our primary strengths of strong local service and relationships with clients and consumers and adapt them to the new landscape, we will continue to be the audio medium of choice for many, if not most.  But we need to embrace, adapt and reimagine our stations as local brands offering multiple channels as well as on-demand audio, video, mobile and social relationships with our listeners.

Let’s stop the screaming and keep on streaming.   The details can be worked out as we move forward, but the time for our industry to move aggressively forward is now, even if it is kicking and screaming.

Change2

When the landscape rushes by in a blur, we know we’re moving fast; when changes start to pile up on one another before we have a chance to absorb the last round we know that the rate of change is accelerating at a pace we did not expect. That’s what some people refer to as change2 (exponential change).  A couple of reports crossed my desk and reminded me that things are changing at a rate that no one expected even a few years ago. We know we have to keep up and adapt, but we have to have a clear idea of the direction we are heading.

First up is the 2013 edition of The Infinite Dial, from Edison Research and Arbitron. It again confirms that our relationship with listeners continues to change and is under competitive stress from numerous new competitors. There are now 120 million monthly listeners to online radio of all types. More significantly, they are listening almost 12 hours each week. In 2008, that total was 54 million, a huge change in the past five years. It really doesn’t matter whether or not Pandora is “real radio”; it and other online pureplay companies are providing services that our listeners have never had before. There’s more: 32 million listeners have listened to a podcast of one form or another during the past month, and they listen to an average of 6 podcasts every week. Like it or not, we have new competitors for our audience’s attention, and we have to up our creative game to new levels. And did I mention that 21% of the audience has listened to online audio in their car using a Bluetooth connection?

On the positive side of the ledger, Edison reports that even for heavy users of the internet, radio remains at the top of the list as the media consumed just before shopping. Online shopping and in-store mobile app price-checks pale beside radio as the last influencer for 45% of those coming through the front doors of stores throughout America. We need to capitalize on this strength which is unique to our medium.

The second report, from BIA/Kelsey, is more focused on revenue and confirms what we know: pure radio revenues in 2012 increased by 1.5% to a total of $14.3 billion. The Radio Advertising Bureau does another estimate, and they show that radio revenues finished at $16.5 billion, up 1% from the prior year. The past few years have been challenging for all aspects of the economy and radio is not immune from the sluggish economy. Every salesperson knows how much harder they have to work for an order and how significantly rates have adjusted in the marketplace. But the great recession is no longer an excuse; while radio budgets are static or down, online revenues to radio stations are slated to increase 10% in the coming year, compared to 2.5% for broadcast spots. The RAB projection for digital revenues for the coming year is 20%. Yes, online is still a small number, but it is an important indicator of where the money is heading.

My last dataset comes from Gordon Borrell. He’s a guy that a lot of radio people don’t want to listen to. That’s because Gordon doesn’t sugarcoat our industry’s underperformance in the online local marketplace. He’s been measuring this space for a number of years, and he’s got strong opinions about how to do it. I don’t agree with all of his conclusions, but his facts remain undeniable. His survey of local advertisers’ 2013 marketing plans predicts a dramatic 33% increase in promotional spending, almost $76 million more than his local advertising projection. No medium does promotions better than radio, but we have closed our eyes to dollars spent on discounts, coupons, event marketing, point of purchase, sampling, and loyalty and retention programs. When did it become acceptable to think those revenues are not our business? The smart media companies have targeted all of these revenues ‑ and more ‑ in efforts to become the local advertiser’s partner.

What do these percentages and numbers mean? I believe that it’s very clear: Within modestly growing marketing budgets, traditional radio spot revenues remain static or growing with inflation, but behind the overall curve. Digital media of all types is growing substantially faster, whether it’s local or national, and regardless of the type of expenditure. One revenue pie will remain static or shrink; the other is growing faster than we choose to admit. We need to adopt new, more encompassing yardsticks for success, and we need to redeploy our staff time and manpower to meet these challenges. We need to spend less time reacting to business and more time acting to develop new business.

Have we made progress in the last five years? Yes, but it’s not sufficient; the numbers show it. Those new media dollars are highly sought after by many more competitors than we even recognize. This is a new market segment with new rules, inventory and pricing. We should not fear it; we should make it our second home. We have unique strength among all competitors when we combine our broadcast reach and awareness with our digital ability to get close to each interested consumer and complete the sale. As more marketing dollars are earmarked for integrated promotional efforts, no one can accept that mission more successfully than radio.

Yet, often the response I hear is that we don’t want to trade for “digital dimes”. What arrogance! Those dimes add up; they’re making lots of P&Ls grow while radio’s struggle. Dimes add up, and they should be on our books. After all, we have standing relationships with every significant local advertiser. It’s our failure if they spend their money with Pandora, Google or Facebook. Our collective mission is to grow our revenues by meeting and exceeding our customers’ expectations. Just peddling radio spots is not meeting those expectations today.

I do not want to be the guy running a railroad in the jet age.

Sincerely,

Peter
Peter H. Smyth
Chairman and Chief Executive Officer
Greater Media, Inc.

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