Change2

May 13, 2013

Peter Smyth

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.