Musing on a Monday morning about the state of the radio industry…
I bet a lot of radio people have read Jeff Smulyan‘s new book, Never Ride a Rollercoaster Upside Down. Jeff’s radio stories are rich, reflecting his amazing career as one of the industry’s great success stories. While Emmis never achieved the scale of an iHeart or an Audacy, Jeff was an innovator, unafraid to heave the ball downfield if he thought there was reward to his risks.
The NextRadio story is a familiar tale of herding cats, something not uncommon in many industries. As James Cridland has consistently pointed out when reviewing the American marketplace, radio in the U.S. almost always fails to “speak with one voice.” That shortcoming often begets failures, or at least missed opportunities. And along the way, it has allowed radio’s competitors to achieve better footing.
Oddly enough, the auto industry – radio broadcasting’s dashboard partner for nearly a century now – is similarly guilty of not collectively acting in its own best interest. There are just over 30 auto manufacturers (OEMs) in the world. And most of the time, they are researching and experimenting on their own, rather than working collaboratively to problem solve.
And it has cost them. When infotainment systems began to proliferate in dashboards, each OEM produced their own proprietary solution. Early on, Ford developed Sync, Toyota launched Entune, while Jeep/Chrysler created UConnect. And the other auto manufacturers followed suit, each producing their uniquely different systems.
Most of them were severely lacking, using different labels, layouts, configurations, and screens, as well as their own array of buttons, knobs, touch controls, and voice interfaces. The result? None was especially great, earning OEMs demerits when J.D. Power fielded their research studies among car owners and lessees.
For consumers, it was a nightmare. It often meant attending classes at the dealership to learn how to best operate these systems. And even if one learned how to exercise command of their car’s infotainment system, renting a car or even borrowing a car from a friend meant going back to square one. No two systems were similar enough that drivers could simply intuit how they worked. And of course, that led to consumer frustration.
Enter Apple CarPlay and Android Auto, outside tech agitators who set lofty goals in the automotive world – and achieved them. Their systems were more user-friendly, and instantly familiar because of their similarity to the iPhone and Android mobile operating systems in virtually every smartphone. Largely because of their lack of cooperation with one another, the auto industry largely gave up their infotainment systems to two tech companies.
And at the same time, they allowed Elon Musk’s Tesla to enter the marketplace – and even dominate – through the side door. Today, most OEMs are playing catchup to Musk and his innovative EV fleet.
As Jeff Smulyan tells it, a similar story persists in radio broadcasting. And NextRadio hasn’t been the
only victim of the industry’s glaring inability to work together. That leads us down the streaming path, an increasingly precarious activity not just for radio broadcasting operators, but for everyone in the space.
A recent article in Axios paints a bleak picture. Written by Hope King, the title is an ominous one:
“Entertainment has become increasingly hard to monetize”
Her conclusion is that the streaming business has become perilous because of so many options available to consumers as the ‘long tail’ has become so difficult to monetize.
Broadcasting’s margins were impressive back in the industry’s heyday, largely because there were so few options advertisers – and consumers – could choose from.
That was affirmed in the Smulyan book with this quote from Emmis COO, Pat Walsh:
“Every time you take a listener from over-the-air to streaming you take a customer who gives you a 35% profit margin and make him a customer who costs you a minus 10 percent margin. Same customer, same content, totally opposite result.”
As a result, radio broadcasters were slow to adopt streaming, allowing outside invaders like Pandora and Spotify the opportunity to gain precious digital ground. Many broadcasters went into denial over streaming’s impact, rationalizing their lack of participation with the term “digital dimes” that described streaming as a small business.
And the fact is, companies that have pursued music streaming as the foundation of their business model have generally fallen short of profitability even as they gain users and subscribers. That’s a lesson Spotify has learned the hard way. Unlike radio broadcasting, where spot revenue is still the major source of revenue, Spotify is overly dependent on streaming, especially music.
Onerous royalties that accelerate when Spotify adds new users make it difficult not just to achieve impressive margins, but profitability – period. That’s why they’re hustling to generate other more fertile revenue buckets, notably podcasting and of late, talking books. Royalties on spoken word audio are negligible.
Big tech companies like Apple and Amazon don’t have to rely on music streaming profits because their businesses
are robust on so many other platforms, from smartphones to e-commerce respectively. But one-trick ponies like Spotify face continued pressure to make their numbers in a streaming world that is only getting more crowded and competitive. A look at what’s going on in video streaming explains the challenge.
Axios’ King points out that even juggernauts like Netflix and Disney+ are feeling the streaming pinch. And the monetization challenge is now taking its toll on content quality.
Today, broadcast television is endangered, while even the streaming services are reeling from the sheer number of available choices in the space. A recent story on CNBC.com by Alex Sherman queried TV experts on predictions for broadcast television’s future – essentially, how much time the medium has left before it falls into the depths of its inevitable death spiral. Clearly, the ravages of video streaming and on-demand have taken their toll.
Peter Chernin, CEO, the North Road Company: “(TV broadcasting) will continue to be in decline. It will be crappier. Budgets will get cut. More scripted programming will migrate away to streaming. There will be more repeats. But it will continue to exist.”
Kevin Mayer, co-CEO, Candle Media; “It only has a few years left. It’s nearing the end. For entertainment that has no need to be viewed at any specific time, that’s already done. It’s already largely shifted to streaming. Next will be the end of scripted programming on broadcast networks. There’s zero need for that.”
Barry Diller, chairman, IAC: “It’s dying, but while syndication is around, even if it’s diminished, it will still be here. The tail end of these things lasts much longer than anyone predicts.”
So, look for fewer scripted TV series even on your favorite streaming video platforms(s) in favor of reality television programs where production costs are massively lower. To that end, Disney announced they’re looking for more than $5 billion of budget cuts, most of which will take their toll on non-sports content.
But what about radio, streaming, and the future? You wonder what this CNBC article would have looked like had it been about radio. What would the experts have said about radio’s future given competitive pressures from the streamers?
The good news is they also interviewed Boston sports maven, Bill Simmons, about television – and he took the convo into a radio centric direction:
“(For TV), three years feels way too short to me. I think it’s going to play out like it has with terrestrial radio and digital audio. Five years ago, you could have said radio would absolutely be dead soon, and nobody would have challenged you. But it’s still limping along even with much heavier competition from podcasts, streaming, TikTok and everyone else.
“Even with ad markets dwindling and the advertising being much more localized, it’s not close to being dead yet. It’s like when Michael Corleone says how Hyman Roth has been dying of the same heart attack for the last 20 years. That’s radio. And linear TV will be the same way. It will have a Hyman Roth (pictured) death, not a Sonny Corleone death.”
(As you may remember from the first Godfather film, Sonny’s death (at a toll booth) was swift and violent. Hyman Roth’s character is based on real-life mobster, Meyer Lansky. He is eventually assassinated at an airport.)
For many radio companies in the ’90s and well into the ’00s, that 35% margin Pat Walsh talked about for spot radio was actually on the low side. Many broadcasters were able to achieve margins closer to 50% by keeping costs and expenses low, while seeking efficiencies from consolidation and market clusters. Given the scarcity of licenses back then, radio was historically an industry of limited choice. To listen to music, consumers were stuck with their own collections (on vinyl, cassette, or CD) or listening to local radio stations.
Not anymore. Now everybody and their brother can create their own streaming channel, broadcasting from their basement or garage. In fact, Amazon’s Amp Radio platform is designed to do just that – enable any schlub to have his or her own radio station. Their positioning statement – “Live Radio, Reimagined” – leaves no doubt about who Amazon is going after. And even if it generates massive losses, Amazon – unlike Spotify – can weather that storm. For them, it’s a rounding error.
When radio was the only game in “Audio Town,” high margins were achievable. But as competition from satellite radio, streaming services, and podcasts, proliferated, radio’s economy of scale became its own worst enemy. Ironically, it’s another Emmis employee, Rick Cummings, who first declared the true phrase, “Choice kills,” while discussing the glut of new competitors.
The decrease in local content, the lack of a personality pipeline, puny (or nonexistent marketing budgets), and decreasing investment in research and programming
have all exacted a heavy price. The demand for spot advertising has greatly diminished, while broadcasters are now fighting against myriad competitors, all going after a consumer’s attention and time.
The solution for radio broadcasters may be a mix of audio and media services, a multi-platform strategy that does not rely solely on revenue generated via the tower and transmitter or from any other single source. Other digital audio channels – streaming, podcasting, mobile, social, and web – are not likely to generate fabulous margins. But they are essential to meeting the audience where they are.
By providing content and multiple channels, radio broadcasters have the ability to not only keep pace with their listeners and clients, but also to better track them and cater to them via data. They will just have to accept the fact that every product in the lineup – whether it’s over-the-air, newsletters, podcasts, or in-person events will have its own unique business model.
Not every vertical will throw off monster margins, but to deny a key touchpoint by simply not showing up is an invitation to a listener to find something else to entertain and inform them in those places. Like children, they’re all different from another, even when they’re in the same family. Some will perform better than others. But they’re all essential parts or spokes of the larger unit.
Thinking about radio not as a monolithic medium but as a content strategy where products and services flow out of the same organization or its subsidiaries is key. Determining which content avenues to pursue and when is part of the art of running a company or corporation. A quarter of a century or so ago, the only thing that distinguished radio companies from one another were their size. Otherwise, they operated pretty much the same.
Today, they distinguish themselves and determine their success not on scale or size but on strategy and smarts. That’s a very different paradigm than what owners faced back in the go-go ’80s.
Knowing the difference between fool’s gold and the stuff King Midas chased will be an essential skill for CEOs and corporate teams. Knowing when to lead, jump in, or when to wait and see will be the factor that differentiates the dons from the duds.
You can buy Jeff Smulyan’s new book, Never Ride a Rollercoaster Upside Down, here. Bonus: Jeff reads the audiobook version, so if you know him, hearing his stories is like chatting with him. – FJ
Jacobs Media has consistently walked the walk in the digital space, providing insights and guidance through its well-read national Techsurveys.
In 2008, jacapps was launched - a mobile apps company that has designed and built more than 1,300 apps for both the Apple and Android platforms. In 2013, the DASH Conference was created - a mashup of radio and automotive, designed to foster better understanding of the "connected car" and its impact.
Along with providing the creative and intellectual direction for the company, Fred consults many of Jacobs Media's commercial and public radio clients, in addition to media brands looking to thrive in the rapidly changing tech environment.
Fred was inducted into the Radio Hall of Fame in 2018.
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Fred, a great blog today. Unfortunately due to the glut of investment dollars chasing the build/spin golden parachute, there is almost no concern for profit in many of the “new” media channels.
Being “pre-revenue” (a term bankers and lenders would have thrown you and me out of the building for using in the past) is acceptable. Scaling and market share is the golden goose. It’s a messy journey with a lot of business distruction.
Meanwhile, they drag down highly profitable categories like TV, Radio, and others. They’ll figure out how to actually monetize it later (Twitter, Pandora, streaming audio/video) or spin to the next greater fool.
The money is chasing the deal, not a successful business plan. And the fallout is in our laps.
Thanks for giving us a lot to think about here, Jack. “Pre-revenue” on the one hand, and the “next greater fool” on the other. Thanks for more conversation starters.
I am so glad you printed this article, Fred. The truth can be harsh. I guess All the work that goes into my weekly podcast has the same future as a model airplane hobby.
Dan, your story is a different case. Broadcasting companies have to find a way to fit the streaming model into their portfolios, whether they like the math or not. With a creator like you, it’s an opportunity to produce a product that doesn’t exist in the commercial world. Plus, you’re well on the way to making the model work with the “1,000 True Fans” path. Plus, if you enjoy doing it….
This is a great column Fred. There’s a lot to unpack, but first, the speak with one voice opportunity was about 20 years ago, when the music industry was lobbying for a radio performance royalty. Radio could have traded that for a much much more reasonable streaming royalty structure – essentially sacrificing the past in exchange for the future.
Streaming is a loser because the royalty structure ensures it. When you pay 70% of top line revenue in royalties with no accommodation for scaling, there is no way to make money. You don’t hear the major labels complaining, because they wrote the law that set this in stone in 1998 – the Digital Millennium Copyright act, which Congress cut and paste into law as written by the RIAA. No law written in 1998 involving digital anything should exist now without serious revision, but here we are. Congress vs the music industry in 1998 was bringing a straw to a gun fight.
As for that content wheel of fortune, it looks rational, but I don’t see it as radio’s path to greater impact in the ad world. Unless they own the actual business (like Townsquare has done a lot of), radio will just be manufacturers reps in the ad world, bringing nothing original to the table and given its current level of sales talent, nothing to aggregate the wheel in a way that brings additional value to a buyer. Further complicating matters is that large agencies usually have separate buying groups for each of the wheel items, so in those cases, even a savvy seller with real understanding of how to reach a client’s goals with their “media store” may not have a forum to do it.
I agree with whoever said that broadcast TV and radio won’t die one day, it will be a slow death by 1000 cuts. Abandoning almost everything that people like better about you than your competitors is a great way to accomplish that. Oh, and scaling, shmaling. Audacy has a market cap of $42 million…so much for scale.
Bob, how dare you make the claim the pain point is content rather than distribution. (Makes lots of sense.)
Fred, I predict that five or ten years from now you will be offering up this masterclass on Radio in 2023 as a Throwback Thursday review. It’s that comprehensive–and accurate.
Every industry goes through the initial proliferation of providers, models, and standards before settling down to a few basic varieties. Look at the car: Lots of different modes (gasoline, electric, steam) by lots of different manufacturers (Ford, Baker, Stanley, Chevrolet, Dodge Bros., Deusenberg et al.) (my great uncle worked as an executive at Hudson); many fewer today, and all gasoline until recently. It even affected radio: The electronic dashboard has only in the last few years standardized on how to save a station as a preset–push and hold the button for a few seconds. My wife’s ’89 Corvette has a different system, not even intuitive.
Radio went through this, too. Remember that FM didn’t start in the 88-108 MHz band, and don’t we still call 1610-1700 kHz the “expanded band”? My immediate fear, besides all the ones you cite, is that the baby (over-the-air broadcasting point-to-multipoint) is going to get thrown out with the bathwater (radio’s other failed digital strategies) despite the good reasons not to (eg, emergency communications). Yet isn’t CBC now about to follow BBC in casting doubt on our future?
https://www.insideradio.com/free/first-the-bbc-now-the-cbc-signals-eventual-move-to-digital-only-broadcasts/article_22787ad0-a77e-11ed-b99a-57ec857679c1.html?utm_medium=social&utm_source=facebook&utm_campaign=user-share
John, thanks for the insights. I’m going to be in Toronto for Canadian Music Week/Radio Days North America this spring. On the agenda are execs from both BBC and CBC and I expect there will be many questions about the move to digital. Somehow, it’s the balanced approach that seems to make sense in the end. Babies and bath water are never a good plan.
Speaking of lines from “The Godfather”, when they are in Cuba and Michael is concerned about the revolutionaries he’d seen, Hyman Roth says, “this is the life we have chosen”. In 40 years of broadcasting, I’ve thought about that quote a number of times.
You know, I might have to watch those great films again, Wendy. Thanks for commenting.
Fred,
Excellent post as always. I remember having lunch with two very smart industry people that knew their stuff. I asked “How long until ‘sticks in fields’ go away?” Answers were 5-10 years. That lunch was in 2001. The long tail definitely exists.
Indeed it does, Dr. Ed. Indeed it does.
There’s plenty of irony in today’s post, Fred. I’m sitting here with HBO’S “The Last Of Us” on the TV – and reading comments from and about “The Last Of Us” who’ve relied on “sticks and fields” for the past century – the future? We gotta wear shades so no one can see the fear.
Still on my list of things to watch. Thanks, Dave.
Radio’s solution is MAKE A GREAT SHOW. People don’t listen to a platform hey. listen to a show.. The name of the show on digital streams is “Buffering now”. Spotify, Pandora, SiriusXM call themselves RADIO because radio technology works. It is elegant, easy to use and cheap. RADIO has been streaming to the car since 1938. Radio is not legacy media, it is proven media. All those streams will flow into a septic tank with BILLIONS in financial losses.. The auto manufacturers have given radio a great gift. Their crappy digital interfaces are so awful that drivers hunger for the button that says AM or FM.
Former founder/CEO at Pandora, Tim Westergren referred to RADIO as “a one-button solution,” something everyone in the digital space covets but cannot achieve. Thanks for the note Walter.
I agree with Walter, great show = great content. Saturday night is gold in Madison WI. 6pm WORT Rockin’ John’s eclectic collection of 50s, 60s rock ‘n roll 45s. 8pm WVMO Pat O’Neill’s “The Weekend Concert” of live tunes from his own amazing treasure chest. 9 pm WMGN “Saturday at the 70s” with music historian and craft beer connoisseur Jim Bartlett. Now, that’s unbeatable content!
Thank you, Leo.