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Sunday, July 29, 2007

The Little Merger That Could

Here we are six months down the road from the first announcement by XM and Sirius that they intended to merge these two companies to form a singular satellite radio company.

From the beginning, Bridge Ratings has examined the response by the consumer - both current and potential satellite radio subscribers - to better understand the perceptions about such a merger.

From the start, the mood among both groups of consumers was not positive. In fact, they were very near equal. The general consensus was that it would be bad for the public. The current subscribers we interviewed were more concerned than the potential subscriber group, but I think that had more to do with the passion current subscribers have for their preferred service and an emotional response to change.

Now, six months later, the mood has generally moved to the more positive side by current subscribers while potential subs have not moved much off their initial "monopolies aren't good for consumers" position. Perhaps the difference in perceptions by these two consumer groups has more to do with the satellite companies marketing to these subscribers. I think they simply did a better job internally marketing the coming merger.

And as Congress considers Mel Karmazin's statements and all the supportive paperwork associated with both sides' reasons for merging or not, there are two signs now that are much clearer for me which point to the approval of this merger.

1) God love David Rehr, President of the National Association of Broadcasters (NAB). He has been on the job only a short time and done a great job. He has certainly made a case for his passion for the radio business and his willingness and ability to be direct and confrontational in defense of all things radio.

As a great consumer products CEO once told me about products of all kind, "Products have strengths and weaknesses...and in most cases, one's strength is also one's weakness."

In the case of the NAB and Mr. Rehr in particular, he doth protest too much.

In his passion to protect radio in the case of a satellite merger, Mr. Rehr has firmly crystallized Mr. Karmazin's point that a merged satellite company is not a monopoly because the "marketplace" is varied with many competitive offerings.

The whole merger approval likely will hinge on a singular point: the definition of the competitive market in which satellite radio competes. Is their market satellite radio? Or is it all audio radio which today is defined not only by satellite radio, but traditional radio, Internet radio, iPods, iPhones, Podcasts, cell phones, etc., etc.

Mr. Rehr's enthusiasm has confirmed for Congress that terrestrial radio is so concerned about the possibility of a merger, that the louder Mr. Rehr protests, the more obvious it is that traditional radio considers satellite radio a competitive medium thereby defining the market.

The second reason I think this merger will go forward?

The early departure of XM's brilliant CEO Hugh Panero. He was to leave his post at the point the merger occurred, but the news is so encouraging, Hugh has set an August date for vacating his office in order for the cleaning crews in DC to get his office ready for Mel. There's confidence there that cannot be denied and it is backed by encouragement from Capitol Hill.

Now with everything I know, I believe that between XM & Sirius, the combined entity will offer a solid consumer product, will not diminish the current experience and will encourage potential subscribers - especially those buying cars and trucks - to go forward with their choice.

And, oh yes, I forgot: Howard Stern will attract an additional 500,000 to 800,000 new listeners over the next 18 months. XM subscribers who have missed him.

Was the approval of this merger terrestrial radio's to lose? I think so. The strategy was wrong. The NAB made the case for the other side.

Radio should now forget about satellite radio as a competitor, get back on track (it's been distracted for five years) and look to developing better content, re-hire its best talent that has left the business and market its digital platforms.

Your comments are always welcome.

Monday, July 23, 2007

2010: A Radio Odyssey

Did you see the film "2010", the sequel to 2001: A Space Odyssey? A joint American- Soviet expedition is sent to Jupiter to discover what went wrong with the U.S.S. Discovery against a backdrop of growing global tensions. Among the mysteries the expedition must explain are the appearance of a huge black monolith in Jupiter's orbit and the fate of H.A.L., the Discovery's sentient computer.

It was released in 1984. Good times.

That was before the Internet, before rap replaced pop, before iPods replaced discmans, file sharing changed music purchase habits, satellite radio, digital music, Internet radio, and terrorism was something that happened overseas.

Hard to believe we're closer to 2010 now than we are to 2001.

And 2010 will be a tipping point for radio in many ways.

From developing behaviors of radio listeners, changes in the ways they use radio are occurring more rapidly than perhaps is commonly known. Much like time-lapse photography where you don't recognize change unless you piece together views of behavior over long periods of time, the change in media has truly been a rapid development over a short period of time and radio's 'light at the end of the tunnel' is more likely to be an on-coming train than an end to difficult times.

And like the movie "2010", if radio had had the ability to send a probe into the future back in 1984 to learn what went wrong, hindsight would most surely have kick-started an industry wide reaction that would have perhaps led to a different outcome.

For here we are a mere 29 months from 2010 and radio is running out of time.

Running out of time to remain competitive.

Running out of time to develop its people.

Running out of time to adapt to the digital universe.

Running out of time to learn how to microtarget.

Looking back over the last 6 years of work with clients of Bridge Ratings, it is becoming agonizingly clear that while the radio business has made solid efforts to grow its industry and to adapt it to the changing technological realities, it truly has not done enough. And this is what concerns me: current senior management at radio's best companies is not embracing the fact quickly enough that the future of our business rests solely on their shoulders - on their watch.

Today's senior radio managers will be long gone leaving their trainees the keys to the kingdom. It is the opinion of many that the next generation of radio leaders, in general, do not have the technical and operational knowledge or experience to lead this business into the future.

Left in the hands of less experienced, inappropriately trained and myopic junior management, the industry will struggle to maintain status quo.

There is little going on in the area of strategic development in our business: programming development, creative sales development, new revenue stream development, marketing development and personnel/management development.

Frankly, I'm flummoxed (great word) about why this industry doesn't respond to the implications of its future.

Certainly, there has been plenty of coverage of multiple future forecasts about impending change and how fast it is occurring and the impact of audience attrition. So, it isn't non-awareness - and it isn't stupidity.

It is inertia more than actual resources that is the problem. And inertia in many ways is a much more difficult quagmire to be free of.

Yes, 2010 is coming fast and radio seems less prepared to exist in a technologically accelerating world.

It does, however, have a resource most of its competitors covet: its people. And its people are what just might save the radio industry from being swept over by the tide of change.

Let us hope that the powers that be know this too.

Friday, July 13, 2007

How to Guarrantee HD Radio's Success

What's 2 years old and doesn't get any respect? HD radio.

Radio's theoretical saving grace is five years too late and by all the data we can see at Bridge Ratings, it will be a smaller consumer niche than satellite radio...if it continues down the path it is currently on.

And with the hundreds of thousands of dollars being spent by American radio companies to upgrade their existing equipment for HD capable broadcasts, there is a dire need for HD to be the technically next great thing for terrestrial radio. But how does this get done?

The answer lies in taking a look at the FCC's mandate for HDTV and applying it to radio.

The FCC notified U.S. television broadcasters that the standard for transmitting TV over-the-air would permanently change from analog to digital. While there are many technical, political, and economic reasons for and implications of this change, the end-result for the American TV audience is a dramatic improvement in picture and sound quality.

According to the original FCC rules, all full power stations were to convert to digital by the beginning of 2007, followed by shutdown of analog broadcasting. An escape clause stipulated that 85% of receivers in the service area must be "capable" of receiving digital signals before the shutdown could occur. At the time of analog shutoff, one of the channels (digital or analog) would then be returned to the government, with the other channel remaining as a digital station; the freed spectrum could then be used for other TV stations, with UHF channels at the high end of the band being decommissioned and sold for other uses.

The 2007 deadline could not be satisfied under many interpretations of 85% "capability" of digital signal reception. So....

On February 8th, 2006, President Bush signed into law the "Digital Television Transition and Public Safety Act of 2005". This law mandated a hard shut-off date of February 17, 2009 for the end of all analog (NTSC) TV transmissions in the U.S.

A similar hard shut-off date for the end of all analog FM radio must occur in order for HD radio to get past its current consumer growth doldrums. The forced shut-down of analog radio will give America the incentive to adopt HD radio.

Perhaps more importantly, like HDTV, a forced shut-off will force consumers to become more familiar with HD radio's offerings and benefits which will, in turn, motivate broadcasters to develop stimulating content.

This is really the only way to quickly stimulate the rapid adoption of this new technology. One wonders why this wasn't the FCC's plan all along. Why place a mandatory transition deadline on television stations and not radio?

Even our British broadcast neighbors are beginning to lobby their FCC equivalent (Ofcom, the Office of Communications) to turn off the FM band by 2015 in order to force British broadcasters to become digital. They have said they fear being antiquated in the face of all digital audio technologies.

They have a point.

What do you think?

Monday, July 9, 2007

Radio Moves Consumers to Buy

Once again, radio gets a bad rap.

This one comes from the University of Texas professor Stan Leibowitz who claims in a paper first published in January of this year that radio airplay can actually hurt music sales. I'm not sure what, if any sample, he used to come to this conclusion, but study after study we've done at Bridge Ratings is more than enough to convince me that radio moves music product. A variety of other industry research confirms this notion.

Both physical CD's and digital downloads are positively impacted by radio airplay; that's what our consumer samples have told us. We've been doing these types of studies since 2002.

In fact, let me reiterate a quote from the summary section of a study Bridge Ratings conducted in 2005 and confirmed again in '06: "Radio airplay - especially of new music - directly and positively affects consumers interest in listening to and subsequently buying new music. Digital downloads are the primary media of the young and early adopter young adults, and CD sales are still the media of choice for adults, especially those with younger children."

Our studies have gone on to establish that a radio format leaning heavily on new music and structured in such a way as to allow listener input on the songs being played, would be highly successful with the 13-21 year old age group with bleed-over into the upper 20's. This is because (we discovered) that no matter what the age group, consumers use traditional radio stations to satisfy their need for "surprises" in the form of either unexpected programming or new music.

And it is specifically the stations currently airing a predominance of current music that garner an audience whose number 1 reason for tuning in is music discovery. Consumers of this type of radio use those radio stations as a filter, screening out the poor and playing the best of the rest.

Yes, radio does sell music - and it sells tons of other consumer products. Music just happens to be easier to sell on the radio because the product is the commercial.

Here's a calculation the record labels might want to consider:

A Los Angeles radio station with average ratings playing 8 current songs an hour is, in essence, playing 8 commercials for those artists and the record labels. We've proven music moves product.

Over the course of a typical week, if that radio station received compensation as it would for its typical commercials, it should receive $2,150,400 for the value of the airtime that week alone!

Now, of course, these radio stations benefit greatly from accessibility to that music product given so generously by music labels. It is, after all, the station's programming content. And, truthfully, those stations garner ratings that generate revenue that generates profit. True. It's a symbiotic relationship this thing that radio and the labels have, but it works - has worked - and will continue to work.

To say that radio airplay hurts music sales is a misguided statement which either needs to be recanted or at least better explained.

Sunday, July 1, 2007

Survivor: Internet Radio

Last month's "Day of Silence" was an eye-opener on two fronts. First, it is clear that through the significant support of thousands of Internet radio stations - small and large - a message came through loud and clear to Congress, to the Copyright Royalty Board, music performers and the American public that the numbers don't lie, i.e. there is a huge passionate audience out there for Internet radio. That's the good news.

Those I've communicated with at political levels were impressed by the thousands of calls but they don't think the noise created by unhappy Internet Radio fans will change congressional opinion. Congress is already convinced that something must be done to save the industry that could be wiped off the face of the earth with the Copyright Royalty Board's rate increases. It just needs to come up with a suitable compromise.

The second eye-opener has to do with the data we collected at Bridge Ratings over the three days surrounding the "Day of Silence".

1. We learned that 21% of the American public listens to Internet Radio on a weekly basis. That's up from 19% earlier this year.

2. We learned that of this 21% that listen weekly, more than half (55%) did NOT listen to Internet Radio on Tuesday, the "Day of Silence".

3. More interestingly, we found that 45% of that 21% DID listen.

4. 62% of the sample found their preferred Internet Radio station silent on Tuesday.

5. What did this 62% do when they found out their preferred Internet Radio station was silent? 72% of them found another Internet Radio station to listen to.

6. By Wednesday, the day after, audience levels returned to normal. 89% of the 21% had listened.

What's clear by this study is that even if the majority of Internet Radio stations go 'dark' should the royalty rates force them 'off the air', the consumer will find replacements in other surviving Internet Radio stations.

Perhaps this is what some of the big boys who did NOT support the "Day of Silence" have been thinking. Elimination of the majority of the Internet Radio competition will generate larger audiences for those still standing.

And even if the royalty rates skyrocket, perhaps it is feasible that these larger audiences will allow the remaining Internet broadcasters to monetize sufficiently to make the business work.

This may be what SoundExchange and the performers are hoping for, but in all likelihood the consumer will once again get the short end of the stick.