The Performance Rights Issue Means More Work for Programmers

Despite what you may read or think about the music royalty payment debate for terrestrial radio, it is highly likely, in this reporter's opinion, to become a reality soon.

This will result in at least three significant changes in the radio industry:

#1

Stations paying more for the right to play music - especially new music - will force hundreds of stations to choose to change formats to no music/more talk or radio formats that will take advantage of the wealth of unlicensed, independent artists and groups that are producing some darn fine music.

This move will inspire the rise in acceptance on FM of some current non-music formats such as news, news/talk, the new comedy radio format that was introduced in September and others that haven't been thought of yet.

This will help radio operators in at least two ways:

a) they will not be subject to unrealistic increases in music licensing fees and

b) the move to non-music formats will save stations over 50% in their current music licensing fees (BMI/ASCAP/SEASAC).

What a deal!

#2

More creativity. Added performance fees for stations that continue to program music will force those stations to play fewer songs in order for their business models to function in a positive zone.

And as a very good friend and I were discussing over lunch the other day, playing fewer songs will force/encourage stations to develop other programming content that will not fall within the performance rights category.

In other words, the performance royalty fee increase will force today's programming people to be more creative - to rely less on the easy use of music to fill the space between commercials and actually create new content that will be compelling for listeners.

Imagine being compelled to listen to terrestrial radio because it will be offering exciting, fun, entertaining and interesting content that is proprietary and not available elsewhere.

This is starting to sound pretty OK!

What the industry may lose on the added royalty fee it will surely benefit from with fresh "compelling content" which should generate more audience which should increase advertising billing!

#3

New music formats that take the added royalty into account. There are at least three never-before-heard radio formats ready to go that have been vetted in the field by Bridge Ratings & Research. Maybe some radio companies will find the courage to save themselves some money with exciting new radio programming.

What a concept!

So, ultimately, while the majority of the radio industry stands opposed to or at least doesn't see the fairness of the much-discussed performance royalty agreement, the industry will benefit from this forced "tax" by causing it to work harder to be better.

Perhaps this is the straw that finally pushes terrestrial radio to the point of action after at least ten years of stifled creativity.

Perhaps this will generate more jobs for the creative-minded programmers who have either lost their jobs over the last few years or left the business due to frustration.

And perhaps it will even open the eyes of young music-fans seeking employment who will once again see terrestrial radio as a viable platform to present their ideas and bring fresh blood into a radio industry that has been struggling to find new talent.

Yes, it's quite possible there is a silver lining to this whole new royalty thing...

Who's up for the challenge?

Why Do You Keep Asking That Question?

"Is radio ready for a digital future?"

It's a question that has had high visibility over the last six weeks.

"Is radio ready for a digital future?"

It's been the title of a Bridge Ratings Study that was released on June 30, 2010.

And the title of a webinar I presented in July.

So, why did I give the title to this blog and why should you care?

Because after six weeks of disseminating this data across the web and in person, I'm finally ready to answer the question for you.

This was the most important graphic from the study and my webinar:

[click image to go to study]

This chart represents just how well terrestrial radio is satisfying radio listeners' Internet needs.

Not too good. (Pardon my grammar, mom)

The answer to the question is....

No. Radio is not ready.

Why?

Though its perception among radio listeners is poor, radio has all it needs to make it right.

Radio is having a good year. That's what I read and that is what market managers tell me.

Why not reinvest some of that new profit into the cost of setting up a qualified digital department?

Remember the story of the squirrel storing his nuts for a cold winter?

That's what radio's owners and operators are doing. Very few are taking the new found (and temporary) flushness and sinking it back into the product where it needs it.

Radio is gathering its profit nuts after a dismal 2009.

Who can blame them?

But still, the industry has the money to make some effort to build out a respectable digital division.

It can hire the right people.

It probably has the right equipment.

If it doesn't have the know-how, it can hire that, too.

So, if all of this is true, why does radio management avoid making the commitment?
Because it takes courage!

Yet, COURAGE is precipitated by a perceived threat. That's what Daniel Webster tells me.

So, "this must be it", I think to myself. This is why the industry as a whole is not moving itself forward fast enough.

No courage.

Because there is NO PERCEIVED THREAT.

And despite the fact that the threat is clear from digital entertainment options, by the time terrestrial radio perceives the threat and act, it will be too late.

The industry does have its handful of owner/operators who are investing as they are able.

And, for that, I am grateful.

But, it's the industry that is the concern.

Time is running out and the radio industry's place may well be marginalized by this time next year.

So, there. Asked. And answered.

Losing the Great Advantage

Businesses have been trained for decades to beat the competition and to make a killing. Management principles are often taught using military strategies as analogies.

Yet in the natural order of things, being at the top and having the competitive advantage is merely transitory. In the realm of entertainment, new technologies are part of the evolutionary process. And because we are not returning to the way things used to be business, media in this case, is being called upon to be different and to operate differently.

The competitive advantage mass media such as radio have possessed for decades, is slipping away.

In a study conducted earlier this year on listener streaming trends as well as a report published in 2007, Bridge Ratings analyzed music consumption among radio listeners as well as new music discovery.

The essence of the 2007 study was that if traditional radio didn't respond to the new music discovery needs of its youngest listeners (12-24 year olds at the time), those listeners would find it elsewhere....and without hesitation.

This has happened.

The recommendation was for youth-oriented radio formats to take a much greater foreground approach to presenting and offering new music. At the time, and continuing to today mind you, programmers of these stations have done little to capture this new music curiosity exhibted by young music fans once the Internet introduced us to Napster, iTunes, Pandora and the dozens of other websites and applications that allow customized music consumption.

But the Bridge Ratings study uncovered a jewel. Young listeners to traditional radio who had wandered to other sources for their new music habit, had higher expectations from terrestrial radio and actually wanted radio to offer more new music.


Why?

Because while searching on-line and using Pandora, etc., can be fun, it is also fatiguing and takes time. Young listeners to traditional radio kept coming back to FM radio to check in and see if there was more new music content. Unfortunately, what they found was uninteresting to them.

And in the intervening time since that study was published, little has been added to youth formats to return them to traditional radio.

And now I fear it is too late.

A soon-to-be published Bridge Ratings study will continue to show significant usage (time-spent-listening) attrition for traditional radio among young listeners. That may not come as any surprise to you.

What may surprise you is those 12-24 year olds we surveyed in 2007 are now 15-27 year olds and radio's appeal to the 18-34 year olds is also fading.

Over time these listeners have gotten used to going elsewhere for this music discovery. They want to learn about what's the best of the best new music released each week and use that knowledge to guide them as to what to download.

It's no different, really, from when I was growing up. Seems my friends and I were trained by our Top 40 stations that on Tuesdays at 2pm, the new songs of the week would be featured in a countdown. We'd listen.

And we went down to our favorite record store and purchased the ones we liked.

Nothing has changed.

Why does traditional radio ignore the signs that many research companies like Bridge Ratings continue to publish?

I do not know.

I know this much though.

Contemporary music radio is rapidly becoming marginalized - pushed out to the farthest reaches of awareness and interest - because its audience is not being served. And as more alternatives become available, there is less desire to discover whether FM radio is responding.

It is remarkable that in the face of so much new technology and alternative entertainment, there is generally a lack of aggressive content development and technical adaptiveness at traditional radio headquarters.

CEO's have forgotten their business training. They have lost their courage to compete aggressively.

Whether it is a product of false security or just obtuse planning, terrestrial radio is in a position to lose its traction with a dominant audience most digital businesses covet.

A friend of mine at Harvard Business School has advised me that it is a good thing that radio is losing the competitive advantage.

Why?

Because, he says, sustainability in the new world order of digital media requires that the "old" lose their competitive advantage in order to shake its owners and management out of its doldrums and sense of security. This, in turn, is supposed to fire them up - dig deep within its creative teams to reinvent themselves.

This, I am told, is how business in 2010 faces shifting competition.

I have yet to see this "digging deep" that is supposed to reinvigorate the radio business.

If it doesn't happen soon, traditional radio may find itself not only marginalized, but it may find that it is included in a business course case study called "Terrestrial Radio: How it Lost the Great Advantage".

Retracting a Mistake

Back in August of 2009, I wrote a blog called "Optimism: 2010's Secret Weapon". At the time, the point was that optimism will help turn around the business environment. And that would lead to clear thinking on the part of management.

I think it's time I retracted that blog because optimism is steering management down a rocky road.

As it turns out, optimism and an improving advertising climate have so far turned 2010 into a fairly positive environment for many businesses, and certainly for the media industry.

First quarter advertising improved 6% for traditional radio and was off the charts for Internet advertising expenditures, including Internet radio. A good sign, right?

Wrong.

The mood among corporate CEO's, terrestrial radio group heads and regional managers is positive but cautious. As they should be.

The revenue increases published for the first half of 2010 bring smiles to many broadcast operators, but comparisons to 2009 are deceiving.

The second half of 2010 will compare a bit less favorably with its 2009 counterpart and as 2010 closes in on another holiday season, the "comps" with 2009 will be less invigorating.

I think broadcast leaders understand this.

And that is why many are not reinvesting into their businesses this year; a year which is thus far the best revenue year in quite a few.

Not reinvesting some of 2010's profit is a natural strategy for business operators who found their companies down 20-25% in revenues in 2009 and 15-20% in profits. They now find themselves in positive territory for the first few months of 2010 - they are making up some of the ground lost last year and they want to hold on to it.

A fairly powerful argument can be made for that strategy - in a normal year.

But as 2010 goes skipping into the future, perhaps you have noticed the ferocious pace at which digital media is galloping along, breaking down the barriers to consumer adoption and putting the squeeze on traditional media.

My concern is that the optimism that began blooming at the end of January of this year, has morphed into a conservative spending mentality which will leave traditional radio marginalized - at best - as 2010 turns into the year of the Rabbit.

Digital media consumption has reached a tipping point; more average consumers are discovering all sorts of cool ways to get their media fix. And with radio's final bastion - the car - quickly being penetrated by Internet radio and devices that make it easy to consume, traditional radio could have an uphill battle in 2011.

Bridge Ratings will soon publish its revenue projections for 2011 and the forecast is not as rosie as 2010.

2009 revenue was down 18%.

2010 traditional radio revenue will be up 4%.

2011 revenue will be down 2%.

Comparisons to 2010 will not look as strong as they do this year.

The political advertising infusion which many are expecting during the second half of 2010 will be missing in 2010.

Investment in traditional radio operations (digital development and advancement) will be hard to find. This cycle could be sustained for at least another two years.

See what I mean? Marginalization of traditional media is a very real possibility with no aggressive business development in sight.

Optimism is certainly refreshing after 5 or more years of dismal business trends.

It's time to turn that optimism into purposeful re-investment and rapidly enhance traditional radio's ability to compete.

The Clock is Ticking

First quarter revenues for the radio industry are UP. UP big time. Depending on whom you ask, advertising revenues are up close to 10% and the rest of the year is looking just as good!

Time to celebrate, right?

Not so fast.

Just think about this for a moment.

"Comps" or comparisons to last year's revenue are out of whack, i.e., 2009's growth percentages were in negative territory right out of the gate with double-digit numbers in negative territory. So comparing this year's revenue gains to last year's horror movie is deceptive, if anything.

Then there's the aura that was pervasive at this year's National Association of Broadcasters annual meeting in Las Vegas in April. The mood was light and there were smiles and optimism all around.

That's a good thing. Traditional radio took it on the chin mightily in 2009 and it wasn't that great for several years prior to that.

Yet, the good natured radio broadcasters were not only pleased with advertising 'traction' thus far this year, but the implication that a large political advertising revenue windfall was forthcoming for this fall's elections.

It may still happen. And should it be so, that is also a good thing.

But then what?

2011 is only a few months away and if 2010 ends up with double-digit revenue growth what will happen when the 2011 "comps" don't live up to 2010's growth?

Here's a straight-forward note to radio operators: THE CLOCK IS TICKING.

Your industry is still facing stiff competition for both audience and revenue. Digital appeal for both is accelerating while you read this.

A recent Bridge Ratings study called "Device Usage", shows traditional radio making some inroads into the digital landscape and capturing some lost AM/FM listening on their digital streams.

It isn't nearly enough.

The time is now for radio companies to significantly increase their investments into their digital businesses.

Time cannot be wasted. The year is already rapidly moving along.

Reinvest while Dr. Feelgood is dispensing his positive revenue growth.

Because it is likely to be short-lived and if it is, radio operators will not feel in the mood to invest next year or even the year after.

And if there is no significant investment this year, radio's ability to compete will be deflated and the industry will be sequestered to the fringes.

Left behind.

And in a world of rapidly expanding technology and digital capability where millions can create entertaining content in their bedrooms far cheaper than corporations can, if traditional radio loses one step more, it will be extremely difficult to keep up.

THE CLOCK IS TICKING.

Save your industry now while you have the resources, the know-how and the audience.

Hire a vice president to oversee digital operations. Let them do their job. Give them time to make it work.

Times seem to be good right now. Terrestrial radio cannot afford to let this opportunity - perhaps its last - to slip away.

Radio Needs a Re-mix

I was recently listening to the soundtrack to the Beatles' Las Vegas Cirque du Soleil show called "Love". In-person, it's a fantastic buffet of lights, sound and images in the typical Cirque way coupled with an amazing soundtrack of Beatles tracks remixed by the genious of George Martin and his son Giles.

The soundtrack to this show is available on CD and when turned up, the music reminds you of how great this band was/is, but the remixes which took pieces of other Beatles songs in the same keys added to basic tracks we've heard hundreds of times, leaves the listener with a revitalized listening experience.

This leads me to why I named this blog "Radio Needs a Re-mix".

Traditional radio, like the Beatles, has been around for a great many years. And like the Beatles radio is a comfortable place for its millions of listeners to visit. According to many research studies, 93% of Americans still visit, but they just aren't spending as much time as they used to.

So, why not a Radio re-mix?

Like the Beatles "Love" soundtrack, radio's inspiration needs to be a few sessions of revitalization. I'm not suggesting, like the Martins did, to bring back some of the great old radio wisdoms of the past and insert them into today's programming.

What I am suggesting is that radio owners, operators, managers - all of its employees, should shake themselves out of the creative quicksand of the last ten years.

It's about time that radio leadership discontinue its sense of dread and investigate the creative juices that each company most surely has locked up in each of their employees. I believe that for most of them, the creative outlet may have been a part of the reason they are in the business.

Creative brainstorming sessions used to be one of the most enjoyable parts of the radio industry.

Egos were left at the door, people got into a room with other people they liked, and they started talking...about anything. Then someone in the room known for their 'crazy' view of things, allowed their stream of consciousness take over from the conversation and suddenly there was an idea on the table for a new promotion. People would start laughing at some of the more extreme ideas, but that laughter spawned further discussion until an hour or two later, the group emerged from the meeting with several new ideas and a sense of team effort which only created a more enjoyable working environment. And they'd do it again the next day, next week or next month.

There's no reason this cannot happen today. In fact, it does happen today just not nearly in enough cities. Some of the greatest call letters in the land go through exactly this process weekly and their success and low personnel turnover reflect this culture.

So, a remix is in order.

The radio industry's potential is tied to its past in many ways.

By overdubbing the technology and what we know about today's consumers on top of radio's foundation just might produce a renewed compelling listening experience listeners would never have expected until they listened to it again in a slightly new light.

Planting Brand Seeds

Radio - all radio, AM/FM, Internet-Only/Internet Simulcast Streaming - is about to learn about its next great challenge for listeners in-car.

It's no secret that AM/FM radio's final bastion of exclusivity - the car - is up for grabs.

Today's smart phones have legitimately removed the need for Wi-Max/Wi-fi for streaming radio consumption in-car. With my iPhone, I can listen to any Internet stream through my car sound system.

Ford's Sync system developed by Microsoft will be capable of providing in-car passengers the great personalized experience of Pandora.

So, how does traditional radio or any audio content found on the Internet get a leg up on its competition?

Ford's Sync system is a pioneer in in-car audio content delivery and its voice-activated capabilities, though limited for the moment, will expand very soon to provide for safer driver-audio system interaction. Most auto makers are making a 'reasonable effort' to minimize in-car distractions for motorists.

Paul Green, a professor at the University of Michigan Transportation Research Institute who studies the effects of distractions for motorists says that Ford's system should make it easier for drivers to keep their attention on the road.

This is why voice activation for selection of your personal audio entertainment is coming and all audio content providers must figure out how to tackle this challenge.

If I want rock music and I simply say "Rock" to my in-car system, what type of Rock music will it select. Who will categorize these descriptors? Which streaming station will be fed to me? How will this work?

All indications now are that motorists will preselect a limited bucket of 'stations' or channels they wish to have access to and thus the system will recognize the voice command. This may be as many at 50 preselected channels.

So, brand continues to be the secret sauce in this ever expanding "infinite dial" of options for in-car entertainment and strength of brand will continue to dictate popularity.

Meanwhile, radio's electronic measurement system - Arbitron's Personal People Meter - seems to be confining what traditional radio offers. The science of the device does not seem to encourage experimentation in programming and radio brands are becoming too generic which may inevitably hinder stations' ability to compete in the new world of voice search in-car.

But the branding process starts long before the new car owner uses this voice activated system.

Frankly, it starts long before now. It started yesterday.

Consumer habits are being formed every day and brand trust and expectation will go a long way for any content provider to land-grab in-car real estate.

If your company is competing in this brave new world, brand development and the delivery of the brand's promise should be job One starting today.

Because what you sow today will surely bear much fruit far down the road.