Dear investor-person:
I have tremendously good news to share with you.
Our great national nightmare is over.
After 12 years of consolidation that is the universal field theory of why the radio industry is in its current state of woe, the business that for decades was not only delivering better cash flow than just about any business you could find, but was also growing, is set for a renaissance.
I haven't been hitting the tequila; I'm referring to the sudden flood of radio properties - generally excellent properties - that are on the market. With Clear Channel setting free 60 stations and Dan Mason & CBS putting up their 50, immediate reaction from some might be "the radio business must really suck, look at these major players bailing!"
Not so fast.
Finally, the radio industry is experiencing the first phase of its rebirth and that is the return to the transition phase of its business cycle to what amounts to 'circling the wagons and concentrating on the segment of the business that is delivering the best financial results.' Clear Channel and CBS should be proud of the fact that they actually have significant numbers of stations they can operate that are throwing off cash flow. By trimming the fat, these two companies can concentrate on running a number of stations that may be more comfortable for them.
These 110 radio stations up for sale now offer an opportunity for two things to begin occurring: 1) the return of more intelligent operators who one way or another were no longer needed by those companies that were so greedy in 1996-2000 that they grabbed up as many radio properties as they could without a consideration as to whether they could operate them all effectively. They THOUGHT they could...but time has proven them wrong.
And 2) many of the profoundly intelligent general managers, program directors and owners who got out of the radio business because they were forced or just gave up, will now start re-entering a business they have loved for years and who had become sickened by what we all have witnessed - the gutting of a business that lost its way.
Yes, I am giving all you investors out there a BIG early tip now so you can start realigning your portfolios or - even better - if you've got money to lend and you've given up on the industry, now is the time for you to feel inspired.
I can count on all my fingers and toes a partial list of highly qualified radio managers who at this moment could take a cluster of any of these soon-to-be-sold groups and make them profitable, compelling to listen to and maybe most importantly, return the fun to working in the radio business that got skewered by operators who saw an opportunity in the late 90's and 2000's but never had a clue as to the 'secret sauce'.
Me and my compatriots who have been in this business since the good times (pre-1996), completely get what made the business such a great investment then and why it attracted some of our country's most creative minds through the years. The time may be coming when you see the return by these individuals to the business as operators. Smart operators.
Expect those who have been on the sidelines in recent years to begin pulling money together and buying some of these stations. I know because I've spoken with them!
Expect those Clear Channel and CBS stations that will be sold to out-perform under these new owners.
Expect this to be the watershed we've been waiting for. 2009 will be the year of the turnaround.
2009 will prove to be a great year for investment in the radio business.
These new independent owners know more about the terrestrial side of the business than most of their peers who seem to have no clue what to do with this vast new frontier.
They have been cooking up digital solutions that will expand the radio business.
If they haven't been scared away for good; if they haven't given it up through disgust, this infusion of lifeblood into station ownership will be the beginning of a return to pre-consolidation days when men were men and radio ROCKED!
Showing posts with label Wall Street. Show all posts
Showing posts with label Wall Street. Show all posts
Saturday, August 9, 2008
Thursday, September 13, 2007
What's Good for the Radio Goose....
Since February's announcement that Sirius satellite radio was interested in acquiring XM, we've seen many twists and turns in Mel Karmazin's effort to convince the FCC and others that a merger is in the best interests of consumers. In Mel's usual style, he has done an expert job of laying out the rationale and presenting it in an intelligent, non-offensive manner.
However, as we near the end of 2007, we seem to be very close to a decision on this event and as I mentioned in an earlier blog, my money now is on the merger getting approved.
The National Association of Broadcasters has done a respectable job of countering satellite radio's rationale in favor of a merger, but the time has come for the NAB to face the "Rule of Consolidation".
The fact is that the NAB has lobbied for consolidation of the radio industry since the early 90's and got permission for radio companies to begin buying up each other in a 1996 act of Congress.
The argument was that not only is consolidation good for the business - it's good for the consumer.
Now, eleven years later, many in our business - even on Wall Street - believe that this wave of consolidation has had negative repercussions on the financial well-being of the radio business.
Again, in the last two years, the major radio companies have been stamping their feet for further consolidation. It seems that owning 8 radio stations in the biggest radio markets wasn't enough. There are those who want to own 10 or more stations in the same market.
Yet when it comes to satellite radio consolidating, the radio industry says "no".
The radio industry is concerned about this proposed merger for many reasons...but none of them are truly onerous.
If the radio industry manages their business properly...
Bridge Ratings has been studying consumers' reaction to the proposed merger since it was announced in February. Over time and 5 studies, current satellite radio subscribers have become less concerned about the impact of such a merger. Potential satellite radio subscribers are confused, but most will delay their decision to subscribe until a decision is made. This is one reason why year-to-year satellite radio subscriber rates have fallen so precipitously in the last year.
The only negative impact the merger has had on the satellite radio companies is that the news of a potential merger has derailed the sector's growth. That's only temporary.
Satellite radio is a niche business and a merger will not automatically make it a broad-based appeal business.
If consolidation was good for the radio goose why isn't it good for the satellite gander?
However, as we near the end of 2007, we seem to be very close to a decision on this event and as I mentioned in an earlier blog, my money now is on the merger getting approved.
The National Association of Broadcasters has done a respectable job of countering satellite radio's rationale in favor of a merger, but the time has come for the NAB to face the "Rule of Consolidation".
The fact is that the NAB has lobbied for consolidation of the radio industry since the early 90's and got permission for radio companies to begin buying up each other in a 1996 act of Congress.
The argument was that not only is consolidation good for the business - it's good for the consumer.
Now, eleven years later, many in our business - even on Wall Street - believe that this wave of consolidation has had negative repercussions on the financial well-being of the radio business.
Again, in the last two years, the major radio companies have been stamping their feet for further consolidation. It seems that owning 8 radio stations in the biggest radio markets wasn't enough. There are those who want to own 10 or more stations in the same market.
Yet when it comes to satellite radio consolidating, the radio industry says "no".
The radio industry is concerned about this proposed merger for many reasons...but none of them are truly onerous.
If the radio industry manages their business properly...
- A merged satellite radio company will not significantly impact its listenership
- A merged satellite radio company will not impact radio's revenues and profits
Bridge Ratings has been studying consumers' reaction to the proposed merger since it was announced in February. Over time and 5 studies, current satellite radio subscribers have become less concerned about the impact of such a merger. Potential satellite radio subscribers are confused, but most will delay their decision to subscribe until a decision is made. This is one reason why year-to-year satellite radio subscriber rates have fallen so precipitously in the last year.
The only negative impact the merger has had on the satellite radio companies is that the news of a potential merger has derailed the sector's growth. That's only temporary.
Satellite radio is a niche business and a merger will not automatically make it a broad-based appeal business.
If consolidation was good for the radio goose why isn't it good for the satellite gander?
Thursday, April 26, 2007
Terrestrial Radio:The Old Dog is Resilient
How is satellite radio doing? Judging by Bridge Ratings' just-released data covering the first four months of 2007 - not too well. And now XM has issued their first quarter report by announcing that though they had a losing quarter financially, subscriber growth surpassed the 8 million mark.
What's interesting is that these companies continue to sign subscribers but it's getting much more difficult as time passes. 67% of XM's hard-earned first quarter subscriber gains were wiped out by consumers who did not find the value in retaining their subscriptions.
Actually, this is not all that far off from the typical performance for new companies with sharp growth curves like those that have existed in the satellite radio space for the last three years. And while there are those in that industry that underscore the fact that satellite radio growth is the fastest new media introduction ever, we are now seeing that its growth is also flattening faster than any previous new media play. Satellite radio as an industry is maturing faster than one would expect from such a new technology. This is what Bridge Ratings has been projecting for the last few years. And while 2006 was a turning point for the sector, 2007 will be a more difficult year for satellite radio.
Only HD radio can make satellite radio look good at this point. Our latest study indicates that just about every consumer whom we asked whether they were interested in purchasing an HD radio in the next six months said they weren't because they couldn't see the benefits of it.
HD radio is almost still-born and the radio industry continues to invest heavily. Good news this week was that Best Buy would stock HD radios in all of their nationwide stores. That's a positive step. Only one problem: no one cares.
So, we're experiencing the flattening of satellite radio which will continue to experience growth but at a much slower rate than previously expected and we're seeing almost non-growth for HD radio.
Terrestrial radio continues to be challenged for its time-spent-listening by other new media such as MP3 players, Internet radio and cell phones, but if trends hold, satellite radio will not be the grim reaper it was once thought it would be.
Terrestrial is far more resilient than many on Wall Street thought. It will still have its challenges but because of its purest benefits it will stick around for quite a while longer: It's free. It's easy to operate. Everyone has one. Everyone knows its benefits. And the public doesn't seem to mind paying for it with commercials.
To paraphrase Charles Dickens "these are the best of times - these are the worst of times" for media consumers, but at least there's plenty to choose from and most consumers are the real winners.
XM, which agreed to be bought by rival Sirius, reported a loss of $122.4 million, or 40 cents per share, narrower than $151.4 million, or 60 cents per share, in the year-ago period.
Revenue rose 27%, to $264.1 million, from $208 million last year. Makes it sound like XM's making progress.
The company ended the quarter with 7.9 million subscribers, up from 6.5 million a year ago. Last year, XM forecast that subscribers would exceed 8 million by the end of 2006, but scaled back that target significantly as retail sales of its radios waned. XM now expects to have 9 million to 9.2 million subscribers by the end of 2007, with subscription revenue for the year around $1 billion. Bridge Ratings estimates that subscriber number will be closer to 8.9 million - but, wait, we still have the summer months to get through.
Summer '06 was a comparative dead spot for consumer interest in satellite radio in general and that was before a merger of the two services was announced. Typically, merger news tends to send a 'caution' sign to consumers and it's either that or something is terribly wrong with the public's opinion of satellite radio that is causing a lull.
How can I say that when XM reports Q1 growth of several hundred thousand subscribers?
XM announced that they had passed 8 million subscribers adding 868,000 paying subscribers. But they lost 584,000 who did not renew their subscriptions! Is this a good sign? I think not. So, XM's net gain in Q1 2007 was 285,000 subscribers and that's why the true number of XM subscribers comes to around 7.9 million.
What's interesting is that these companies continue to sign subscribers but it's getting much more difficult as time passes. 67% of XM's hard-earned first quarter subscriber gains were wiped out by consumers who did not find the value in retaining their subscriptions.
Actually, this is not all that far off from the typical performance for new companies with sharp growth curves like those that have existed in the satellite radio space for the last three years. And while there are those in that industry that underscore the fact that satellite radio growth is the fastest new media introduction ever, we are now seeing that its growth is also flattening faster than any previous new media play. Satellite radio as an industry is maturing faster than one would expect from such a new technology. This is what Bridge Ratings has been projecting for the last few years. And while 2006 was a turning point for the sector, 2007 will be a more difficult year for satellite radio.
Only HD radio can make satellite radio look good at this point. Our latest study indicates that just about every consumer whom we asked whether they were interested in purchasing an HD radio in the next six months said they weren't because they couldn't see the benefits of it.
HD radio is almost still-born and the radio industry continues to invest heavily. Good news this week was that Best Buy would stock HD radios in all of their nationwide stores. That's a positive step. Only one problem: no one cares.
So, we're experiencing the flattening of satellite radio which will continue to experience growth but at a much slower rate than previously expected and we're seeing almost non-growth for HD radio.
Terrestrial radio continues to be challenged for its time-spent-listening by other new media such as MP3 players, Internet radio and cell phones, but if trends hold, satellite radio will not be the grim reaper it was once thought it would be.
Terrestrial is far more resilient than many on Wall Street thought. It will still have its challenges but because of its purest benefits it will stick around for quite a while longer: It's free. It's easy to operate. Everyone has one. Everyone knows its benefits. And the public doesn't seem to mind paying for it with commercials.
To paraphrase Charles Dickens "these are the best of times - these are the worst of times" for media consumers, but at least there's plenty to choose from and most consumers are the real winners.
Monday, February 19, 2007
XM/Sirius - a Consolidation Misstep
News of the XM and Sirius satellite radio merger sent tremors through both the business and media world. But at this early stage the jury seems confused, if not out, on whether this is a good idea.
Certainly from a business perspective, the saving of $7 billion annually is a good start to pulling this business back from the brink of disaster. And placing Mel Karmazin in control is another good move since Mel's proven his prowess at goosing his media enterprises with operational effectiveness.
But what of the consumer? Is a monopoly such as the one potentially created by this merger good for the consumer?
The topic of a satellite radio sector merger has been floating around for months and Bridge Ratings has conducted some preliminary research on what effect such a merger would have on the satellite radio consumer both current and prospective.
1. The "why" factor
Over 90% of those currently subscribing to either or both services had no opinion on a proposed merger other than what such a merger would do for them.
67% of current subscribers don't understand or appreciate the business reasons why such a merger would take place. That's left to those who understand Profit and Loss statements and subscriber attrition reports. Most consumers don't understand why such a merger would be necessary so soon. Many of those we surveyed perceive the satellite radio business as new, vibrant and exciting. Unaware of their financial difficulties, most current and prospective subscribers can't rationalize why such a combination of two strong companies is necessary at such an early stage of the industry's development. For many consumers, satellite radio is still perceived as a brand new technology and service.
2. Subscriptions
In three different studies conducted between August 2006 and January 2007, it was confirmed that a combined entity of a singular satellite radio business would not garner as many total subscribers as two distinct competitive entities over the first two years of the enterprise. The reasons are many, but primarily the culprit is the elimination of consumer choice in the manner these services have been sold. The previous combined impact of two companies heavily marketing their benefits to the masses tends to generate increasing market awareness and interest. Marketing budgets will likely be trimmed - this is one of consolidation's nasty little secrets. However, reducing marketing is not in the best interest of satellite radio at this time. In fact, among those consumers who have expressed interest in satellite radio but who have yet to subscribe, 62% need a better reason to purchase. As yet, they have not been 'sold', 'convinced' or 'motivated' by the marketing to make that purchase decision. Marketing is a key to sustained subscriber growth.
As of this writing, Bridge Ratings has re-evaluated its growth projections for the satellite radio industry. Should the merger proceed and be completed by the end of 2007 (an unlikely event), we see 2008 subscriber counts for the combined entity to be 8% lower than if both companies were to continue operating separately.
3. The Monopoly Model
The creation of one superSat company provides some new opportunities for Mel Karmazin and the new combo's shareholders and Wall Street watchers. One is monopoly power. Monopoly power is usually defined as the ability of a firm to earn high profits by raising and keeping the prices of its products substantially above the levels at which those products would be priced in competitive markets. That is, a firm with monopoly power can charge high prices and get away with it - the market will not punish it for doing so. In a competitive industry, in contrast, the market will punish a high-price firm by the loss of its customers to rivals with lower prices.
Karmazin has hinted at subscription price hikes long before this latest wrinkle and now has the power to do just that despite the fact that the new merged company is considering a tiered pricing model with an a la cart approach for the consumer. But monopoly power is undesirable for several reasons, some of them obvious:
4. Programming & Culture
In research Bridge Ratings has conducted, XM has consistently been considered the service with the better original programming. Satellite radio is a music medium and in the opinion of thousands of consumers studied by Bridge Ratings, no one does a better job at it than XM. What will happen to the creative structure in place at XM once Mel begins with the consolidation scythe? After all, as with terrestrial radio, consolidation of these two satellite radio companies should save billions a year. Those cost savings will have some bearing on the quality of the product much like personnel and resource cuts have negatively impacted terrestrial radio in the last ten years.
No, it seems to me that once again the American consumer will get a front row view of where they stand in the eyes of U.S. regulatory agencies. This proposed merger must pass muster with the FCC, the DOJ and others. And when one looks at the business end of this deal, and how government bail-outs have been common, clearing regulatory hurdles is a safe bet to save the failure of another space venture.
5. The Balance Sheet
The balance sheets represent the biggest problem for these companies.
Sirius has almost $1.1 billion in long-term debt. At XM that number is over $1.3 billion. Sirius has cash and securities of $350 million. XM has $285 million. So, combined debt would be $2.4 billion against about $600 million in cash. Payables and accrued expenses of the combined company would be over $500 million. To have a significant value to shareholders, the combined business would have to pay down at least $200 million in debt per year. None of the debt is due until 2009, but the majority is due by 2013. The combined company would be able to partially use cash on hand and could go to the capital markets with a new debt issue with the sole purpose of refinancing that amount due in 2009 (and with convertible debt if they were smart and/or able). All of this if revenue growth can continue at 10% quarter over previous quarter and expense growth can be held to 5%.
Mel Karmazin is a smart, strategic business operator. He will find a way to make this work. Wall Street and investors - even the government - will see the immediate benefits of such a joint-relationship. What will take more time will be confirmation of whether such a merger is in the public interest.
Certainly from a business perspective, the saving of $7 billion annually is a good start to pulling this business back from the brink of disaster. And placing Mel Karmazin in control is another good move since Mel's proven his prowess at goosing his media enterprises with operational effectiveness.
But what of the consumer? Is a monopoly such as the one potentially created by this merger good for the consumer?
The topic of a satellite radio sector merger has been floating around for months and Bridge Ratings has conducted some preliminary research on what effect such a merger would have on the satellite radio consumer both current and prospective.
1. The "why" factor
Over 90% of those currently subscribing to either or both services had no opinion on a proposed merger other than what such a merger would do for them.
- Will it mean that they have to get new equipment?
- Will their current radio work with the 'other' service
- Will prices go up or down now that there is no competition?
- 56% of both current and prospective satellite radio subscribers are confident that monthly subscription prices will increase - certainly for new subscribers and likely for current subscribers when their current contracts expire.
67% of current subscribers don't understand or appreciate the business reasons why such a merger would take place. That's left to those who understand Profit and Loss statements and subscriber attrition reports. Most consumers don't understand why such a merger would be necessary so soon. Many of those we surveyed perceive the satellite radio business as new, vibrant and exciting. Unaware of their financial difficulties, most current and prospective subscribers can't rationalize why such a combination of two strong companies is necessary at such an early stage of the industry's development. For many consumers, satellite radio is still perceived as a brand new technology and service.
2. Subscriptions
In three different studies conducted between August 2006 and January 2007, it was confirmed that a combined entity of a singular satellite radio business would not garner as many total subscribers as two distinct competitive entities over the first two years of the enterprise. The reasons are many, but primarily the culprit is the elimination of consumer choice in the manner these services have been sold. The previous combined impact of two companies heavily marketing their benefits to the masses tends to generate increasing market awareness and interest. Marketing budgets will likely be trimmed - this is one of consolidation's nasty little secrets. However, reducing marketing is not in the best interest of satellite radio at this time. In fact, among those consumers who have expressed interest in satellite radio but who have yet to subscribe, 62% need a better reason to purchase. As yet, they have not been 'sold', 'convinced' or 'motivated' by the marketing to make that purchase decision. Marketing is a key to sustained subscriber growth.
As of this writing, Bridge Ratings has re-evaluated its growth projections for the satellite radio industry. Should the merger proceed and be completed by the end of 2007 (an unlikely event), we see 2008 subscriber counts for the combined entity to be 8% lower than if both companies were to continue operating separately.
3. The Monopoly Model
The creation of one superSat company provides some new opportunities for Mel Karmazin and the new combo's shareholders and Wall Street watchers. One is monopoly power. Monopoly power is usually defined as the ability of a firm to earn high profits by raising and keeping the prices of its products substantially above the levels at which those products would be priced in competitive markets. That is, a firm with monopoly power can charge high prices and get away with it - the market will not punish it for doing so. In a competitive industry, in contrast, the market will punish a high-price firm by the loss of its customers to rivals with lower prices.
Karmazin has hinted at subscription price hikes long before this latest wrinkle and now has the power to do just that despite the fact that the new merged company is considering a tiered pricing model with an a la cart approach for the consumer. But monopoly power is undesirable for several reasons, some of them obvious:
- High prices reduce the wealth of consumers. The use of monopoly power is obviously undesirable to consumers because no one likes to pay high prices. Such higher prices may make the firm with monopoly power rich and make the consumers of its products poor. These effects on the distribution of wealth are generally considered undesirable. Even the current subscription rate of $12.95 per month has had most consumers think twice about why they need satellite radio.
- High prices lead to resource allocation. Economists give greater emphasis to a second undesirable effect of prices that exceed the competitive level. Such prices tend to reduce quantities of the products that consumers demand. Allocation of profits is not necessarily guaranteed to be in the public interest.
- Monopoly power creates an obstacle to efficiency and innovation. A company with monopoly power is one that does not face much effective competition - and consequently it does not have much reason to fear loss of business to others. Where this is so in the satellite radio business, there be less incentive for management to make the effort to produce efficiently with a minimum of waste or to undertake the expense and risks of innovation such as was experienced during the two company's competitive battles. The result is that the coming product from a merged satellite radio business may be of poorer quality than it would if the company possessed no monopoly power.
4. Programming & Culture
In research Bridge Ratings has conducted, XM has consistently been considered the service with the better original programming. Satellite radio is a music medium and in the opinion of thousands of consumers studied by Bridge Ratings, no one does a better job at it than XM. What will happen to the creative structure in place at XM once Mel begins with the consolidation scythe? After all, as with terrestrial radio, consolidation of these two satellite radio companies should save billions a year. Those cost savings will have some bearing on the quality of the product much like personnel and resource cuts have negatively impacted terrestrial radio in the last ten years.
No, it seems to me that once again the American consumer will get a front row view of where they stand in the eyes of U.S. regulatory agencies. This proposed merger must pass muster with the FCC, the DOJ and others. And when one looks at the business end of this deal, and how government bail-outs have been common, clearing regulatory hurdles is a safe bet to save the failure of another space venture.
5. The Balance Sheet
The balance sheets represent the biggest problem for these companies.
Sirius has almost $1.1 billion in long-term debt. At XM that number is over $1.3 billion. Sirius has cash and securities of $350 million. XM has $285 million. So, combined debt would be $2.4 billion against about $600 million in cash. Payables and accrued expenses of the combined company would be over $500 million. To have a significant value to shareholders, the combined business would have to pay down at least $200 million in debt per year. None of the debt is due until 2009, but the majority is due by 2013. The combined company would be able to partially use cash on hand and could go to the capital markets with a new debt issue with the sole purpose of refinancing that amount due in 2009 (and with convertible debt if they were smart and/or able). All of this if revenue growth can continue at 10% quarter over previous quarter and expense growth can be held to 5%.
Mel Karmazin is a smart, strategic business operator. He will find a way to make this work. Wall Street and investors - even the government - will see the immediate benefits of such a joint-relationship. What will take more time will be confirmation of whether such a merger is in the public interest.
Thursday, January 11, 2007
Wall Street's Delusion
Banc of America securities analyst Jonathan Jacoby has just returned from CES in Las Vegas with some good news and some "bad news" for terrestrial radio. He also returned exposing his ignorance of true listener behavior.
Mr. Jacoby says that he "found many new devices/systems that are making it easier to use cell phones and MP3 players in the car." He continues, "several products on display integrate the iPod and cell phone into the car. Our negative outlook for terrestrial radio is based largely on our view that radio's in-car listening base will be eroded by compelling alternatives.
"On the plus side," he adds, "the supply of HD radio units seems to be building. There were more HD radios on display than at last year's CES," and many major audio manufactures have gotten into the game."
Let's address these comments:
1. Mr. Jacoby, as substantiated by Arbitron's People Meter technology and more granular research by Bridge Ratings, terrestrial radio has evolved into more of a reach medium. Radio stations have larger weekly audiences than previously thought. From a radio sales perspective, sales managers will have to finesse a new approach to selling air time with reach as the emphasis over "average quarter hour", but that's not a major river to cross.
The point here is that in spite of the in-car alternatives Mr. Jacoby mentions, Americans still listen to the radio and attrition overall is slight. Terrestrial radio is still a key viable in-car option and only the very young early adopters and innovators in the 16-22 year old age group are significantly more likely to turn off the radio for longer periods of time. But they still listen.
Terrestrial radio competes quite well in-car with other alternatives. The amount of time spent in-car with terrestrial radio depends on quality of content.
2. HD Radio units available seem to be building. Not pertinent. Bridge Ratings estimates that by this time next year, there will be 1.9 million HD radio units in the hands of consumers in the U.S. an increase of some significance over the approximate 1.1 million we estimate were sold by the end of 2006. But it's not enough. The growth is disappointing. We project less than 9 million HD radio consumers by 2010. Hardly something to be excited about when satellite radio will have 30 million and Internet radio will have 147 million.
Let's look at consumer interest in HD radio. In a soon-to-be-released update to its 2006 study, Bridge Ratings reveals that mainstream America, a life group we call "mainstreamies", has little understanding of what HD is or what its benefits are. A disappointing 26% of this group are even familiar with the term and less than 1% know that you have to purchase additional hardware in order to use it. 63% of the entire mainstreamie life group think they already have it!!
No, Mr. Jacoby, your visit to Vegas doesn't seem to have clarified anything for you. It would appear that if Mr. Jacoby represents common attitudes on Wall Street, terrestrial radio has a different problem: those who lead investors by the nose don't have a clear, informed understanding of consumer interest or behavior. That may be the biggest hurdle terrestrial radio has to face going forward.
Mr. Jacoby says that he "found many new devices/systems that are making it easier to use cell phones and MP3 players in the car." He continues, "several products on display integrate the iPod and cell phone into the car. Our negative outlook for terrestrial radio is based largely on our view that radio's in-car listening base will be eroded by compelling alternatives.
"On the plus side," he adds, "the supply of HD radio units seems to be building. There were more HD radios on display than at last year's CES," and many major audio manufactures have gotten into the game."
Let's address these comments:
1. Mr. Jacoby, as substantiated by Arbitron's People Meter technology and more granular research by Bridge Ratings, terrestrial radio has evolved into more of a reach medium. Radio stations have larger weekly audiences than previously thought. From a radio sales perspective, sales managers will have to finesse a new approach to selling air time with reach as the emphasis over "average quarter hour", but that's not a major river to cross.
The point here is that in spite of the in-car alternatives Mr. Jacoby mentions, Americans still listen to the radio and attrition overall is slight. Terrestrial radio is still a key viable in-car option and only the very young early adopters and innovators in the 16-22 year old age group are significantly more likely to turn off the radio for longer periods of time. But they still listen.
Terrestrial radio competes quite well in-car with other alternatives. The amount of time spent in-car with terrestrial radio depends on quality of content.
2. HD Radio units available seem to be building. Not pertinent. Bridge Ratings estimates that by this time next year, there will be 1.9 million HD radio units in the hands of consumers in the U.S. an increase of some significance over the approximate 1.1 million we estimate were sold by the end of 2006. But it's not enough. The growth is disappointing. We project less than 9 million HD radio consumers by 2010. Hardly something to be excited about when satellite radio will have 30 million and Internet radio will have 147 million.
Let's look at consumer interest in HD radio. In a soon-to-be-released update to its 2006 study, Bridge Ratings reveals that mainstream America, a life group we call "mainstreamies", has little understanding of what HD is or what its benefits are. A disappointing 26% of this group are even familiar with the term and less than 1% know that you have to purchase additional hardware in order to use it. 63% of the entire mainstreamie life group think they already have it!!
No, Mr. Jacoby, your visit to Vegas doesn't seem to have clarified anything for you. It would appear that if Mr. Jacoby represents common attitudes on Wall Street, terrestrial radio has a different problem: those who lead investors by the nose don't have a clear, informed understanding of consumer interest or behavior. That may be the biggest hurdle terrestrial radio has to face going forward.
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