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.