| Perhaps the future
is nearer than we thought.
Until recently we were expecting alternatives to make fairly steady
inroads into the audience for US terrestrial radio but this month's
debut of Opie and Anthony on XM and
Howard Stern's announcement that he is to move to
Sirius when his Viacom contract expires combined
with a faster take-up of broadband than we had anticipated has led
us to rethink the time scale of those inroads.
None of this is to go into immediate gloom about the immediate future
of terrestrial radio but we suspect the inroads will in the medium
term be such as to significantly affect profitability and, bearing
in mind the financial returns now expected, very significantly hit
The question consequent upon this is how this will affect the industry
- will it be a question of Wall Street demanding returns to the
degree that companies cut staff severely and end up in a negative
spiral in which the service they give is increasingly less attractive,
albeit cheaper to produce, with the results that audiences and income
drop necessitating further cuts and further loss of audience and
One of the main factors in our change of mind
relates to the issue of talent.
Even when it's talent we personally don't particularly appreciate,
we still recognise that it is an essential ingredient of successful
programming and also that in many cases it isn't just financial
rewards that attract it but a combination of those, the right
environment and a degree of freedom to exercise that talent.
We also note that perceptions relating to these factors are
often as important as reality in that a good reputation for
developing talent or giving an idea proper backing will often
be important in attracting the talent in the first place -
or turning it off if the reputation is one of constrictions.
Thus the turnaround can be fairly sudden - one outlet or type
of outlet gets a reputations as being worth trying, talent
tries it, succeeds, and creates a virtuous circle that builds
upon itself whilst at the same time creating a vicious circle
elsewhere as a threatened organization frequently plays things
safe and cuts back more, thus creating a vicious circle of
and the economic model.
In the case of terrestrial radio, its whole economic model
is founded on the programming simply being a way of getting
ears that can then be tempted by advertisements but, as Clear
Channel has belatedly recognised, overdoing the advertisements
can get in the way of programming so much that it both creates
resentment of the advert and a motive to switch away.
Enter technology and competition here. The competition from
satellite - and, lest we forget it, subscription Internet
audio - gives an option to pay directly for what you want
rather than indirectly through the advert and the evidence
seems to be that those who have tried the advert-free satellite
radio services find the bargain well worthwhile.
Tag in future growth of wi-fi hotspots and there is the start
of a market for the wi-fi equivalent of the trannie or walkman,
a market that manufacturers will surely meet and probably
combine with a cellphone cum radio and satellite radio thus
providing in one handy portable package the choice, depending
on location, of whatever of the above can satisfactorily be
Add in the further capability for replay - already being built
into some DAB receivers - of programming that has been received
(or missed on a channel for a period before you tune in) -
and skipping adverts should you so desire, and there could
be a real problem for the advertising-led radio industry.
At the very least it could skim enough income off the top
to viciously cut into profitability and at worst lead to collapse
of some major companies weighed down by debt - we would certainly
be cautious about investments in terrestrial radio at the
So what can existing terrestrial
radio do to compete?
In any scenario like the one above, the only long-term approach
it seems to us is for terrestrial radio companies to build on
their strengths and reduce the advantages of their developing
Some of this they already seem to be doing with Clear Channel's
move to reduce advertising clutter and the commitment by major
groups to the introduction of digital radio among the promising
There are also signs that the companies are recognising that the
one area where they currently hold an ace is that of localism
although we would note here that should lobbying to keep down
the number of low-power FMs be unsuccessful there will be a degree
of tapping into this audience by another competitor and also that
should broadband and wifi become widely enough adopted there is
scope for a new Internet-based breed of competitors.
US terrestrial radio also has an advantage that its big brother
terrestrial TV does not in that much of its output is less likely
to be time-shifted albeit we wouldn't necessarily call it that
much of a strength at times in that most of it is either of a
nature where time-shifting has little advantage - it's not much
use for news for example - or simply isn't worth while for all
but a small minority who have a specific interest.
Indeed for anyone with a broadband connection the on-demand programming
of the world's public broadcasters leave the entire combined strength
of US commercial radio in the shade, so yet again another segment
of the audience may well be whittled away a little.
Nevertheless the combination of localism, specific live events
and time-sensitive programming such as news, give a significant
potential strength to terrestrial radio.
The problem is that to develop these and move to digital broadcasting
will cost money as well may cutting down the advertising load
and the result will be a bite out of the profits of existing groups.
We think the moves are essential but we're not convinced that
many US radio stations or groups will have a long-enough perspective
to bit the bullet and accept reduced returns now in return for
potentially better ones in the longer-term.
Of course there are also areas where under existing regulation
Internet and satellite cum subscription programmes can tread
but terrestrial broadcasters cannot - as we write Fox
TV is facing a USD 1.2 million indecency fine that
would not apply to subscription customers.
The response to this is essentially one of three approaches
- an attempt to try and get the same restrictions applied
to subscription, an acceptance that the world is as it is
and the best approach is to leave brick walls alone and concentrate
efforts in areas likely to be more productive, or a fight
to get the restrictions lifted.
The first approach in our view foolish, counter-productive
and likely to be thrown out by the courts but it is one we've
seen gaining currency in comments from some broadcast sources.
Our view here is that if you've shares in a company that comes
up with this idea, look carefully to see if the comments are
a smokescreen to cover up some other action - which may be
sly but could be productive - but if it's a genuinely felt
response either dump the stock speedily or muster resources
to dump those with the approach.
The second approach seems the most likely to be adopted -
after all that's what Clear Channel has done already, as have
others in their settlements with the FCC. It's the safe way.
The third approach would be risky and maybe costly. We just
can't see most groups going for the fight.
Irrespective of all the above, any decline of terrestrial
radio will take time and is not the same as the death
of the medium.
What we do think is likely to happen is a narrower range
for commercial radio - broadcasters funded through a licence
fee will have a different problem as the mean-minded amongst
the commercial broadcasters opt to try and keep them out
of commercially profitable areas and push them into minority-interest
We can only hope that this pressure is resisted and defeated:
As we have commented before we regard the cultural value
of broadcasters like the Australian, British, and Canadian
Broadcasting Corporations as exceeding that of all their
commercial competitors combined and we just cannot see
the same commitment to a range of informative and educational
programming ever coming from organizations subject to
market pressures to maximise returns on investment.
The question then is which areas of commercial radio will
perform best in the new environment. We suspect that news,
talk and sports stations in general will be comparatively
little affected - unless, of course, satellite radio succeeds
in the same way satellite TV in taking sports rights away
from existing broadcasters with the consequent extra pressure
on sports stations - but music stations may suffer significantly
since the base material of their output will be available
from many other sources.
We'd feel more concerned about this but for the fact that
market-driven commercial stations have in many cases in
our opinion put themselves at risks through their own
actions in tightly-controlling playlists and thus limited
their own appeal and contribution to introducing new artists
to a mass audience.
So we come back to the need for commercial radio to develop
the areas in which, as we've have noted above, we consider
they have strengths that competitors cannot match: Look
for the smart companies to do a lot more local programming
from live events, to supporting local artists and getting
more involved in community action and local news.
The dumb ones: They'll keep on trimming costs, pushing
voice-tracking and market-researched playlists until many
of their audience have moved to other sources from satellite
radio to Internet downloads and so on using their by-then
ubiquitous combination receivers that can receive terrestrial,
satellite, Internet, and cell phone downloads.
And once they've started paying for any of the others,
the terrestrial service has to be good enough to either
see them off or compete despite advert loads. We think
that in radio as in any other business retention may cost
now but is likely to be cheaper in the long run than winning
back lost listeners, even if that is possible.
What you think? Please E-mail