May 2007

Playing to strengths!

Playing to strengths!

Conventional business wisdom is that an organization should play to its strengths but much or radio, like much of the recording business, seems to be playing to past strengths rather than the current ones.

For music the equation was crystal clear once electronic distribution became possible: Either hard copies of recordings were made attractive because of particular qualities they had and the electronic version did not or they would lose market share. Logic would have dictated playing on the superior technical quality possible on CD, adding extras and making the packaging worthy of interest in itself (We still have a vinyl of Sgt. Pepper's Lonely Hearts Club Band for just that reason: The artwork on it is a delight).

Allied with that should have been a strong marketing effort to offer downloads - but at a reduced audio quality (which is of course what people do get and most don't notice it. Had the quality been stressed in marketing and quality control been such that CDs were up to higher standards, we suspect that many would have bought the CDs for favourite music as well as taking downloads first and the industry would be in much better shape.

So what did the music industry do? Thought it would be able to get away with its traditional practices and to maintain them lobbied for punitive laws.

And what about radio? Well the industry hasn't been that different. When it was first launched as an entertainment medium as opposed to a communications one, its main potential effect was on two existing players- the newspaper and recording industries. So what did they do where they could? Well in Britain the newspaper industry lobbied to prevent news on the BBC and the music industry made sure it was paid royalties. In the US, the radio companies managed to avoid having to pay royalties on the basis of the promotional value of their broadcasts.

And more recently? Well when the boot was on the other foot, radio tried to stifle the newcomers just as others had tried to stifle it. As an examle satellite radio is a potential competitor so the NAB has tried to stifle competition from it as far as possible rather than recognizing that the best approach is to play to existing broadcasters own strengths not weaken a newcomer.

The Internet. No money in the immediate term so many of radio companies just ignored it, ceding the ground to others.

Add to this the temptation to get economies of scale through creating larger and larger groups once this was allowed and to use technology to cut down on local costs as through voice-tracking and the industry was fairly well on the road to get more out of the advertisers and put less in for the listeners. Then mix in long advertising breaks - we recall that there have been single breaks cum promos of around 20 minutes -and the ground was laid to give satellite radio the boost it needed in being able to stress commercial-free music.

So where now?

All the above seems to us a pretty good way to annoy listeners, the essential requirement for an advertising-funded industry and unsurprisingly once technology made other options available, people began taking to them.

As with any other industry, once lost it is much more difficult to get customers or listeners back than it would have been to retain them. What has happened in many cases is a very successful form of asset-stripping but it was asset-stripping in essence and like any such exercise has its limits.

To us those limits have already been reached in many cases and the industry needs to woo people back for its long-term health and to do that it must build on the strengths it has.

Radio's strengths.

The prime strengths of terrestrial commercial stations in the US seem to us to boil down to variations on one word - "local."

If it comes to networked content there is no inherent benefit in getting material from a local station as opposed to satellite or the Internet.
If it comes down to very specific choices of music, there is no was a broadcast medium can match the Internet and if it is a matter of niche genres, satellite - which can aggregate audiences from a much wider geographical area, has the edge.

What satellite will never be able to do is to compete in local terms with a broadcaster who is part of a community and so perceived. Internet broadcasters might eventually be able to match local stations in this area but they do not in general seem to be following this path although local sites of various kinds can certainly take advertising way from local newspapers and broadcasters.

The logic to us is clear in all this. Radio needs to tap into that strength. So, of course, is the corollary. This is that there will be a need for local staff, that there needs to be some form of locally-staffed news service if only because of all the other advantages the very process of gathering the information fives in terms of being tied into a community.

And of course, already being there with an audience, stations can cross-promote their web and broadcast services, driving people to the web sites and using the sites to pull them back to the broadcasts and also to offer a much wider service to listeners and advertisers alike.

The downside.

There is almost always a downside and in this case it seems to us that stations are going to have to accept a much lower return on investment and higher costs for local staff if they are to prosper in the long run.

They can of course continue to asset strip or bury their heads in the sand but without listeners they have no business and it matters not a jot to those listeners whether a station was bought for a thousand dollars or a hundred million: Their interest is in what they get from the station.

So the prescription has to be to bite the bullet, develop the local and accept lower returns over a longer run with a good chance of remaining profitable or blow it, whine to the government about even less regulation and still lose listeners and the business.

What it should not be is to devote more effort to stifling competition such as satellite than to improving the broadcasters' own offering; to trying to hit at public broadcaster such as NPR and the BBC because they offer speech-services such as news that the commercial stations are unable or unwilling to match rather than accepting that they can play the local game better if they devote sufficient effort to it.

In other words go for a positive approach - develop local ties; as regards music back local talent and give it airtime - if need be co-operate in competitive music events from local stations that together they can network; and most of all recognize that if they provide broadcasts people want to listen to and that other media cannot match they have a business but if they cut costs and end up with something available elsewhere they may well not.

And as regards newer technology such as the Internet, stations shouldn't waste resources in a futile attempt to stem the tide: instead they should look to see how they can ride the wave.



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