Ups and downs

May 1, 2001

Radio has been resilient enough to recover from every downturn it has experienced with an even higher subsequent peak. This time around, the bounce will have to be particularly strong.

As with any business, the radio industry must weather cyclical variations in economic conditions. The volatility of this environment can often mask more fundamental long-term indicators, however. Consider the following big-picture analysis of radio's current situation:

The short-term fortunes of commercial radio are ruled by the overall advertising industry's climate. Advertising is, in turn, strongly indexed to the overall economy. When Wall Street is booming, radio does as well or better than other advertising sectors, but the opposite is also true.

In the long term, radio is experiencing a slow, downward trend, based essentially on changing user behavior. Like all traditional broadcast services, there are simply more services competing for audiences than ever before. When compared to the number of new services, radio is holding its own fairly well, but the overall negative trend remains inexorable. If nothing is done to counteract this trend, it will eventually drive the medium into serious difficulty.

On the other side of the ledger sheet are the liabilities, which have also changed in important ways. The consolidation process that radio owners have undertaken in recent years was executed at a time in which station values were inflated to double-digit multiples of cash flow. The belief that radio could only compete by eating its competition as soon as it was allowed to do so caused most broadcasters to violate the cardinal rule of buying low and selling high. Now these groups are saddled with debt and the corporate inertia that accompanies monolithic structure and massive size.

Worst-case scenario

The picture just painted provides a uniquely bleak outlook: Radio is in desperate need of something new, yet its current economic environment is hampered by high risk, making it unwilling to invest in speculative ventures.

To some broadcasters, the mirage of IBOC DAB seems to be the answer. In fact, IBOC may prove to be a continuing distraction, and ironically dangerous to radio's health. To wit, during the 1980s, IBOC lured broadcasters to believe they needed no spectrum for new services. In the 2000s, it may tempt them to spend precious resources toward developing an ultimately unsuccessful delivery format, which may serve only to accelerate the medium's downward spiral. It's been noted here before: purely qualitative improvement to existing services is not what radio needs to stem the tide of departing audiences and advertisers. Instead, new and expanded services with increased personalization and added value are required. The mainstream radio industry's current approach toward DAB (IBOC or otherwise) is not yet providing such a solution, as the lackluster results in other DAB-deploying countries are proving.

Piling on

If this weren't enough, new environmental changes are making life ever more difficult for radio broadcasters. The additional assessment of music performance royalty fees for streaming services could have a serious chilling effect on development of new media at radio stations. Recent actions by AFTRA regarding online services also indicate that even this kind of streaming media programming may be prohibitively expensive to produce for broadcasters.

Meanwhile, the movement towards marketing direct, online listener subscriptions and corresponding broadcast-affiliate streaming blackouts by some network and syndicated content providers also does not bode well for local radio stations' online future. Popular national programs such as Rush Limbaugh and Major League Baseball have started down this path, blocking stations from repeating their on-air signals in the stations' streaming online services when airing that content. These program originators have established alliances instead with non-broadcast streaming aggregators to offer this content directly to online listeners.

The handwriting is on the wall: radio will need to make a play for enhanced content and new media services soon, or it will be too late to stop the bleeding that will eventually become a red-ink hemorrhage. Simple survival is not enough. Aggressive growth and staking new territory is required. Increased local programming and revised deals with providers of externally acquired content are key components of this strategy. Quantitative growth and exclusivity of content on new media services will be required to drive audiences to radio's next frontier.

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