Seismic Shifts Remake the Radio Industry

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There is a tectonic shift undermining the very foundation of broadcast radio. Multiple metrics make it clear that serious threats imposed on the FM/AM platform by new online competitors are escalating exponentially.

For more than 25 years I’ve helped build audiences for some of the radio industry’s most successful brands. But today, as online competitors like Pandora, iTunes Radio and Spotify add fuel to their astonishing rise, it’s questionable whether the strategies broadcasters have chosen can foster healthy growth. Furthermore, it’s obvious that radical change to audio media is already under way.

As change happens all around them, radio broadcasters tout the health of their business and how the competitive threat of Internet rivals is overstated. I understand the need to present their case to advertisers. But their sales narrative, an echo chamber of their own making, cements complacency and fosters lack of innovation.

A new Edison research study warns that among the six most common places where listeners consume audio media, broadcast radio dominates in just two of them (in car, at home); is tied with Internet radio for two (at work, on public transportation); and is defeated by Internet radio in two (while working out, while walking around). Another red flag in the study for broadcasters is that 50 percent of at-work listeners who listen to Internet-radio-only stations/services (that is, stations/services that don’t broadcast on FM/AM) have replaced their FM/AM listening time with Internet-radio-only stations/services.

Broadcasters can’t afford to repeat mistakes made by companies like Microsoft that dismiss competitors and lack cultures of innovation. In 2007, Microsoft CEO Steve Ballmer said, “There’s no chance that the iPhone is going to get any significant market share. No chance.” With the absence of content innovation, the audience and revenue drain forced upon FM/AM stations by formidable competitors will only deepen.

In Google’s “news” search section, query the phrase “content is king.” From Forbes to CNBC, you’ll see a wealth of articles reaffirming that notion, which is of vital importance to executives leading both the Internet and broadcast radio industries. In the words of Steve Jobs, “That’s what makes great products. It’s not process — it’s content.”

Behemoths like Apple, Google, Microsoft and Amazon have joined the audio media ranks of Pandora, Spotify, Rhapsody, Rdio, Slacker, Stitcher, Songza, Beats Music and others, heating up an epic battle for the hearts and minds of America’s radio listeners. Who will win, and why?

In a memo to the staff of the Washington Post, the paper’s new owner, titan Jeff Bezos wrote, “The Internet is transforming almost every element of the news business. … There is no map, and charting a path ahead will not be easy. We will need to invent, which means we will need to experiment.” Experimentation is the ethos of Silicon Valley yet the antithesis of broadcast radio.

Powered by hundreds of millions of dollars in investments, the VC and blue-chip-backed online entities storming broadcast radio’s bastions are being embraced by a massive, rapidly growing audience. With few exceptions, an honest assessment can only conclude that the radio industry’s response is lackluster, at best.

According to eMarketer, the combined monthly online radio audience is 147 million listeners at present; by 2017 that number is expected to rise to at least 179 million. This will enable audio media startups to gobble up even larger pieces of the advertising pie.

Hopefully, broadcasters recognize that their most significant innovation of the past decade, HD radio, reaches about just three percent of the U.S. radio audience because they didn’t invest in content that’s important to listeners.

With the FM/AM distribution platform diminished by audio media on the Internet, the companies that will create real value are those developing bold, original content. Great is no longer good enough; top performance requires content that’s amazing. The lack of celebrated original content at broadcast radio, especially the scarcity of their original online content, stunts growth.

When HBO launched, it was all about non-original movies. Today, HBO is a highly profitable juggernaut whose groundbreaking success is based on its acclaimed original content, loved and paid for by tens of millions. Additionally, Discovery Communications CEO David Zaslav notes, “We’re spending more money on content and a lot less money on everything else” — a strategy that doubled its stock price in two years.

As radio’s VC-funded competitors digest the countless millions of FM/AM listeners they’ve consumed so far, if they follow the HBO/Discovery model before broadcast stations do, they’ll have beaten them at what should be their own game. Audio media companies, broadcast or Internet, will gain a strong competitive advantage when they create original content so irresistible that in comparison listeners perceive competitors as disposable. It’s especially urgent that broadcasters create dazzling content exclusive to the online platform; otherwise, they’ll be fishing where there are fewer and fewer fish.

In her blog, Internet radio expert Jennifer Lane wrote about Apple’s response to the success of the Pandora app on iTunes. ITunes music sales declined, so with obvious writing on the wall, Apple wasted no time developing plans to get into the streaming game and invested substantially in yet another formidable competitor to broadcast radio, iTunes Radio. Apple was willing to cannibalize iTunes music sales by investing in iTunes Radio. Are broadcasters willing to invest in breakthrough content in order to secure their future online?

With the release of iOS7, Apple’s new operating system, more than 500 million iPhone, iPad, iPod touch, Apple TV, Mac and PC users now have iTunes Radio in their pockets, on their desks, in their cars and in their homes. To fight off Apple’s stampede into streaming, Pandora lifted its 40-hour listening cap.

The U.S. census confirms broadcast radio listening is declining, compounded by broadcasters’ unremarkable influence in the online streaming space. According to Triton Digital, at any given moment among online listeners (M-F 6am-8pm), Pandora has more than twice the audience of all of the radio stations owned by Clear Channel, CBS, Cumulus, Entercom and the next seven broadcasting companies combined. Factor in tens of millions listening to iTunes radio, Google Play, Spotify, XBox Music, Rhapsody and other audio startups (not measured by Triton), not to mention SiriusXM and the explosive growth of streaming on smartphones, it’s clear that broadcast radio’s monopoly has ended.

As the velocity of change accelerates, broadcasters need the equivalent of the Manhattan Project for content — particularly original online content. And among the increasingly crowded personalized radio/on-demand music services, companies that couple their appealing personalized/on-demand attributes with extraordinary original content will break out from the pack just as HBO and Discovery did.

The companies that best execute a strategy to build out-of-this-world original content are the ones that will become the kings of audio media. The shakeout is well under way.

Award-winning audience development executive Paul Goldstein creates breakthrough content for new media companies, celebrities, brands and radio groups. Find more information on his website

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