Monday, August 06, 2007

Cutting The Nose Off The Goose That Ate The Seed Corn

Pardon my deliberately mixed metaphor, but, boy howdy! I go out of the country for a while and come back to a movement afoot in Congress to force radio broadcasters to pay a performance royalty. Has the collective body of performance artists in the US taken an RIAA pill to make them as brain dead as that erstwhile organization? Do they realize just what the logical implications of that measure could be?

Let me state for the record that I am against broadcast, Internet or any other advertiser-supported "broadcasters" being forced to pay performance royalties. It will be amusing to watch the NAB and others argue for one position while arguing against the other, but not surprising given each sides' vested interest.

But that's not the point. If songwriters and performers want to extinguish the mass market for new music in the US, I can't think of a better way than to support this proposal. Why? Because, instead of unearthing a mythical pot of money, this rule will force a series of rational economic behaviors which will tighten playlists, increase costs for both stations and record labels, and reduce the amount of money spent on development of new acts.

Think about it. Radio and the music business have had a long-standing symbiotic relationship: the radio stations supply free airtime, the labels (or artists themselves in some cases) supply the content. Radio benefits from not having to pay to fill the airtime, and the music industry benefits from free advertising (yes, that's what playing a song on the radio is, in effect, advertising for the artist and songwriter).

Suddenly, the performers (and labels, if they own the performance rights) want to be paid for their content. Doesn't it make sense, then, for radio to be paid for its airtime? If one side is going to break this deal, then it's only fair for the other side to respond in kind.

Music radio programmers today don't worry about "what will the song cost to play". You can bet, once they have to, that the bean-counters are going to put pressure on programmers to minimize the "expense" of the music they play. And music radio, as practiced today, is risk-averse enough - resulting in few adds over the course of the year. This tends to play into the hands of established acts. Are the chances of a song by a new act being added to a playlist going to increase, given the proposed explicit economic risk added to the current "loss-of-listener" risk? I don't think so. And forget about that impromptu Gentle Giant retrospective - got to get a sponsor first.

Another way the bean-counters might respond is to raise revenue to offset the increased expense. Some argue that radio ad rates have been rising in the face of audience erosion, and are too high already. This would result in more pressure to play less music in general. Unless, of course, the radio stations start charging record labels to play the music to cover the performance royalty expense. While some readers may be thinking "payola", I'm thinking rationality. Radio airplay of music is advertising. Why shouldn't the labels pay, if the radio stations have to pay and the advertisers won't?

But, one might argue, wouldn't the labels tend to concentrate their new "airplay" budgets on their most successful acts, or ones they were trying to make successful? Exactly. Just have they have been doing with other forms of promotion for years. They are just as risk-averse as radio stations, and tend not to focus on their back catalogues. Does this favor the average artist? Hard to see how.

And, finally, given the complexity and overhead costs of tracking performance royalties, some stations might just abandon music formats altogether.

I could go on - but you get the point. Somebody wasn't thinking when they woke this sleeping giant. Now we're going to see how ugly the giant really is.

Thursday, May 31, 2007

Why HD Radio Can Really Matter

Now that the consumer electronics manufacturers have begun to introduce volume HD products (JVC, Sony, Panasonic, Alpine and Kenwood are all ramping up their efforts), it is reasonable to expect that there might be more than a handful of potential listeners by the end of this year, with decent growth momentum carrying into 2008.

The big question for radio is how to monetize this audience - scenarios span the spectrum from "run HD subchannels at a loss to prop up the primary channel" to "sell HD audiences as stand-alone targets". The bean counters reading this will note that I deliberately set extremes at each end - instead of accounting for each HD channel as its own P&L, it's easy enough to account for an HD subchannel as an expense of a "primary" channel - the net result being lower margins if no additional revenue is generated. And I don't expect a single station to set up a completely redundant infrastructure to sell and service HD subchannels.

Notice I said a "single station". But what about a large cluster, or a regional or national aggregation of stations? HD radio allows the quick and relatively easy creation of "overlay networks" on top of existing radio spectrum, and can leverage a lot of the existing infrastructure. These networks have the potential to reach large enough audiences to matter to regional and national advertisers.

So there are at least two ways to look at the HD opportunity: one is from the position of a stand-alone station or cluster, and the other is from the perspective of an overlay network builder.

Let's examine the stand-alone issues first. Is the goal of using an HD subchannel to strengthen the primary channel? If so, then we can view the HD channel like we view a station website. It's a place for additional information, footnotes, and listener interaction all tied back to the primary programming. Did a music station do a live recording of a local band? Play the best tracks on the primary and cross promote the entire broadcast on HD. Is a news station covering a visit by a Presidential candidate? Air the best sound bites on the primary, and make more material available on HD (but take care not to let this devolve into "CSPAN lite"). A critical element in both of these examples is strong cross-promotion back to the primary station, either with contests that require cross-listening, or strong programming elements that can pull accross the channels (and note to the hardware guys - make it easy for listeners to hop between the primary and the subsidiary channels, or this model won't work).

The above examples are about using HD to go "deep" to support a primary channel. But there are other uses. When WCBS-FM switched from oldies to Jack, the oldies format moved to HD. It's crying into the wilderness now, but, as HD receivers become more available, it may find its prior listeners. This is an example of the "long tail" phenomenon, which posits that markets shrink over time, but rarely go to zero. The long tail promise is that, with low cost distribution, it becomes economically viable to serve the growing number of small fragmented markets. A key long-tail assumption is that content exists, and has a long shelf life. This is but one of the reasons the "pure" long-tail model doesn't work for radio - unless you believe that the future of HD is all recordings, all the time. Even with cheap HD subchannels, filling multiple channels with pre-recorded content doesn't seem that appealing from an aesthetic or an economic perspective.

But, if small islands of interest exist in local markets, and they could be tied together by an HD overlay network, then that aggregation can result in an audience big enough to attract the interest of advertisers (and talent). In this model, the local stations are spectrum landlords - a key concern here is primary target audience overlap with the HD overlay network programming. However, that overlap could be a plus if the primary station wants a way to reach its listeners as they travel out of its coverage area (and don't have the Internet in their cars). Ubiquitous national coverage is the primary differentiator for XM and Sirius - and is why they could be vulnerable to a concerted attack from a terrestrial overlay network. An interesting tactical side issue will become how to use overlay programming to take share away from primary competition in a market - this should be fun to watch.

HD radio is a sleeping giant. Terrestrial radio would be well served to wake it up, and put it to work.

Wednesday, April 11, 2007

Dumber Than Dirt

Once upon a time, the FCC required that radio stations prove their actions in "the public interest, convenience and necessity" in order to maintain their licences.

Can someone explain to me how defaming a women's basketball team meets any of those criteria?
I didn't think so.

These women are not celebrities, nor politicians, nor public figures by virtue of anything other than their participation in an amateur sporting event - they are private citizens. And yet, one of the most popular radio figures in the US deemed it acceptable to utter a racist, tasteless and inaccurate characterization of them, offered up as "entertainment".

I've admired this person for a long time. But there are lines that should not ever be crossed, and the more experience you have, the clearer your judgement should be. A justifiable howl has gone up in response to this error in judgement, but the saddest thing for me to watch are people rising in defense of the indefensible.

Let's consider: if this happened at a local station, the person would have been fired already. That is an appropriate response to an action of such stupidity (but even firing does not remove the threat of liability to the station). The person might or might not find another radio job, depending on his or her past performance, acknowledgement of the error and committment never to repeat it.

The person in question may have had a long and successful career, may generate millions of dollars for his employer, and may be a wonderful family man who loves kittens. But that doesn't matter, and the proposed punishment, a two week suspension, is sending a message that this behavior is, if not acceptable, at least tolerable. It is not.

Interestingly, the programs' sponsors are leading the way in doing the right thing, by pulling their advertising dollars. In the limit, this effectively cancels the program. But even a large enough partial response might give the employer enough backbone to make a stronger response to this boneheaded, thoughtless, irresponsible (i could go on...) episode.

It wouldn't hurt this person to be off the air for a year. As a condition for his return, he would have to travel to the top 100 radio markets at his own expense, and meet with local radio people to explain that they should never, ever want to get to a position where they don't think about what they are saying to a mass audience, and the negative effects their speech can have.

Sunday, March 11, 2007

Beat The Clock: Why the PPM is Good For Radio

As most of you know by now, Arbitron has rolled out its Portable People Meter in Houston and Philadelphia, and we should begin to see numbers soon that will be argued about by all. The technology is sound (literally), the system design is well thought out, and I think it will hold up to any technical objections raised. On the other hand, at least one critic has suggested that there is a difference between a person being in a room with a sound and actively listening to the sound. Certainly the PPM eliminates the errors inherent in relying on people to fill out diaries consistently and accurately, but it doesn't close the loop into a listeners' brain. However, broadcast advertising rates are currently based on the number of potential listeners comprising an audience, not impressions actually received. In that regard, the PPM changes nothing.

While the above discussion proceeds, let me suggest at least two ways that the PPM will benefit radio, and, ultimately, all broadcast media. The first is to help close the advertising order/payment cycle. Broadcast advertising is one of the last industries to embrace supply-chain automation technology, in part because it's so hard to build a closed-loop system. By getting radio stations used to encoding program material, one can imagine that, eventually, ads can be encoded and detected. This will drive better accuracy in delivery and clearance, and shorten the time to create affidavits, which in turn should shorten a station's receivables cycle. In addition, better schedule performance will reduce the number of make-goods a station has to carry on its balance sheet - this makes bean-counters happy, and potentially frees up cash for other uses.

While the PPM can ultimately make the business types happy, the Radio Refugee likes it because it can smash the Arbitron-induced dogma that holds quarter-hours sacred. This dogma, a logical outcome of gaming the Arbitron methodology, has resulted in every station in a market (yea, every station in the country, or at least the Arbitron MSAs) sticking to basically the same programming clock.

Arbitron's PPM has the potential to smash this clock. The FCC still requires its hourly ID, but other than that, programmers will be free to experiment with new (or perhaps old but forgotten) approaches to captivating audiences, knowing that their success is not dependent on what happens in the first five minutes of each quarter hour.

I don't expect every station to abandon its clock - there are valid programming reasons for predictability in certain formats, especially news/weather/traffic. But I fully expect that someone in a PPM market with a music-oriented format could find a way to take advantage of the PPM's always-on nature to give listeners more than the same old stop-set, ad pod shuffle we've come to take as gospel. Furthermore, adventurous programmers can being to take cues from their television brethren and experiment with ads that go beyond :30s and :60s (see for some of my specific proposals in this area).

In summary, Arbitron's PPM has that rare potential to be a true win-win, with side effects that offer long-term improvements to the general state of the broadcasting business and art.

End note: Many people mis-refer to the Portable People Meter as the Personal People Meter, and I can't hear that without thinking of Sheb Wooley...

Tuesday, February 20, 2007

Space Junk

You've got to hand it to Sirius and XM - they've got chutzpah. After convincing Wall Street that satellite radio was a market the size of the solar system that could support all comers, and raising hundreds of millions of investor dollars, now they want us to believe that the satellite radio market is just another struggling niche in the entertainment spectrum, and it's not fair that they have to keep beating each other over the head to attract listeners, and that they both should have to pay for duplicate transponders, studios, content and talent.

The FCC and the Justice Department should issue a one word response: tough.

No one put a gun to these company's heads to force them into business. I don't remember reading about any government subsidy to bring Howard Stern to Sirius (although, come to think of it, getting him off the terrestrial spectrum would have been a good use of public funds...). No one is forcing either company to pay $90 to $114 to acquire a subscriber.

Neither Sirius nor XM has made a profit. You can talk about free cash flow all you want, but the operating bills still have to be paid. On a P&L basis, both companies don't look so good, and their stock reflects this reality. One could argue that the programming and talent of either constitute an asset that should be valued highly, but both companies have overpaid so much for talent and programming that no one will buy out any contracts at face value.

Could satellite radio ever be profitable with two competitors? Yes, if both were to sharply pare back their operating expenses. But instead, we are being asked to create a monopoly that is basically a reward for profligate spending by both camps.

Can anyone expect that a merged entity will suddenly become thrifty? Sure, getting rid of all the duplication will reduce the fixed expenses, but both companies have said they'll be running their distribution systems in parallel for the forseeable future. If there is as much competition from iPods and terrestrial radio as XM/Sirius would like us to believe, why should subscriber acquisition costs go way down? Or why should talent cost any less? Will the spending of the merged company be covered by the purported expense savings? If not, do you think there might be pressure to, I don't know, raise the price of the only satellite service in town?

Sirius and XM do compete with other forms of audio entertainment, but justifying a merger on those grounds is like allowing all the cable companies to merge because there are movie theaters. If DOJ and the FCC (purporting to represent the public) are serious about a competitive satellite radio market, they will not approve this merger. If that means that XM or Sirius fails, that's the free market in action. Someone else can take a whack at the ball out of bankruptcy.

My advice to Kevin Martin: offer these companies this deal -- they can either continue to compete in the open market, or, they can merge, but into a regulated utility. Want to bet which choice they'd make?

Friday, February 16, 2007

Just Because You Can Doesn't Mean You Should

According to The New York Times of 2/14, "The nation's commercial radio stations have seen the future, and it is in, of all things, video". The article then goes on to describe the let's-hang-a-camcorder-in-the-studio phenomenon, and quotes an LA promotions director as saying "This is a visual medium now".

OK, LA. I'm not surprised. But here's a quote from NY: "People are either going to have to get with the program or get lost". Sounds like a pretty definitive statement to me.

But it's wrong.

Ironically, the article's author grabs what might be the most succinct rebuttal quote, and then misuses it in support of the lead. Marshall McLuhan did write "the effect of radio is visual". Let's emphasize: the effect of radio is visual. This is what gives radio its power. McCluhan did not say "radio is visual". It's not. Making radio visual will diminish it, turning it into television.

Why do I say diminish? Because radio, done right, is a mind-expanding medium. A listener hears sound, and his or her brain goes to work filling in the details. If I say "giant airplane dropping a four-ton cherry onto a mountain of whipped cream" (borrowing from a classic radio example), the listener has to imagine an airplane - is it a Sopwith Camel, or a B2? Then imagine a cherry. Bing or Maraschino? With or without stem? Then the mountain of whipped cream - or is it Cool Whip?

The beauty of radio is we don't know - the result is going to be a personal experience of the listener.

Television (the non-news part) is a mind-limiting medium. If we tried to to the same thing on TV, we would have to decide all of the open questions in advance. Our choices are just that, ours. The viewer has to accept the result, or not. We have to instantiate the visual ideas. Unless we spend a lot of money, the result on screen isn't going to look anything near as good as what a listener's head can conjure. (Note there is a medium where that kind of money is spent. It's called movies.)

The same holds for characters - "personalities" in radio-speak. In the old days of radio, everyone knew what Lamont Cranston looked like - he looked like every individual listener imagined him. This process of imagination was a cognitive investment, and that investment bred loyalty. But when Adam West did his campy Batman on television, the only investment a lot of former Batman fans made was to get up and change the channel - the creative choices made for television were at odds with a large chunk of viewer imagination.

TV show developers live or die on getting those choices right enough to attract an audience big enough to make a profit for a network. It costs a lot to get a television program (even a bad one) to air. Therefore, television tends to be a highly risk-averse medium. When risks are minimized, the results are, by definition, predictable. Hence the state of commercial television programming as we know it.

It doesn't cost a lot (beyond paying for good talent) to make great radio. This fact should encourage risk-taking (within the limits defined by station management and the FCC), because the cost of a failed attempt is not huge. Making radio more "television-like" will only add cost, and get radio on the glide slope to mediocrity-ville. Some folks might say we're there already, but that's fodder for another essay.

Another obvious fact: voices age more gracefully than faces. If radio devolves into television, careers will be shorter, plastic surgery bills will be higher, or both. Look at any major market news show to observe the pathetic sight of aging male news anchors trying to maintain a youthful look. It's not pretty, and HD is going to make it so much worse. There are several syndicated radio personalities who have begun simulcasting their radio shows on television. Can anyone reading this honestly say any of those video broadcasts adds to the radio content or your positive impression of the talent?

One last practical note: part of the appeal of a personal appearance by radio talent is for people to see someone they don't usually see. That gets lost if the talent is always in plain sight.

Many people are getting swept up in the cresting wave of Internet video, and jumping to the conclusion that using the Internet to augment radio programming means that radio must make broad use of video. The Internet can be a very powerful tool in radio's continued fight for relevance. Hosting music videos or network programming can help draw viewers to a radio station's website. The occasional video skit from a station's talent can be the spice in that programming stew.

But like any spice, use too much and it will make people queasy.

Sunday, February 11, 2007

Can Your iPod Do That?

I've been commuting to Silicon Valley from New York for the last six months, and, to preserve my sanity, finally gave in and bought an iPod Shuffle. It changed my commuting experience completely. It let me reconnect with music I just hadn't had time to hear, which was like getting together with a bunch of old friends. The shuffle feature had the added advantage of presenting familiar music in new combinations - I've discovered lots of seques and sets that I hadn't thought of before.

From a Radio Refugee perspective, that's the good news. But the bad news is I'm now one of many millions to own a device that competes directly with radio for my listening attention. And, the automakers are piling on by making it easy to plug this device into car audio systems, encroaching on one of the last safe havens for radio (satellite or terrestrial).

The extreme pessimistic view that iPods and their ilk with destroy radio has already been surfaced, and a flurry of responses has been issued citing the unique ability of radio to provide time- and locality-sensitive information, like traffic, news and weather, or event calendars. But what's to prevent Apple of some other company from equipping an iPod with wireless communications capability, and allowing easy access to these information services over a cell network, WiMax or WiFi? Answer: nothing. See the iPhone announcement for a peek into that future.

Sounds like the bad news just got worse. But I'm not writing off radio just yet. Why? Because I don't have a personal relationship with my iPod's software. The iPod doesn't tell me it's feeling blue if it's a rainy day, or that it's excited because a great band is coming to town. The iPod can't make me laugh at a good joke that relates to some politician's recent gaffe. The iPod can't put music together that reflects what's happening where I am right now. Get it? The iPod can program at me, but it can't speak to me.

In short, the iPod can be a tool, but not a person. A person can know something about me. A person can care about me. I can have romantic fantasies about a person. A person can become a friend. My iPod can't be my friend.

But that voice on the radio is a person. That person can become my friend. I care about my friends - and I will choose to be with them over using my tools. Building and maintaining this relationship with listeners is the challenge for radio in the world of iPods.

Radio can be a listener's trusted friend. Can your iPod do that?

Random Notes

Follow up on Jack et al: According to the Arbitron ratings, WCBS-FM is at the head of the middle of the pack in NYC, about where predicted a (ahem) year ago. I note with interest that both Jack in NYC and Max in Silicon Valley have added a unique new wrinkle to the format: people! What a concept...

If one wants a definition of "professional" in the music business, look no further than Prince's performance during the Super Bowl. Not only did he construct a set list that acknowledged the vastly heterogeneous audience, he delivered it in the pouring rain with nary a glitch nor complaint on his part.