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.