The urgency of developing a digital strategy is accepted as obviously true. But is it?
We recently drew attention to an article in Time about Alpha Broadcasting’s Larry Wilson. The article outlined his strategy for growing his newly acquired stations:
Wilson's strategy is to take radio back to its local roots while at the same time keeping his company private and well capitalized. "When you cut the costs out of this business, you cut the product. Then you don't have anything to distinguish you from iPods or anything," he says.
It's also a repudiation of the consolidation strategy, which tried to increase profits by centralizing sales and programming. "People say, 'We'll program five markets from X city and we'll have one team doing it, and we'll save all this money,'" he says. "Doesn't work. Listeners want to talk about the mayor, the new light rail that's going in, the local sports teams."
No mention of the Internet. No mention of streaming, social networks, or Twitter. His strategy is to invest in the product. Be local and live. So Larry Wilson wants radio to go back to where it was. The pundits say terrestrial is dead. Larry Wilson is saying just the opposite.
So who’s right?
SNL Kagan has released new projections for online radio revenue through 2013. The good news is that online revenue is expected to more than double over 2008 figures. The bad news is that by 2013, it will still represent less than 5% of radio’s total revenue. (Click for larger graph.)
If the Kagan projections are correct, 14 years from now, 95% of radio’s revenue is still going to come from the terrestrial signal. Shouldn’t that be where the major investments are made? Doesn’t that suggest that Wilson is on the right track? Shouldn’t we first make sure we are investing in the terrestrial product to make it as good as it can be?
If digital initiatives are only going to contribute 5% of radio’s revenue, what’s the payoff if radio sinks a lot of money in digital? Why spend a lot of money for something that might yield a fraction of the return that investing in the terrestrial product might yield?
Digital boosters will argue that ignoring digital opportunities is short-sighted. Perhaps ignoring the Internet will ultimately hurt radio, but newspaper’s experience investing in the Internet should serve as a warning to radio.
It may not seem like it, but radio’s downturn is relatively recent compared to newspaper. Newspaper’s wake-up call came in 2001, when print revenue started heading south.
Newspapers responded to declining revenue by drastically cutting print expenses. They fired reporters, consolidated staffs, eliminated whole sections of the newspaper, and in many ways began producing a print product quite inferior to the newspaper it produced in the past.
They felt the future was online, and to hell with the print product. They plundered their print product to finance their digital push.
Did it reverse newspaper’s fortunes? No.
For a short time, digital revenue grew, but never came close to replacing the lost paper revenue. Then in 2008, even the digital product stopped growing. Now newspaper finds itself with a hollowed out print product and little to show for its digital efforts.
We believe that if radio continues to debase it’s terrestrial product in the belief that all that matters is radio’s digital future, it will suffer the same consequences that befell newspaper.
If stations can fully support the product and continually improve it while at the same time investing in digital, great. But the lesson from newspaper is that digital solutions can’t compensate for a weak product.
We think Larry Wilson is on a better course to turn radio around. Invest in the product, serve the community, and abandon programming consolidation.