Probably the one that produced nearly all the company’s revenue. Right?
And which product would you invest in more heavily? The one that makes all the money, or the one that doesn’t?
You’d want to invest in the product that makes 95% of your revenue, wouldn’t you?
Then why is radio cutting broadcast budgets to finance its digital follies? Why is the cash cow being sacrificed to compete with digital services that make no money and probably never will?
Revenue figures for the first half of 2012 are in and they look pretty much like the hypothetical company we’ve described. The graph below shows first half revenue.
In other words, running broadcast spots generated nineteen times the money radio got from digital.
(And rumors persist that groups are fudging the digital numbers to make streaming look more successful than it is.)
On top of that, digital growth has slowed. Digital only increased an anemic $22 million over the same period in 2011, an increase of only 4.7%.
At this growth rate, digital won’t surpass broadcast spot revenue until well into the 22nd century!
Compare those number to the darling of digital radio, Pandora.
Pandora closed its 2012 fiscal year proudly bragging about its advertising revenue of $240 million. Last year broadcast radio stations generated $709 million in digital sales, nearly three times as much.
Broadcast radio continues to be a huge financial success, generating margins that the NAB’s former president David Rehr once declared obscene.
Pandora, the focus of digital boosters, the subject of countless new-media success stories, has yet to make a profit, and admits it may never make a profit.
Yet broadcast radio is obsessed with growing digital dollars to prove it is just as good as Pandora.
And radio is financing this Don Quixote-worthy effort by diverting dollars that should be invested in the local broadcast product.
Yes, radio may ultimately become a product primarily delivered via computer and smartphone, but if its product is debased in a rush to be just as good as Pandora, then no one will listen to it no matter how it is delivered.
Dance with the one that brung ya is a reminder that no matter how tempting a new alternative might look, one shouldn’t forget the thing that got you there in the first place.
Radio makes those obscene profits by delivering a local product that meets the wants and needs of listeners who live in the same community.
If radio starts to ignore its local roots and historical connection to the communities it serves, then it may succeed in equaling Pandora-–as a failure.