If you put a dollar bill into one of those change machines and it gave you back a dime and a nickel, you might be a little upset. That's what the digital change machine is doing to radio right now.
Drop your broadcast dollar into the machine, and you’ll get 15¢. And you may get even less.
Radio’s not alone, however. Take newspaper.
While radio and television appear on the mend, newspaper continues to bleed. Last year newspaper print’s revenue declined another $9.9 billion. In the second quarter of 2010 newspaper print revenue dropped 8% more.
With print’s future looking so bleak, newspaper is desperately trying to remain relevant in a digital world and replace print dollars with digital dollars.
The problem is the digital change machine.
In a year when newspaper saw nearly $10 billion of print dollars disappear, it managed to “replace” only $2.7 billion with digital.
This means that last year the digital change machine dispensed only 28¢ worth of digital revenue for the print dollars newspaper lost.
Of course, that is looking at last year’s numbers during the depths of recession. Now that advertising seems to be growing again, how do things look?
Newspaper’s online revenue is up 14% over the same period last year, even as print revenues continue to decline. That’s the good news.
The problem is that despite digital revenue’s growth, digital remains a very small portion of newspaper’s revenue.
In the just ended second quarter, out of every newspaper dollar of revenue, only 12¢ came from digital. Eighty-eight cents out of every newspaper revenue dollar comes from the dead-tree product.
Even now after years of trying to reinvent newspaper, digital is rewarding newspaper’s efforts with pennies on the dollar.
What about local radio?
Last year local radio’s revenue declined $3.3 billion. Radio’s digital revenue last year was $480 million. The digital change machine gave radio a little less than 15¢ for every broadcast dollar it lost.
In the latest quarter, broadcast revenue grew 6% compared to last year, while digital grew four times as fast.
Yet only 4¢ out every dollar of local radio revenue came from digital.
And digital dollars were up 25%!
This is the fundamental problem radio faces as it adapts to a digital world: A digital change machine that dispenses pennies on the dollar.
Newspaper is well ahead of radio in generating digital revenue, but it is not even close to replacing the print dollars it is losing. Does radio have any better chance?
Even if we use the most optimistic newspaper numbers to estimate radio’s future digital revenue outlook, there’s still a good chance that local radio, once a $20 billion industry, will become a $6 billion industry.
Think that is too pessimistic? Double it and it still translates into a decline of $8 billion from 2005's peak.
Between the recession and online competition annual radio revenue has already declined nearly $7 billion in the past four years. Can radio afford to drop another billion from here?
We’ve seen the impact of this decline on radio: a massive reduction in programming investment. Robo-radio replacing local live radio in even the largest markets. Marketing and research completely eliminated. Radio stations becoming ghost towns.
What will happen if radio declines another billion, or two or three?
If radio’s future success depends on the quality of its content, many radio groups are going to be in trouble.
Too many groups have already seriously degraded the quality of their radio products. The history of newspaper’s transition shows that degrading the product to protect profits only accelerates revenue erosion.
Listeners have been very patient with radio as it has cut back on local programming. They have continued to listen while radio becomes homogenized and nationalized.
There is a limit to their patience, however. And it is running out.
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