Radio InSights

FM Broadcasters Are Freaking Out About Pandora

FM Broadcasters Are Freaking Out About Pandora.

That’s the title of a story that appeared on both Business Insider and Huffington Post, two aggressive aggregator web sites with large audiences.

The title gives the impression that the story is about what FM broadcasters are thinking, but that’s just a come-on.

The story is actually a sloppy rewrite of a single radio trade story on the recent Pandora investor’s meeting. Nothing original, nothing insightful. A Pandora puff piece that has nothing to do with broadcaster reaction to Pandora.

Worse than that, it horribly distorts the few facts it offers.

The title stems from a quote in the original trade story attributed to Pandora executive John Trimble during the meeting:

While that pie (the $37 billion radio advertising pie) is not growing, we see it as an opportunity.

The hack writer then embellishes the misstatement by declaring:

FM radio stations claim $37 billion per year from advertisers--a number of which the now-public Pandora is all too aware, with worrisome implications for FM broadcasters.

According to the RAB total commercial broadcast revenue last year was $17.3 billion. If radio really had $37 billion to divvy up, there would be plenty left over for Pandora.

So we wondered whether Trimble got it wrong, or the story that followed did. We looked at the original Pandora PowerPoint presentation (click to enlarge).

It turns out that the $37 billion number refers to the total of Internet, mobile, and radio advertising projected for 2014 in the US.

The radio trade botched the quote, and our intrepid plagiarist writer didn’t bother to go back to the original source. He simply recited the misstated number while further distorting the significance.

The distortions don’t end there, however. Hewing to the official Pandora line, the writer notes:

Unlike Pandora or satellite radio, it (broadcast) owes no royalties to SoundExchange or any other agency. The U.S., North Korea, Iran, Rwanda, and China let radio stations play music without paying performance royalties to songwriters and musicians.

We’re sure he got quite a chuckle comparing broadcast radio to North Korea, Iran, and Rwanda.

Of course, radio does pay royalties to songwriters, just not performers. And Pandora’s negotiated royalty rate is well below Sirius, depriving starving performers millions of dollars.

This is what passes for new-media journalism today.

Take as big of a swing at radio as you want, say anything derogatory whether it is true or not, and it will be published, even by some of the biggest web sites around.

The hack author, Eliot Van Buskirk, is described this way:

A longtime technology writer for Evolver.fm, CNET, Wired and other publications, two-time book author, and frequent guest on NPR.

If the truth and accuracy standards set by these media allows Van Buskirk to write such trash, then it is a sad commentary on the quality of new-media discourse.

And what are his two books? Burning down the house: ripping, recording, remixing, and more, and the equally famous iPod and iTunes Quicksteps.

Those books alone certainly qualify him to pontificate on Pandora’s threat to broadcast radio.

 

Are You a Doomsayer or Pathfinder?

As the debate continues over broadcast radio’s place in the digital age, participants have fallen into two distinct camps with two distinct views of the future.

One faction fancies themselves enlightened Doomsayers, people who confidently predict a dark foreboding future for radio.

People in this camp think radio is populated by greedy aging luddites who don’t realize that radio is hurdling towards disaster driven by ignorance and an unwillingness to face the inevitability of radio’s irrelevance if it continues on its current path.

The Doomsayers take every opportunity to accuse radio of ignorance, over-confidence, greed, and just plain stupidity.

They seem to delight in pointing out radio’s foibles and missteps. Their “contribution” to the discussion is to engage in continuous radio bashing. They delight in creating radio straw-men who they can debate and verbally crush.

Take the recent Pandora is/isn’t radio debate.

A casual comment by Bob Pittman to a reporter dismissing Pandora as “not radio” turned into fodder for the Doomsayers.
 
Radio critics pounced, seeing it as another opportunity to blast radio’s ignorance, one writing:

I see an almost delicious zeal in diminishing these new definitions of radio by damning Pandora....Any broadcaster who defines "radio" according to century-old rules in a digital age is a fool.

The only fool here is the one that fails to understand why Pittman said what he did. Pittman was doing what any good salesman does regarding the competition.

Clear Channel along with CBS and other groups are developing products to compete against Pandora.

It doesn’t matter what radio is, or isn’t. It matters that Clear Channel and others take Pandora seriously enough to create competitive products.

Calling broadcasters fools serves no useful purpose other than to elevate the accuser’s self-importance.

Streaming is another area where the Doomsayers virtually froth at the actions and inactions of broadcasters.

Station operators, the people who actually know, have said for some time that streaming is a money-losing proposition. Read here and here, for examples. 

The high cost of royalties, much lower spot rates, AFTRA contracts, and the fact that Arbitron doesn’t measure streams all conspire to raise costs and lower revenue.

Doomsayers dismiss all these problems declaring:

The inability of today's leaders to see tomorrow squarely is as old as industry leadership....The vast majority of broadcasters have never even explored a sensible business model around streaming.

The Doomsayers can’t argue the economics of streaming, so they attack the vision and business acuity of those with whom they disagree. It’s an old trick: If you can’t win on the facts, attack the ones with the facts.

The latest silliness is challenging the notion that radio invented social networking.

In 2009 Radio Insights declared that We (radio) were creating social networks long before there was a fancy name for it.

Since that post a number of writers have made similar comments.

So what? So what if radio claims that its social networks pre-date the Internet?

The doomsayers see an ominous corrosive impact:

What bugs me about it isn't just that it's wrong, but that the implication behind its use is so destructive. The over-use of this unfortunate cliché will serve only to console us into acquiescence.

Once again doomsayers portray radio as naive, complacent, and ignorant of the true facts.

Contrast the dismissive downbeat Doomsayers with the other faction, the Pathfinders. Pathfinders also see a challenging future for radio, but they see digital as a great opportunity.

They understand that browbeating radio, calling broadcasters senseless fools, is not leadership, and it isn’t productive.

Radio Pathfinders look for solutions that balance the need to prepare for the future with business realities.

They understand broadcast’s strengths, and its demonstrated ability to adapt to new challenges.

Radio’s Pathfinders understand that digital is still new, a first-mover advantage for the pure-plays is non-existent, and there is plenty of time to develop responses to digital threats.

Whether it is music discovery, personalized streams, or crowd sourcing, the successes of Internet pure-plays can be matched and improved upon by broadcast radio.

Doomsayers focus on silly peripheral issues to portray radio as hopelessly ill-prepared for the future.

Pathfinders see a challenging yet bright future for radio. They focus on the critical issues, confident that broadcast will prevail.

Which are you?

Radio: Still Sounding Like It’s 1999.

The seemingly endless hand-wringing about radio’s digital future is all about peripheral issues.

Social media, web sites, mobile apps and streaming might seem important, but in truth they are worthless unless the product is right.

Radio today sounds pretty much as it did in the 1990s.Yet today’s listener isn’t anything like a listener from the 1990s.

A 1990s listener didn’t have many audio entertainment options. She listened to a handful of AM and FM stations, could play a CD, and now and then maybe watch an MTV music video.

Today’s listener has a seemingly infinite number of options from streaming stations to on-demand services, iPods, satellite, Vevo, social networks, and maybe a couple of HD stations in addition to the same dozen or so AM and FM stations.

As a result of the explosion of audio options from iPods to Pandora, today’s listener has much higher expectations than yesterday’s listener.

With more options than ever, today’s listener has much less patience for a radio station that falls short of her expectations.

This is radio's greatest challenge preparing for the future. While today's radio station is little changed, today's listener has changed a lot.

Radio’s failure to adapt the product to today’s listener is a far greater issue than worrying about Facebook, Twitter, or any of the other issues that seem to preoccupy the industry.

Take music.

A 1990s listener grew up with radio organized around music formats. Stations stayed within a format “lane” playing only songs that fit the format.

This rather cloistered arrangement meant that the 1990s listener heard a pretty small body of similarly sounding songs. Because of this, a listener accepted predictability and repetition as inevitable and perhaps even felt comforted by it.

Formats have all but disappeared for today’s listener. The ability to hear millions of songs with the click of a mouse has expanded the musical horizon of today’s listener.

Today’s listener downloads a little country, some pop, maybe hard rock, and maybe even a little international, for no other reason than she liked each song at the time and it cost virtually nothing.

Programming her own music she effortlessly segues between country, pop, and rock songs without giving any thought to whether they “fit.”

This means that when she tunes to a radio station, she isn’t looking for a format. She’s looking for songs she wants to hear.

Surprise and variety now share the stage with familiarity and comfort. She wants to hear something familiar, but at the same time wants to hear something different.

We can no longer refuse to play a popular song because it doesn’t fit the format. Today’s listener expects us to break format.

This even has implications for rotations and how songs move on and off the playlist.

When a listener could only hear a new song on one or two radio stations, we might power a song for weeks. However, today’s multimedia exposure to music means that today’s listener will grow tired of music much faster.

Today, a listener might first hear about a new song from friends on a social website, listen to it on Rhapsody, and then see the video on YouTube, all before radio adds it.

As a result of multimedia exposure, the velocity of a new hit is greater today. Radio is often the last place today’s listener hears about new music.

Music research today is more about measuring the trajectory of a song rather than determining the right moment to add a song.

We can no longer power a top testing song for eight or ten weeks even if it keeps testing. Today’s hits are far more perishable. At the speed of digital, a radio hit can quickly become  yesterday’s news.

What we test has to change too. With today’s listeners exposed to a much wider range of songs, music tests have to test a wider range of music, songs that stretch the boundaries of a format.

Adapting our approach to music is just the start. Every other programming element has to change too. We’ll get to those in future posts.

Digital Could Turn Radio's $17 Billion into $8 Billion.

Know how to turn radio from a $17 billion business into an $8 billion business? Follow the advice of radio critics and new-media zealots.

They say give up on terrestrial broadcast. That’s history. Focus all your energies on a digital future.

Despite their confidence that digital will save radio, the opposite is true.

If radio shuts down its transmitters and broadcast competes head to head with pure-play Internet services, radio revenue will plummet.

That’s the implication of recent reports contrasting broadcast and streaming cost-per-thousands (CPM).

SQAD’s latest report on spot radio estimates that CPMs average about $12. Mike Agovino, Triton chief operating officer, recently pegged streaming CPMs at about $4.

In other words, a radio station makes three times the money running a terrestrial spot as it would running a streaming spot.

That means every spot that runs on the Internet rather than over-the-air will generate one third the revenue. Something like $9 billion in spot revenue will evaporate when radio turns off the transmitters.

It’s even worse than it appears, because Agovino points out that radio won’t be able to compete with pure-plays running the same commercial loads. He suggests that radio will have to run as few as 6 spots an hour.

One third the CPM and lighter commercial loads. Does that sound like a bright future?

Neal Schore, Triton’s CEO, recently tried to put a happy face on things by declaring a $10-$20 CPM achievable. Maybe, maybe not.

Even if Schore is right, lighter loads and music royalty costs make it nearly impossible for radio to avoid a big financial hit.

Any scenario that focuses on streaming is going to lead to dramatic declines in revenue. The only question is by how much.

If broadcast radio wants to keep revenues at current levels, then the terrestrial product must continue to be the focus of radio groups. It is radio's golden goose.

That's why terrestrial radio has to continue to improve and innovate.
 
Streaming radio’s most valuable franchises is not the solution. The products that radio groups stream have to be low-cost products that compete directly against match pure-plays.

In the digital future AM and FM will have to become premium services that provide unique products found no other place.

Otherwise, digital will be a financial disaster for radio.

Pandora for Old People

Pandora for Old People. That’s how Fast Companycharacterized the announcement that AARP, an organization generally associated with retirement and Medicare insurance, was rolling out its own Internet radio service.

A spokesman for AARP speaking to the New York Times described the rationale for the service:

We've always been trying to reach this audience, because we know that boomers are so passionate about music. We also feel that because of changes in format and whatnot, a lot of them have gotten lost in terms of how to find their music.

The AARP may know a lot about retiring boomers, but the quote reveals a woefully simplistic and naive view of radio listening.

With so many radio people out of work, this may represent a great opportunity for a former program director to teach the AARP about “formats and whatnot.”

AARP’s launch of their own streaming service also shows the ease with which Internet radio services can be launched.

The free service offers 18 channels supported by advertisers that want to reach AARP’s 37 million members.

And AARP offers something on their free service that even Pandora doesn’t offer--a skip button!