Radio InSights

Jerry Lee: Blowing Smoke or Breath of Fresh Air?

 

    “Streaming is a bad business model.  If you take the combination of the cost of streaming and the royalties you are paying now, it is a stiff dollar, (and) the problem is going to get worse.”

 Are these the words of a mad man? Are these the words of a digital luddite, oblivious to radio’s inevitable future, unaware that the light ahead is actually a digital train hurtling radio’s way?

Or is Jerry Lee, owner of Philadelphia’s highly successful WBEB, simply saying out loud what every radio station owner has discovered, that streaming revenue doesn’t even cover its costs, and may not in the future?

Last year we pointed out that newspapers were well ahead of radio in developing a digital strategy, and yet only 12¢ of revenue came from digital. The vast majority of newspaper’s revenues were still from print.

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.

In another post we pointed out that BIA/Kelsey’s estimates put digital revenue at 5% three years from now, growing at something like 15% a year. We noted that:

The disparity between broadcast and digital revenue is so great that for digital to make up for a broadcast decline of just 1%, digital has to grow 33%.

Growing broadcast revenue by less than 4% generates more revenue than all the money radio makes on digital.

Is it any wonder that Lee declares:

“For me to go out and sell digital, my website, etc, is playing with pennies against the dollars I could make by becoming sharper at selling my product.  The money comes from selling commercials.”

While critics attack digital skeptics like Lee, even radio’s harshest critics turn silent when the conversation turns to revenue.

No traditional medium has found a digital strategy that pays its way. Not a one.

So broadcast profits are funding money-losing digital initiatives. Lee is echoing a point we made some time ago that needed money should not be diverted into digital, but rather put into growing the broadcast product:

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.

The industry should pay more attention to successful broadcasters like Jerry Lee, and less attention to self-serving new-media pundits and stakeholders.

Radio needs to adequately invest in the present before it can afford to invest in the future. That means putting more money into the product and less money into new platforms.

Slacker: Mobile's Double-Edged Sword

It’s not often that we get a chance to see the impact of mobile listening up close. The latest Triton Digital numbers offers us one of those rare opportunities.

Slacker signed-on to Ando Media in July of last year.

For the first few months, only Slacker’s computer-based listeners were counted.

Then sometime around November, Ando began including mobile listeners in the service’s count.

The graph above shows what happened.

The orange line shows the session TSL trend. When only computers were counted, average sessions lasted about 1:45. Now with mobile added, average session length has plummeted to less than 45 minutes.

The green line shows Session Starts in millions. After several months hovering in the mid four million range, Slacker “took off” in November, settling over the 20 million mark.

While some portrayed the 4.5 million to 20 million Session Start gain as growth, it's likely there was very little real growth.

The “spurt” beginning in November simply shows that mobile listening makes up a great deal of Slacker listening. Before November Ando didn’t count it. Beginning sometime in November Ando started.

The warning for those who believe that mobile will be the real breakthrough for streaming is the precipitous decline in Slacker’s TSL once mobile listening was counted.

You can see it in Slacker total consumption measured in hours-tuned.

While Slacker’s Session Starts increased more than four-fold (+355%), total hours-tuned grew less than two-fold (+84%).

What it tells us is that Slacker’s 15+ million mobile users are spending virtually no time with the service. Slacker’s TSL is coming from the service’s computer-based users.

Most agree that streaming growth is going to come from a wave of new mobile users. If that is the case, we will see more Slacker-type growth, lots of new sessions spending little more than a few minutes of drive-by listening.

For subscription-based services, that’s no big deal. A paying subscriber is a paying subscriber no matter how little she listens.

For advertising-based services, it’s a much bigger deal. Very short listening spans are problematic when you’re trying to sell advertisers.

Advertisers want to have some confidence that users are going to see or hear their commercials. The most common way to do this online is to have a pre-roll position, one or more commercials that users have to sit through to hear the service.

The problem is that with short listening spans, all the user will hear is the pre-roll--not a good way to build an audience, or a business.

Why “Crusty Old Buzzard” Media Keep Winning

There’s nothing more frustrating to broadcast radio critics than radio’s continued success. The critics tell us that radio along with the other traditional media will soon be toast, just a distant memory of past glories.

Soon listeners will abandon radio for Internet alternatives. Media buyers will follow them pouring more and more money into new media, ultimately starving radio to a financial death, the critics tell us.

Yet listeners keep listening, media buyers keep buying. The latest projections have broadcast radio spot revenue continuing to grow for the foreseeable future even without digital.

How can that be? How can radio critics be so righteously confident they’re right, and yet so wrong-headedly wrong?

A recent MediaPost column by Bill Rose, Seiter & Miller VP/Director of Account Services, notes that:

Big, old media brands with their passive audiences, one-way communication and clunky buyer/seller interactions (face-to-face selling, really?) are just not ready to leave the party. Many of these crusty old buzzards are having banner years in this, the second decade of the 21st century.

Rose believes these crusty old buzzards aren’t toast for a very good reason: They deliver value to the advertiser. He attributes traditional media’s continued strength to its ability to:

Drive fundamental awareness and positive perceptions for a product or brand. It is the gateway to deeper brand relationships; (it) is the battleground for the biggest marketing bucks.

He believes that “Digital media (online, mobile and social) have not inspired confidence that they can be the lead spears in putting a brand quickly on the map of consumer's consciousness.”

Advertisers may like to dabble in new delivery systems, but ultimately they put the lion’s share of their budgets into media that deliver value. Radio’s reach is unsurpassed. Radio’s ability to efficiently target an audience beats even television.

New media is not radio’s greatest threat. It is radio’s self-doubt and a fire-sale mentality that diminishes the product and willingly drives CPPs down.

Be sure to read his entire commentary.

Arbitron to Radio: Screw Engagement

Radio Affinity: a relevant, timely, accessible metric that captures audience involvement and has a lasting balanced impact on radio planning and buying.

Sounds like a great idea, doesn’t it? Measure that special relationship between a listener and radio station.

Apparently Arbitron thought it was a good idea a year ago when it hired Sequent Partners and put together a task force of eighteen radio and agency people to secretly develop the metric.

The announcement was on September 17, 2009. Since then we haven’t heard much about the project. Now we know why.

Inside Radio now reports that the project is on hold because “the metric didn’t garner broad support from radio groups.”  That’s about the extent of what broadcasters outside Arbitron’s inner circle know.

Maybe Arbitron shopped the idea to the larger groups and found out they couldn’t make any money measuring affinity. Maybe the project became awkward for reasons we outlined in our post What is Affinity? How Do You Measure It?

We observed that Arbitron’s new found interest in measuring affinity was ironic because the company had essentially stopped measuring affinity when it switched to PPM.

To measure affinity, we have to measure listenership. But PPM doesn’t measure listening. It measures exposure.

With PPM a person may not even be aware that a radio is playing and the meter will report that she has been exposed to radio.

So Arbitron cannot “repurpose” PPM ratings and create a measure of engagement. The committee may have concluded that to measure affinity Arbitron had to use something like the diary.

The diary does a good job measuring engagement because the listener herself writes down the stations she listens to, and how often. If she really likes a station, she is going to write it down a lot.

This is the essence of strong affinity.

Arbitron convinced broadcasters that the diary method was flawed because listeners could write down the stations they liked rather than the stations they actually listened to. But this is what engagement is all about.

Which is more meaningful, measuring exposure with no regard to whether a person is actually listening to the station, or allowing a listener to give extra weight to the stations she particularly likes?

If engagement is a valuable metric, then putting a diary in the hands of a listener does a much better job of measuring it.

This would be an awkward admission for a company that bad-mouthed the diary for the last decade. Is it any wonder that Arbitron deep-sixed the whole project?

 

Radio's Rubber Ruler

Did you know that 100 is no longer 100? According to Arbitron, 100 is now 65, or 91, or even 115.

Imagine paying for 100 feet of rope, and getting only 65 feet, while someone else gets 98 feet based on your age, sex, and where you live.

Confused? Imagine how media buyers feel.

AQH estimates with PPM are lower than diary estimates, about 30% less. Arbitron explains it this way:

Different measurement methodologies can and do produce different results (in other words, different estimates).

Note that Arbitron is not claiming that with PPM there are fewer people listening. Only that PPM finds fewer listeners. So as far as Arbitron is concerned, the lower estimates that PPM produces is just a minor consequence of the switch-over to PPM.

The problem is that media buyers don’t think like Arbitron.

They buy radio using budgets based on AQH points. They will be told to buy (say) 100 points in a market. Their job is to buy it as cheaply as possible.

When AQH ratings drop in a market, a media buyer will pay less.  Period.

The reason for the drop is immaterial. Fewer points. Fewer dollars.

If new PPM numbers are 30% lower than the old diary numbers, she will expect a 30% discount from what she paid in the past.

Arbitron came up with a solution that only Arbitron could. They simply decided that media buyers should pay more per point with PPM.

Arbitron created confusing charts for media buyers showing exactly how much more buyers should pay with PPM. (At left, click to enlarge.) The buyer might have to pay 35% more, or maybe 1% more. It depends.

It depends on the market, the daypart, the sex, age, and ethnicity of the target audience.

The guide now runs 65 pages, requiring media buyer to sort through nearly 200 different possibilities in each market--just to find out how much more Arbitron thinks the buyer should be willing to pay.

There is no scientific basis for Arbitron’s buying guide. It is simply an ad hoc attempt to dance around the negative financial implications of PPM’s lower estimates dressed-up with some scientific sounding mumbo-jumbo.

But it gets worse.

The top 50 metro markets will have switched over to PPM by the end of the year. The remaining 241 Arbitron markets are measured with diaries, and will continue to be measured with diaries.

Since PPM and diaries produce different estimates, strictly speaking we cannot combine PPM and diary estimates. They are not comparable.

But Arbitron does. Repeatedly.

National radio estimates like Arbitron’s Radio Today, RADAR, and DMAs are now a hodgepodge of combined numbers, PPM numbers for the largest markets combined with diary numbers from smaller markets.

You’ll find this note in Arbitron’s latest Radio Today (emphasis added):

In this first annual report including PPM-measured data from several major markets as well as Diary methodology, average quarter-hour (AQH) ratings were lower than what would otherwise have been reported using an all-Diary methodology.

These differences should not be regarded as actual declines or losses in listening, but as a shift in measurement methodology. As more markets transfer from Diary-based measurement to PPM, we can expect to see additional and significant adjustments in these figures compared to Diary returns.

Arbitron neglects to mention that all these significant adjustments will be downwards. No market has been adjusted upwards, and none will be.

It’s right there, but will anyone pay attention to this warning? How many writers and new-media pundits will worry that trending PPM numbers with diary numbers is wrong, especially when it portrays radio in decline?

None.

So the stories will just cite the Arbitron trends and declare: Radio Listening Drops Again.

In our next post we’ll try to disentangle this confusing hodgepodge of numbers to assess the real health of radio.

 

Did Radio Leave $7 Billion on the Table?

Seven Billion more dollars.That’s what we estimate radio stations in the top 50 markets could add to their billing if radio used Nielsen numbers rather than Arbitron PPM numbers.

We came up with the estimate after Nielsen released a summary of listening in the 51 markets they survey.

The graphs to the left compare Arbitron PPM, Arbitron diary, and Nielsen sticker diary listening estimates for three key measures: reach (cume), TSL (time spent listening), and AQH (average quarter-hour) rating.

PPM cume estimates are minimally higher than in either Arbitron’s or Nielsen’s diary, but considerably lower in more important measures.

For example, PPM estimates that TSL in PPM markets is a little under 12 hours. In markets still measured by diary, TSL is about seventeen and a half hours, almost 50% higher. Nielsen using their own sticker diary estimates TSL at nearly 23 hours a week, nearly twice Arbitron’s PPM TSL.

The most important measure from a sales standpoint is AQH rating, and here Arbitron’s PPM estimate is nearly 30% lower than its own diary estimates, and 45% lower than Nielsen’s.

Arbitron admits that PPM estimates are lower, which is why it created the misguided 70 is the new 100 sales campaign aimed at media buyers. Their goal was to convince media buyers that they could buy only 70 rating points in a PPM market with the confidence that they were really getting 100 rating points.

We called it Arbitron’s Fuzzy Math back in September  when we first wrote about it. Asking media buyers to pay more for less struck us as a little optimistic and maybe even naive.

No official word from Arbitron on how the campaign is going, but word from our clients in PPM markets is that media buyers don’t buy it. Lower PPM ratings means media buyers demand lower rates.

It stands to reason. Media buyers are not going to pay more for less. In a soft economy, most media buyers are going to try to pay less for more.A radio station switching from diary ratings to PPM who walks in with an AQH rating 30% lower than before is going to get beat up.

Either the buyer will pay less for the same number of points, or get 30% more spots than she got before. In either case, PPM has cost the station, either in cash or units.

What would happen if it turned out that Arbitron’s PPM estimates were wrong?What if radio was actually a 16.5 AQH rating medium that Nielsen says it is rather than the 9.1 AQH rating medium that Arbitron says it is?

Media buyers would have to pay higher rates, or get fewer spots. In either case, radio wins.

Radio wins financially, but equally importantly, it wins psychologically. Lower PPM numbers portray a medium in trouble. The uninformed and those who have a financial interest in perpetuating the myth that radio is in decline can point to Arbitron’s lower PPM estimates and use them to beat radio up.

In 2004 the Radio Advertising Bureau commissioned a study to examine the financial impact of PPM. The study concluded that PPM would create a positive revenue swing of $433 million.

PPM apologists will argue that PPM would have had a positive impact on revenue, but that the recession wiped out the gains. One could as easily make the argument that the transition to PPM exacerbated the impact of the recession and worsened the declines.

What is irrefutable is that since the RAB’s upbeat report on the positive impact of PPM, radio revenue has dropped nearly $6 billion, about 30%.

As we pointed out in our first post on the subject, PPM was already rolling out well before the recession hit. If PPM were going to bring new dollars to radio, we should have seen it then, before revenues started declining across the country. Instead, early PPM markets were already in a tail-spin before the recession.

Admittedly, this debate is what is called a counterfactual. It means we have no way of determining whether radio would have been better off without PPM.

In any case, it is interesting to do a “back of the envelope” estimate of what radio might be billing if PPM markets were instead using Nielsen estimates to sell time.

We estimate that in 2009 the top 50 markets billed about $9 billion. If radio could sell using the 16.5 Nielsen rating rather than Arbitron’s 9 rating, radio could generate up to an additional $7 billion at the same cost per point.

It’s just a guess, but think about the implications. Radio’s down about $6 billion. Where would radio be today if we were a billion dollars ahead instead of $6 billion behind.

Makes you wonder, doesn’t it?

Note: Arbitron does not release national estimates comparable to the Nielsen estimates, so to create the Arbitron numbers we averaged five PPM markets and five diary markets. We've found that market estimates are very similar across markets (in technical terms there is very little dispersion), so a larger sample of markets would not change the results significantly. We hope that one day Arbitron releases estimates similar to Nielsen's so we can fine-tune our numbers. If they do, we'll report them here.

Internet Study Shows Radio Getting Bad Deal

It wasn’t Morgan Stanley’s intent to show that radio is getting a bad deal, particularly at a Web conference, but that’s what they just did.

The company presented data that shows that radio is not getting its fair share of ad dollars based on time spent with the medium. Both print and television are getting a disproportionate share of ad budgets.

The Morgan Stanley presentation at the Conversation Marketing Summit was designed to show the potential of Internet/Mobile advertising. You can find the entire presentation at Slideshare, but the two important slides are shown below.

The study compared time spent with each medium to the share of advertising that goes to the medium. For example, only 12% of media consumption goes to print, and yet 26% of advertising spending goes to print. Television is the other medium that gets a disproportionate share of advertising.

The goal of the study was to show that the Internet isn’t getting its fair share of advertising dollars. According to Morgan Stanley, 28% of media consumption goes to the Internet, while only 13% of ad dollars are spent on the Internet.

The study caught our attention because it inadvertently illustrated that radio has the same problem. While 16% of media consumption goes to radio, only 9% of ad dollars go to radio.

And if Morgan Stanley had used more accurate data for radio, radio would have been penalized even more than they claim.

The company used time spent data provided by Forrester. We raised questions about the Forrester numbers last August in a post on TSL. The numbers grossly understate radio TSL. According to the latest Arbitron estimate, TSL is 15:15, well over twice the TSL used in this study.

We estimate that if Morgan Stanley had used more accurate media usage estimates, radio’s time spent would have been even with the Internet,  slightly less than television’s, and over twice of print’s.

Using Morgan Stanley’s logic, radio should be billing nearly three times as much as it does.

The second slide from the presentation at the left compares the cost per thousand by medium. Radio is shown as the most efficient traditional medium that Morgan Stanley studied. Radio’s CPM is around $10 compared to newspaper’s $16 and broadcast television’s $27.

The fact that radio isn’t getting its fair share compared to television and print isn’t news. It has been a source of frustration for radio broadcasters for decades. This analysis adds insult to radio’s chronic injury by showing that the Internet is joining radio’s traditional nemeses in taking dollars that should go to radio.

A misguided rush to accelerate Internet usage will only worsen this disadvantage. Radio needs to fix its image now.

 

Is Radio Barking Up the Wrong Tree?

Today all the talk is about growing Internet revenue. BIA/Kelsey recently declared:

While traditional media currently dominate the local ad market, a steady shift to digital will continue over the next five years.

So the key to revenue growth is selling more web space, right? Before getting too excited, let’s look at how well the strategy has worked for newspaper.

Last year, newspaper print revenue dropped about $10 billion, to about $24.8 billion. Even online revenue dropped, from $3.1 billion to $2.7 billion.

So despite investing years and millions of dollars to develop an online presence, only 10% of newspaper revenues come from their online product. Despite their efforts, nearly $22 billion of revenue has simply evaporated.

But it is hard to feel too sorry for print. In 2009, local radio revenue was only $13.2 billion. Print is all but dead and buried, and yet the medium was still able to out-bill radio by $11.6 billion in print, and another $1.4 billion online.

Isn’t radio barking up the wrong tree? Why all the focus on growing radio’s Internet revenue, when newspaper print dollars look so vulnerable?

Sure the Internet has all the attention and momentum. It’s the trendy place to advertise. Yes, one day radio may need to count on Internet dollars. However, if newspaper’s experience is any indication, radio will be trading broadcast dollars for Internet pennies.

Maybe in the short run radio should be focused more on taking newspaper’s print dollars.

One of the most theatrical moments of the traditional radio sales meeting has been the sales manager throwing a stack of newspaper ads in the middle of the conference table noting that none of the businesses are buying radio time.

Yet over the first half of this decade radio revenue as a percentage of newspaper revenue barely budged. Radio began the decade generating about 39% of newspaper’s revenue. Five years later as newspaper began to fade, radio was only at 40%.

Today radio is doing better, not because radio is growing, but because newspaper revenue is dropping faster. What would happen if radio made a concerted effort to take newspaper's money?

Radio's hyper-local Internet efforts target newspaper's online dollars, but there isn't a lot of money in it. The real money is targeting newspaper's print dollars.

In 2009, newspaper and local radio together billed $38 billion excluding network radio and online revenue. If we just pulled even with newspaper, radio would be back to the kind of money the medium was billing at the beginning of the decade. Radio won’t achieve that any time soon with online revenue.

 

Let's Kill the Quarter-Hour

A radio broadcaster from the 1930s or 40s would hardly recognize radio today. No more Lone Ranger, Mercury Theater, or Benny Goodman.

The one thing our broadcaster from the 1940s would recognize is radio ratings. That’s because radio ratings haven’t really changed since the 1940s.

The quarter-hour, a ratings metric developed in the days of Amos and Andy, is still with us today. In an era when radio programs were in fifteen minute blocks, measuring radio listenership in quarter-hours made sense. It told radio time buyers how many people were listening to Jack Benny or Arthur Godfrey.

Today it is as anachronistic as the shows it was designed to measure. It penalizes local radio stations, and hurts radio revenues.

It is time to bury this obsolete throwback. Today the quarter-hour makes no sense. Radio long ago abandoned the fifteen minute program. Why should the metric designed to measure it live on?

Arbitron’s People Meter (hopefully) records radio exposure every minute. The PPM shows that listeners begin and end their listening at seemingly random minutes within the hour. A panelist can start listening at any moment, and stop listening just as randomly.

So why does Arbitron continue to report listening in quarter-hours?

Under current Arbitron rules, a person who listens to a radio station from 9:11 to 9:19, actually didn’t listen at all. To be counted, there has to be at least five minutes of listening within a standard quarter-hour. Because her listening wasn’t long enough in either the first or second quarter-hour of the nine o’clock hour, the station receives no credit at all.

That’s true whether the market is measured by diary or PPM. But things are even more complicated than that.

Let’s say our listener listens from 9:00 to 9:01, again from 9:11 to 9:19, and then again from 9:28 to 9:29. If she is filling out a diary, then the station gets no credit. Zero. To be counted towards diary credit, a person has to listen at least five continuous minutes within a quarter-hour to count.

On the other hand, if the listener is carrying a meter, the station gets two quarter-hours of listening. In PPM, a listener still has to listen at least five minutes in a quarter-hour, but those minutes need not be continuous.

This is how crazy things have become. With PPM, a person can listen for a single minute in alternate minutes (for example at :01, :03, :05, :07, and :09) and the station will receive credit for one quarter-hour. However, the same pattern across quarter-hours (:11, :13, :15, :17, :19) nets the station nothing.

(You may be asking yourself why Arbitron accepts such fractured listening with PPM. The encoded audio must be “heard” to be counted. Like a distant AM signal that fades in and out, the encoded audio can fade in and out. By accepting fractured quarter-hours, Arbitron compensates for the meter’s aural limitations.)

Isn’t it time that radio abandon this convoluted counting of minutes within quarter-hours? Shouldn’t Arbitron adopt a metric that reflects the way people listen today?

At least before the Internet, all radio stations were measured using the same metric. Today we have a situation where local radio stations are measured using a 70 year old metric, while Internet radio is measured using a much more lenient metric that gives Internet services a clear advantage.

Ando Media once reported Internet listening in the same way Arbitron reports local radio listening. Then in May of last year, it eliminated Arbitron’s antiquated five minute rule. It began counting any listening over one minute.

The ratings of Ando Media’s clients exploded. Listening appeared to increase two and even three times. By counting listening less than five minutes, and counting listening across quarter-hours, TSL (time spent listening) dramatically increased.

Were Arbitron to take Ando Media’s lead and switch from a five minute rule to a one minute rule, we believe local radio would see similar increases. Radio stations would finally get credit for all the discarded minutes of listening that currently disappear.

It is time for broadcasters to demand that Arbitron move into the 21st century. It is all well and good that the company has developed a new electronic way of gathering listening information. Why does the company insist on reporting the results as if we were still in the 1940s?

Radio Revenue: Predicting Weather Looking Outside

Happy days are here again. The latest revenue predictions are out, and they are up. In March, BIA/Kelsey forecasted a 1.5% increase for 2010, and 2-4% gains over the next few years. Their prediction came right after a 1% gain in radio revenue was announced for January.

Barclays Capital's team of analysts are now even more optimistic. They think revenue may increase 7.4% for the year. Their prediction came right after a 6% gain in radio revenue for February.

Predictions are a funny thing. When things are going well, predictions generally predict more of the same. When things are going poorly, predictions generally predict more of the same. It’s like a weather forecaster looking outside, seeing clouds, and predicting cloudy weather.

The graph at the left show the Barclays predictions for 2010 going back to December 2008. They were predicting a 10% drop for 2009, with things still negative but improving this year, to a 2% drop in 2010.

As we know, 2009 was a brutal year with revenue dropping 18%. As things headed south, Barclays’ predictions became more pessimistic. Their 2010 prediction was revised to -4.0% in March.

Revenue bottomed out in May at -25%. Then things started to turn around. By September revenues were down "only" 13%, and by December revenues were essentially flat with 2008.

In January Barclays predicted 2010 would be up by 2.2%. Now just three months later, the analysts think radio will gain over 7% this year.

In one year their prediction has swung from -4.0% to +7.4%. That doesn’t say much about their long-range predictive ability.

This level of uncertainty is not limited to Barclays. We can find a similar pattern with others that predict radio revenues. When things are going well, they predict growth. When things are going poorly, they predict declines.

It means that when the industry faces an inflection point like 2005 when growth suddenly stopped, or today’s break after three years of precipitous declines, the analysts are essentially punting. They really don’t know where things are headed.

During times like these radio needs analysts who do more than look outside. These are turbulent times. Radio could use analysts who study the cross-currents impacting radio and tell us something we don’t know.

Yahoo to Outwit Local Yahoos. Localism Part 2.

We now return to the tea party to continue our conversation with new-media’s Mad Hatters. Read part one here.

We had just learned that according to the Internet, the word local had been transmogrified (in the words of Humpty Dumpty) meaning just what I choose it to mean -- neither more nor less.

Yahoo, in lingua franca only the Internet can get away with, believed that localism is one of the most disaggregated experiences and most promising white space on the Internet.

In other words, Yahoo thinks the locals can’t do localism.

The scary part is that Yahoo might be right. Look at local radio. Today how many stations are centrally programmed from corporate headquarters? How many stations use distant voice tracking? How many syndicated shows have replaced local live shows? It is a process we call the nationalization of local radio.

If local radio becomes nationalized, then the game is lost.

Lost not in the sense that local radio will disappear. There will be terrestrial radio stations for many years to come.

Local radio will lose its uniqueness, however, and with it the ability to charge a premium for its spots. If local radio becomes robotic like Internet radio, then price will be the only determinant for choosing one over the other, and local radio cannot compete with national services on price.

It means that commercial radio groups will have to continue cutting programming expenses, firing even more live jocks, eliminating what few advantages local radio still has.

It is a death spiral that will turn local radio stations into zombies.

Local radio’s greatest advantage over national services in its localism. Rather than cutting back on localism, stations need to work even harder to maintain it. We need to become more local, not less.

Local radio stations that understand this will be the ultimate winners. They will prevail over the national services, and they will prevail over the zombie stations of large faceless corporations.

Live and Local. That has always been the winning formula for local radio. It remains the winning formula in this digital world.

Radio vs Newspaper: Different Boats-Different Fates

Back in September of last year when things looked pretty bleak for traditional media, we expressed guarded optimism for radio. We argued that while both radio and newspaper seemed locked in a death spiral, the ultimate fates of the two media would turn out differently.

The cost, physical nature of Newspaper, and its 24 hour delivery cycle puts it at a fundamental disadvantage to electronic media. Television and radio can adapt to a digital world much more easily than newspaper.

Mainstream media seems to be coming to the same conclusion. Recently MediaDailyNews noted:

Two of the hardest-hit traditional media will see their fortunes diverge in 2010, according to analysts who expressed muted optimism for the near-term prospects of broadcast radio, but warned of a fresh round of declines for newspapers.

The article contrasted BIA/Kelsey’s estimate of a steady improvement in radio revenue to J.P. Morgan’s prediction of an additional 8% decline in newspaper ad revenue.

Radio is far from out of the woods. It will take years of the projected single digit gains to make up for just the last two years of decline. It is, however, movement in the right direction.

We believe radio can do better than the anemic BIA projections if it gets its mojo back.

Radio needs to get back to work improving and innovating both the broadcast and Internet products. HD is a failure and we need to move on.

Radio also needs to work together under strong leadership to push back against the myths perpetuated by new-media pundits. As we noted in September:

Radio has only itself to blame for the financial shape it finds itself in. It let new media pundits perpetuate a self-serving myth about radio, and radio did nothing about it. It actually did worse than nothing–it panicked. Radio acted like it was in trouble, which only played into the myth.

Surprise! NYT Discovers New-Old Media Synergy

Further evidence tempering expectations regarding traditional media’s imminent demise can be found in a New York Times article Old and New Media Coexisting Nicely, Thank You. Here’s the key quote:

"When digital came in, people said, `No one is going to watch TV,' " said Gloria Rosenberg, president at Market Fusion Analytics in New York, a consult firm that helps advertisers develop growth strategies.

But as it turns out, "there's a synergy and not a cannibalization," she added, which is leading marketers to "create integrated communications programs" involving multiple media.

Here’s radio’s problem: The articles finally acknowledging traditional media’s continued relevance focus on television. Over-the-air radio and over-the-air television both have continuing strong usage. Television viewing levels and radio listening levels have barely budged.

Nielsen has shown that media consumption is not a zero-sum game. Yes, people are now watching Internet video, but not at television’s expense. Yes, people are now listening to Internet radio, but not at terrestrial radio’s expense.

But television is winning the PR battle with the advertising community.

Why isn't there a more aggressive attempt to sell radio (not just HD) to Madison Avenue? Why waste millions promoting HD when we need to promote the continued strength and relevancy of all radio.

Traditional Media Begin Push-back. Where's Radio?

After years of touting their digital initiatives, traditional media are beginning to rethink things. The Wall Street Journal recently took note of a new magazine campaign spearheaded by Jann Wenner, creator of Rolling Stone. In a statement that might as well be referring to radio, Wenner wrote:

A lot of us sat back for way too long and listened to all this abuse and said nothing about it. Meanwhile, we sit on top of one of the greatest mediums.

The article adds:

The spark for the campaign was a "manifesto" Mr. Wenner penned last year, in which he said that just as TV didn't kill magazines, the Internet was a threat only to publications that lost focus on what makes magazines unique. "In a certain way, this campaign is aimed at the magazine business itself," Mr. Wenner wrote.

Time Warner's Time Inc., Hearst, Advance Publications' Condé Nast, Wenner Media and Meredith are coordinating a $90 million ad campaign touting the "power of print." Nearly 1,400 pages of the ads will appear in magazines including People, Vogue and Ladies' Home Journal this year. The ads were created by WPP's Young & Rubicam. (Click ad to enlarge.)

The WSJ authors note that:

Amid a decline in spending on traditional media, other industries are making similar pitches for themselves. The Newspaper Association of America has run repeated ads to publicize the number of people who read a daily newspaper. As with the magazine campaign, the newspaper trade group says its ads are designed to counter the notion print is a dead medium.

The local-TV industry's trade group is starting an on-air ad campaign this month to encourage companies to advertise on their local TV stations.

We predicted this last year. All these digital initiatives have done more harm than good. Last November we wrote:

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 they began producing a print product quite inferior to the newspaper they 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. Now newspaper finds itself with a hollowed out print product and little to show for its digital efforts.

Traditional media is beginning to understand that revenue lost from their core non-digital product cannot be made up for in their digital product. And paying for their digital efforts by diverting money from their core product inflicts damage on both.

We closed the post with this warning:

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.

Newspaper, local television, and magazines are all pushing back. Where is radio? MIA. The HD campaign? No one listens to HD and no one cares about HD.

The Radio Heard Here campaign? Hopelessly misguided.

The magazine campaign directly targets the Internet, comparing it to print’s strengths. Radio is still selling against satellite, as if that’s the battleground.

Once again, radio demonstrates why it is not taken seriously.

Having the Guts to Confront the Lies

Traditional radio is dying. How often have we heard that? How many seemingly sincere people say that while intelligent people nod in agreement?

Of course, the factual evidence says otherwise. We’ve recounted the results of numerous studies and listening surveys here, here, here, here, here, here, and elsewhere. Yet new-media true believers simply dismiss all this evidence, arguing (without any proof of their own) that no one listens to radio anymore.

When it comes to the battle between facts and beliefs, beliefs often win. Behavioral research shows that even in the face of overwhelming factual proof to the contrary, many people will continue to hold fast to their misguided beliefs.

Unfortunately, the willingness to accept radio's demise as truth is aided by those who’s financial interests line up with the lie. There’s a lot more money to be made on the radio is dead side.

Television fights a similar battle. New-media pundits dismiss over-the-air TV declaring (contrary to all evidence) that people don’t watch traditional television anymore.

The difference is that while radio seems to suffer from a lack of confidence problem and takes the abuse quietly, television more often pushes back. The latest example is the response to a Forrester forecast. Forrester is a "research" company that peddles pricey studies that often have an upbeat new-media theme.

Advertising Age reports that after Forrester analyst David Cooperstein predicted a decline in television advertising at the recent Association of National Advertisers, CBS Corp. Chief Research Officer David Poltrack (shown above) rose to challenge the prediction. According to Adage, here’s what Poltrack said:

This research says that advertisers are actually pulling money out of television. It is not true. In 2006 when you published this result, Forrester predicted, that 5% to 10% of advertising dollars would be taken out of television in 2007. Television advertising actually went up 4% in 2007. And since 2007, despite the recession, television has increased its share of advertising dollars two full percentage points. So advertisers are spending more of their money on television, not less.

Another account of the moment better conveys Poltrack’s frustration:

He was particularly set off by advertisers' claim (in the Forrester study) that only 41 percent of their media budgets went to TV last year versus 58 percent in a 2008 survey. Poltrack called those figures here "bullsh*t numbers." He added, "For that to happen, if advertising dollars during the recession went down 10 percent, TV advertising would have been down 30 percent. Everyone knows that didn't happen."

A review of Forrester predictions shows a pattern of understating radio and televisions strengths while predicting broad and rapid embracing of new media. The media dutifully print the Forrester predictions without bothering to look back to see how accurate their previous predictions were. (Not very.)

We raised questions about Forrester’s research in August of last year here. The company asserted listening levels were dropping precipitously and in 2009 were less than 7 hours per week. Arbitron’s PPM listening estimate was 12 hours, their diary based estimate was even higher, and both were at the low end of other estimates.

Why isn’t the NAB out front with a truth squad? Where’s the RAB? How about Arbitron supporting radio rather than just bleeding it?

Radio needs people like David Poltrack who are willing to call “bullsh*t” what it is.

Google & the Superbowl: The Power of Traditional Media

If you saw the Superbowl, you might have caught the commercial for Google. While it wasn’t the flashiest or funniest, it was notable for one reason–Google’s CEO, Eric Schmidt, has long argued that this kind of advertising is a waste of time.

Years ago he dismissed brand advertising, declaring it, “The last bastion of unaccountable spending in corporate America.” So what was Google’s commercial doing?

Promoting the Google brand.

Schmidt must have been pretty excited about it because he even went so far as to tweet a tease about the spot writing, “Can't wait to watch the Superbowl tomorrow. Be sure to watch the ads in the 3rd quarter (someone said "Hell has indeed frozen over.")

Of course after it ran he minimized the whole effort blogging:

If you watched the Super Bowl this evening you'll have seen a video from Google called "Parisian Love". In fact you might have watched it before, because it's been on YouTube for over three months. We didn't set out to do a Super Bowl ad, or even a TV ad for search. Our goal was simply to create a series of short online videos about our products and our users, and how they interact. But we liked this video so much, and it's had such a positive reaction on YouTube, that we decided to share it with a wider audience.

Yes, it wasn’t really advertising or promoting the Google brand. Google just had an extra three million dollars lying around and wanted to share their video. Sure.

Sometimes the fantasy that traditional media are irrelevant and no longer work collide with reality. Search is maturing and Google is a maturing brand within search. It needs to work to remain top of mind. Brand advertising on a reach-oriented medium can help.

Preliminary estimates suggest that an estimated 107 million people watched the game. Estimates put the game’s television share at over 50%, perhaps surpassing the M*A*S*H finale in 1983.

Turns out the spot was a good investment. Perhaps when it comes to Internet CEOs, it is do as they do, not as they say.

Astonishment...Familiarity...Contempt

Innovation often goes through three stages: astonishment to familiarity to contempt. We often see this cycle played out in radio with new formats.

A new station launches, and listeners quickly abandon their current stations and switch. Initially listeners think the new format is wonderful. Listeners overlook the bad songs, the weak jocks, and marketing that hasn’t quite jelled.

The station has a brief honeymoon to fix things up, but if it doesn’t, the station’s flaws will become more irritating, and listeners will abandon the new station drifting back to the stations they listened to before.

We believe digital alternatives to terrestrial radio will follow this same arc. Digital audio initially elicited wonderment. People were astonished with all the new digital alternatives to terrestrial radio. Satellite, streaming, and online radio stations were shiny and bright. The expense, the inconvenience, and poor content were ignored.

Over time, however, the novelty wears off. Whether it is the expense, the inconvenience, or poor content, the weaknesses become more apparent and more irritating.

We believe we are well into the second phase of familiarity, and perhaps now moving towards contempt.

Satellite has stalled and is now losing subscribers. New streaming services are not expanding the options, but rather replacing the services that are failing.

Blind confidence that digital audio will succeed has been replaced by serious discussions on whether advertising based services can survive. As we recently noted, British commentators have flatly declared the advertisement based model DOA. Slacker, Pandora, and Spotify have all added pay tiers in hopes of generating additional revenue.

Further evidence that digital has moved well beyond the astonishment phase is the perception of Madison Avenue. Here’s what Jack Feuer recently wrote in a MediaPost blog appropriately titled Eat or Be Eaten:

Digital agencies get the glory, the money, the girls, the business and the media attention. Sooner or later, though, they'll get theirs. Because they know the tech but they don't understand the art. They also talk a good game.

But there's one word they think they've co-opted, which they will soon discover is the technological equivalent of a window. That word is "content."

The digital communicators don't really get content. They act like it's a commodity. It isn't. It's the heart and soul of communication.

With all of radio’s faults, weaknesses, and recent missteps it remains unchallenged in audio content. Despite digital’s huffing and puffing, terrestrial radio remains in the driver’s seat because radio understands content and owns the best.

Listeners are coming to this realization. Madison Avenue is slowly coming to this realization, and unless radio really screws up, there is little digital can do about it.

Larry Wilson's Alpha Broadcasting in Time

 We recently noted a turning point regarding how radio was treated by other media. Left for dead just a few months ago, upbeat stories on radio are starting to appear even in mainstream media.

The latest example is the story of Larry Wilson in Time written by Belinda Luscombe. The title, Rescuing Radio, says it all. It portrays Wilson as a savvy broadcaster who got out at the right time, and now thinks it is time to get back in, buying stations in Portland, Oregon.

Wilson’s take on what went wrong is explained this way:

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." Wilson acquired the rights to air the games of three local sports teams for his FM sports channel. According to Arbitron, it has already started to poach listeners from the local AM sports channel.

Radio’s Chicken Littles continue to tell us the sky is falling. The fact that more and more journalists are tempering their radio is dead stories says otherwise.

Half Your Ad Money Wasted? Try 95%

One of advertising’s oft repeated phrases is Half my advertising money is wasted. I just don’t know which half. Interestingly, the British attribute the quote to William Lever, while American sources attribute it to John Wanamaker. Regardless of who said it first, you’ve probably heard the phrase.

Turns out that when it comes to online advertising, Lever and Wanamaker were wildly optimistic. A new study shows that half of ad impressions and 95% of clicks are fraudulent.

As reported in MediaPost:

Click fraud continues to plague online advertising, but many just want to sweep it under the rug. Radar Research managing partner Marissa Gluck calls it "the dirty little secret of the online ad industry that no one wants to talk about."

Perhaps that's because data released Thursday in a study conducted in July reveals that more than half of ad impressions and 95% of clicks in online ad buys were fraudulent. Gluck compiled and analyzed the findings published by ad optimization company Mpire, Seattle, Wash., with help from its AdXpose technology.

To see how big of an issue this has become, do a Google on click fraud.

Apparently the rampant fraud isn’t deterring advertisers from diverting more and more dollars from traditional advertising to online. Maybe radio stations should take a cue from online. Don't increase the spot load. Just play music over half the spots you run.

Mickey Luckoff Takes on PPM Granularity

Mickey Luckoff, President, General Manager of Citadel's San Francisco stations, recently wrote an open letter to Arbitron complaining about PPM. He noted:

One of the main sales advantages Arbitron used in their sales campaign to radio broadcasters was represented to be the ability to measure program elements, tune-in as well as tune-out features. Moreover, when the scant numbers of meter response information is “sliced and diced” the available numbers, trends etc. are of absolutely no value in making any such decision with any degree of accuracy or reliability.

To illustrate Mr. Luckoff’s concern, we looked at one station (we’ll call it WZZZ) in a market that had just switched to PPM. We chose the median station listed in the 6+ ranker. Median means that half the stations had a higher share, and half the stations had a lower share. We then ran a Persons 25-54 analysis of morning drive for the station. (We can’t be more specific than this regarding the station or market without running afoul of Arbitron’s restrictions.)

The first graph shows the number of PPM meters logging the station each minute from 6 am to 9 am. (Click to enlarge.)

The numbers to the left of the graph are the number of meters. The largest number of meters “tuned” to the station was 5. For three consecutive minutes in the 7 am hour, the stations had 5 meters.

The gaps in the graph are those times when the station had no meters registering it. For 58 minutes, or 32% of morning drive, not a single meter logged the station.

The second graph shows the distribution of meters registering “WZZZ”, from zero to five. Note that out of all of morning drive, only five minutes had 4 or 5 meters registering the station.

For fully 70% of morning drive, the station had either 1 or no meters. This was for the median station in the market. Half the market's stations may have had more meters during morning drive, but the other half of the market had fewer.

One of the touted advantages of PPM was the “granularity” of the data. Broadcasters were assured that programming decisions could be made based on minute by minute ratings. Were this station to make changes based on PPM minute by minute, it would be using the actions of just one or two people to determine the outcome.

Now perhaps you can understand why Mr. Luckoff complained that:

Having so few meters stymies the ability to measure any aspect of programming at any particular time. Therefore, the promised advantage to programmers to make decisions based upon "PPM" input is virtually non existent. And for this, our expense for this service increased by 50 percent! This situation will continue to be magnified as Arbitron rolls out the PPM into smaller markets.