The Future Will Arrive Quickly & Without Warning

Be Prepared And Avoid Making The Wrong Moves

As we prepare to enter into a new ratings phase with the spring Arbitron sweeps, I thought we'd take a look at the state of our industry in March 2006. I see this one as a pivotal year to building the future of "terrestrial local radio" as we know it. Let's look at some of the challenges we can expect to face in the year ahead.

Satellite, Internet & HD Radio

The debate is now in full drive as far as the future of satellite radio, internet radio, and HD radio and their impact on local earthbound frequencies. Some leaders in our business don't see this as a threat, while others clearly do. It is no coincidence that one of the leading investors in XM Radio happens to be Clear Channel. They clearly see the potential of this new medium to impact the way listeners use radio.

I have personally witnessed a few individuals (with no affiliation with the radio business) who have purchased a satellite radio and have no intention of returning to traditional radio any time soon.

XM is on its way to 7 million subscribers, clearly a relatively small total in the big picture. That subscriber number may increase substantially by the end of 2006, however. Sirius, which got a later start than XM and started out weakly in the programming area, is now ramping up quickly. With the addition of Howard Stern this year, we would expect to see their numbers improve substantially.

Satellite radio as a competitor is like facing a multi-station cluster. They can put formats up that specialize in unique and small niches that we can't possibly do as narrowly as they do. After all, they have options for almost every type of listener somewhere on their service. With all due respect to those who downplay the impact of satellite radio, this is clearly a threat that will only loom larger in the future.

Let's take a quick look at Internet radio. Something that you may find interesting is the fact that, strictly from a performance perspective, Internet radio is a lower quality product than broadcast radio. Specifically, most Internet stations stream at a bit rate that offers poorer sound quality than FM radio. Internet is not completely portable yet. You can't listen to it in the bathroom, in your car, or on a Walkman. While it's true that bit rates are not what they should/could be, as the price of bandwidth continues to drop, there should be a dramatic improvement in the bit rates and quality of Internet streaming.

Many Internet stations have dead air between tunes. But, while Internet radio is not yet fully portable, it should be noted that Verizon and many others are currently developing a coast-to-coast wireless broadband. Soon there will be portable radios that are designed to be IP-tunable to bookmark a user's favorite streams and to receive these broadcasts and pipe them through a car or home system. If you have a laptop with wireless capabilities, then in a sense, it already is wireless provided you are near a "hotspot" or Verizon or other ISP has a wireless network in proximity to your machine.

And then there's HD radio. There's no doubt that, under ideal conditions, HD quality far exceeds the best FM radio. But this requires spending big bucks. Broadcasters have to spend thousands of dollars to upgrade their equipment. Listeners too, will have to make a substantial investment in new HD receivers and antennas.

What it all comes down to is whether digital HD radio represents another example of adding performance characteristics that are beyond what consumers are going to be willing to pay for.

How Many Commercials - Is Less Really More?

Heavy commercial loads have become a severe problem. I've had the opportunity to sit in on various focus groups and perceptual studies around the country, and the number and length of commercial sets is definitely one of the leading causes of tune out to radio today. Somewhere along the road, it became okay to follow the "leader" and add units because the competitor was doing the same. At the same time, we were going to one and two breaks an hour, which meant unit stacking to an outlandish level.

My prediction then and now is that more companies will look at expanding the number of breaks per hour, while shortening the length of those breaks. Companies like Clear Channel and Cox have resisted the temptation to add units all along. This has generally paid off for them with higher ratings.

In 2006, it will be imperative to raise the average spot rate and increase radio's share of overall advertising above the traditional 8% it has held for several consecutive years now. To continue to ignore the problem will lead to irreparable damage in the near term.

Demographic Challenges

Radio is becoming an old medium. With the agency focus over the last two decades being towards the 25-49 year old listeners, there has come a concurrent decline in younger age tuning. This has led to a change in how radio is perceived by younger listeners. In the upcoming spring book we should remember the rule: Eighty per-cent of your station's listening comes from twenty percent of the audience. The problem is that twenty per-cent is shrinking, particularly among young listeners.

No longer is radio the top source for new music choice. With the explosion of MP3's and the availability of the iPod for both Mac and PC users, it has become relatively easy for consumers to build their own radio stations on their personal listening devices. This fundamental change in technology will continue to take its toll on terrestrial radio's natural ability to build cume by luring new listeners.

There is some hope, however, that agencies are beginning to see the need to expand and diversify their reach of advertising into younger demos. This has already lead some radio clusters to consider a younger, Latin-leaning option among their choices of music radio offerings. These younger Latin-leaning music-based formats will have to be less rigid and more adventurous to be successful, as today's young people have so many choices with which to spend their entertainment time. In short, youth-based radio will have to change to become really compelling again. This leads me to this observation.

Content And Creativity Will Become King Again

The day of "ten in a row" jukebox radio is finally coming to an end. The listeners are hip to the fact that the price they pay for ten in a row is often fifteen in a row (as in fifteen commercials in a row). They simply are not going to tolerate that any more. This is especially true for those listening in their cars, where it's a quick, one-button motion (sometimes right on the steering wheel) to find a new frequency.

We shouldn't be surprised, as every situation hits critical mass sooner or later. That moment has now become sooner rather than later. The small percentage declines in time spent listening over the last decade will become greater and greater until an effective remedy is put in place. It is time for stations to become more adventurous and to put the emphasis on personality and creativity. It is time to stop talking about all the things we shouldn't do and to begin focusing on things that we can and should try.

The policy of restricting air-personalities to back sells and liners has led to a less than compelling product overall. We risk continuing to lose our place as a primary medium unless we put something compelling back in to the presentation.

In the future, those stations that invest in and cultivate personality and creativity will become the big winners. They will also be the stations that are then able to attract and keep the most creative personalities in the business. Now is the time to ask ourselves this important question: Are we content with where we're at now, or are we prepared to make the changes necessary to convert occasional listeners into loyal listeners? To do this we not only have to give them something to listen to, we must give them something to believe in.

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