Is radio embracing digital too slowly, or too quickly?
While the answer may seem obvious given the barrage of criticism directed at broadcast radio, the answer is not as obvious as you might think.
We’ve all heard the criticism:
“Many terrestrial station owners resistant (streaming), in part because it is human nature to resist change.”
“The inability of today's leaders to see tomorrow is as old as industry leadership itself.”
“The sooner broadcasters step into that space (streaming), the better.”
But like the calls of religious zealots, the self-assured beseechments of new-media types are based on faith rather than facts.
BIA/Kelsey thinks that digital will contribute half a billion dollars to radio this year. How much more would digital contribute to radio’s $15 billion revenue if radio moved faster?
Critics don’t have a clue. Like a scene out of Field of Dreams, they just believe if you build it, the dollars will come.
Jerry Lee, owner of Philadelphia’s WBEB, disagrees:
For me to go out and sell digital is playing with pennies against the dollars I could make by becoming sharper at selling my product. The money comes from selling commercials.
As it turns out, radio just may be doing what Lee warns against, working too hard to bring in digital pennies instead of working to bring in more spot dollars.
Harker Research recently analyzed radio revenue patterns going back to 2009 and to no one’s surprise found that a growing proportion of revenue growth is coming from digital.
Radio critics point to this as proof that digital is the key to radio’s future growth. But is it?
Take a look at the graph at left (click to enlarge).
We have indexed quarterly revenue for spot radio, spot TV, and newspaper print against 2009 as media were coming out of the recession. To smooth out seasonal effects, each data point is the average of four quarters.
Television has rebounded from its post-election doldrums, and is now growing steadily. It now stands ahead of where it was in 2009. Newspaper continues its free-fall, now at 70% of 2008 print revenue.
Radio is better off than newspaper, but worse off than television. It appears stuck at about 92% of 2009 spot revenue.
The contrast between the three media’s recovery from the recession suggest that each is on a different trajectory.
Television spot growth is considerably stronger than radio’s, suggesting that radio might be inadvertantly following newspaper's path. Instead, perhaps radio ought to emulate television’s growth strategy.
The curious thing is that as the second chart illustrates, newspaper generates the highest proportion of revenue from digital, television generates the least, and radio is in between.
The medium that has focused primarily on its traditional product, television, is the most successful, while the medium that has essentially gutted its product, newspaper, is the least successful.
If digital is the key to growth, why is television, the medium that has done the least preparing for a digital future doing better than either radio or newspaper?
Newspaper was the first medium to decide that the future was digital. Newspapers put all their resources into re-inventing newspaper as an online product.
They fired reporters, writers, and editors, eliminated whole newspaper sections, and in most ways hollowed-out the product they delivered to readers.
During this time, print revenues dropped like a rock. $23 billion of annual print revenues have evaporated.
After eight years of gutting print to grow digital, newspaper has $3 billion of annual digital revenue to show for it, still leaving the medium $20 billion in the hole.
Radio has approached its digital future much like newspaper. It too has taken an axe to the product, firing air staff and program directors, cutting marketing and research dollars all the while it pours more money into digital.
If gutting newspapers backfired and left print in a deep hole, will it happen to radio too?
The third graph traces newspaper’s growth in digital revenue from 2003 when the Newspaper Association of America starting reporting digital separately.
As with the first graph, the data points are four-quarter averages of quarterly digital revenue as reported by the association, in this case indexed to 2003 revenue.
Revenue grew steadily until the recession, fell back, and then returned to pre-recession levels. Perhaps digital revenues will continue to grow, but so far this year digital growth has been anemic.
Newspaper may be facing a future of falling print revenue, combined with stalled digital growth.
The second trend in red on the graph is radio’s performance indexed to 2008 when the RAB started breaking out digital.
At this rate, digital revenues will reach about 8% of radio’s on-air spot revenue in about five years.
Newspaper’s failure to stop the bleeding with a digital focus, in contrast to television’s continued success improving its traditional product should be a warning to radio.
Digital has turned out to be a trap for newspaper. Gutting its print product to fund digital efforts has not solved newspaper’s problems. If anything, it has made the problems worse.
Television seems to be doing just fine with only 3% of its revenue coming from digital.
Television’s focus on creating a product that consumers want–even in a digital age, seems to be paying off.
Time spent sitting in front of a television set has inched upwards even as time with computer and mobile video consumption has grown.
Maybe if radio devoted more energy in creating compelling products like television has, radio might grow its revenue like television has.
Otherwise radio might find itself in the same deep hole in which newspaper finds itself.
How are you defining digital - both activity and revenue?
- HD Radio
- Web page (banner ads)
- Streaming (audio ads)
- Streaming (visual ads)
Where do you think radio should be investing to create compelling new products?
Posted by: Tom | June 25, 2011 at 05:57 PM
As a European broadcaster, I totally agree with your conclusion. However, appealing contents are key for a radio station but non only. It helps tremendously its online strategy. The experience with DJ’s, contests, below the line events can be pursued on the web generating traffic and revenues. At least, that’s what is happening in many European countries. Compliments for your blog. I always find, reading it, inspiring stories , news and analysis.
Posted by: Francois Le Genissel | June 21, 2011 at 10:35 AM