Dear Radio Executive:
Last month Bridge Ratings released its updated digital media penetration metrics based on new interviews by consumers and industry manufacturers. For the first time we added the trends for terrestrial radio and HD radio through 2020. See story here
As usual, these projections caused quite a bit of feedback and mail to my desk. Why?
Satellite radio projections show that by 2010, there will be 46 million subscribers (XM: 21, Sirius 15) and 187 million people will have listened to Internet Radio in a typical month. But what got the juices flowing for most were the trends for terrestrial radio (262 million) and HD radio (21 million).
The trend for terrestrial radio is actually projected to be down in the number of bodies listening in an average week, but its the percentage of the total U.S. population that's causing some nerves to tingle. By 2010 today's 94% penetration for terrestrial radio will have sunk to 85% and by 2020 it will have somewhat leveled off at 70%. That's still excellent 2010 penetration into the marketplace considering the other media of concern:
- Satellite radio: 15%
- Internet radio: 61%
- Podcasting: 2%
- HD Radio: 3%
HD radio, once thought to be terrestrial radio's savior in some ways, has a tough road to hoe. It's real growth won't begin until after 2010. There's just so much that has to fall into place before enough of the public has the equipment and access to the new medium. No doubt all this choice and variety of programming will make the theoretical public head swim. What with tens of thousands of Internet radio options, HD's doubling or tripling of available 'stations in some markets and satellite radio's ever-increasing appetite for adding more channels, 'decision-stress' is going to be the average consumers' main problem. With so many choices, how will we really know what people are listening to.
As discussed in my March letter to you, branding for traditional radio is now - and will be then - one of our biggest strengths (if we don't blow it). True, satellite radio has done an exemplary job of building brand in the few short years of their existence. Unfortunately, traditional radio sat by and did nothing to brand how cool it is because the industry was having its own financial issues and cutting marketing budgets was one sure way of hitting or getting close to hitting some of those cost cutting goals.
Branding HD radio will be another challenge, especially now that traditional radio executives are coming to the realization that the state of the business is causing the industry to strategize how it should fundamentally change its cost structure. Some operators are going to be forced to reassess some fundamental assumptions about traditional radio's business model. With traditional radio bragging that its margins of 30-50% are some of the best in the world of business, this is the number that will need to be reassessed. Suddenly, traditional radio realizes that with the need to market and brand both its analog and digital products those margins are not realistic. The days of top market - top station margins in the 40% range are numbered. Expect those hot stations to fall into the 30% range and the entire industry on average to fall lower. Suddenly, Wall Street and corner offices will be readjusting their expectations on performance and having to swallow that pill happily knowing it is the only real operational option left.
If traditional radio's annual growth is going to linger at 3% for the remainder of this decade, these strategies of reassessing basic assumptions about the radio business should be under way. This will present a whole new set of problems for the radio industry as it needs to somehow get Wall Street to back off while it realigns.
Of course there is another alternative - go private. Certainly, there are excellent reasons for broadcast companies to remain public entities, but the SEC reporting that must be done keeps everything out in the open (as it should) so investors have no surprises. But there are also excellent reasons for going private during these difficult days, one of which is that the company can reassess its business model in private, shake out the cobwebs, absorb the hit and spend a few years realigning.
It's difficult enough to maintain annual growth success when expectations from Wall Street are unforgiving. Private companies have an edge in this regard and this thought of more public companies circling the wagons by going private isn't a bad idea as the industry goes through more competitive issues for the remainder of the decade.
So, during a month when taxes have moved to the top of everyone's list and most corporations are trying to put last year's financial house in order, perhaps it's a good time for the industry to be realistic about its business model going forward. Sure, there's been allot written about satellite radio's strange model, but let's stay focused, people.
The thought of having to adjust business expectations down and face reassessing the fundamental business assumptions the industry has been working with for decades is a nightmare for some, let's learn the lesson of not acting soon enough and get started on this for the rest of 2006. The future may rely on it.
Your feedback is vital to our company's on-going success. I look forward to hearing from you.
Dave Van Dyke