From the Desk of Dave Van Dyke... February 2006

 

Dear Radio Executive:

This month marks the tenth anniversary of the passage of the 1996 Telecommunications Act. There has been a great deal written about the cause and ultimate effect of this legislation.

Satellite radio and the iPod's successes came about because traditional radio was changed by consolidation - changed to its very core. The radio business's DNA changed.

But in the past decade, radio changed from a complex combination of small, independent stations and corporate-run properties to a bastion of the US media oligopoly, content to deliver, in many cases, sterile, cookie-cutter programming. The transition made sense economically, because corporate radio has been able to cut costs by consolidating its operations and in certain hours of the day using the same programming across multiple markets. But it also helped push listeners to alternate audio entertainment.

Noting radio's declining audiences, recurring low-level payola scandals, deteriorating public image, and competition for drive-time ears from iPods, satellite broadcasting, Internet radio and cell phones, pundits have been gleefully pronouncing the medium's last rites. But they may well be wrong. Rather than being on life support, radio in fact is on the verge of its boldest technological change (HD Radio) since the introduction of FM stereo in the 1960s. Not only that, it may be on the threshold of another golden age, one which could have almost as powerful an impact as the first. And in the vanguard of this movement, bizarrely enough, are many of the same media giants that led radio down this road to begin with.

The industry's shift has many causes, but perhaps the most important is the Telecommunications Act of 1996. Before the law went into effect, media companies could own no more than 40 stations nationwide. The new measure removed almost all of the ownership limits, setting off a frenzy of consolidation in what had once been a proudly fragmented industry. According to a 2003 report from media analysts BIAfn, the top 20 radio groups owned at least 2,700 stations - including almost all the stations that people actually listen to - and raked in $10 billion a year. The remaining 10,000-odd stations, most of which are individually owned, split $9 billion among them.

The Consolidation strategy was profitable in the short term but ruinous over the long haul, because audiences grew restless. Some people drifted away; those who continued tuning in did so more from lack of an alternative than any desire to listen. Consequently, major radio groups grew even as the radio audience as a whole shrank. Although 240 million people still tune in at least once a week, the number of ears listening every day has slowly slipped to about what it was in 1994. The audience of 18- to 24-year-olds, a demographic particularly beloved by advertisers, has fallen nearly 22 percent since 1999. Fearing advertisers will start moving their dollars elsewhere, Wall Street has cooled the radio sector with stock prices stagnant at about a third of their 2000 level.

In effect, the giants have been gobbling up larger and larger shares of a smaller and smaller pie. Notoriously, the US auto­mobile industry pursued a similar approach in the 1970s. The result: a flood of badly engineered cars, followed by a Japanese invasion from which Detroit has never fully recovered. The radio industry is commonly perceived to be on the same road. "Music radio is broken," says Barry Ritholtz, chief market strategist for the Maxim Group investment bank.

For corporate radio, the equivalents of Honda and Toyota are the iPod and satellite radio. XM and Sirius, hope to erode the power of terrestrial broadcast the way cable did network television's. Beamed down from a pricey string of satellites, the two services offer subscribers hundreds of channels for every conceivable music niche, fewer commercials, better sound quality, and DJs who aren't regulated by the Federal Communications Commission.

However, the industry's bright light is Public Radio. It is striking to note that satellite radio and the iPod are not encroaching on National Public Radio. NPR is a radio heavyweight whose audience has increased by a staggering two-thirds since 1999. And some our industry have noticed. Though they did not consciously emulate public radio, a scatter of stations around the country - Indie 103 in Los Angeles, KBZT in San Diego, KQMT in Denver, KNDD in Seattle, WRNR in Annapolis, and perhaps a dozen others - have tried to create a kind of rock radio that models NPR's conversational tenor, lengthy attention span, and relative lack of hype. These broadcasters have begun to understand.

One topic that is not getting enough traction is a discussion of the long term generational effect, and the threat to a possible radio recovery: Since 1996, radio's decay has led to an entire generation of listeners who have essentially written off radio (at least, when it comes to music).

The other key issue: Radio as a source of new music, and its relationship to the labels. It used to be part of the draw for the audience -- a relationship with a trusted DJ who plays music you like, combined with introducing you to new songs. Bridge Ratings' Youth Media Project has exposed this, among others, as methods to attract the next generation back to radio.


Some have suggested that a massive unwinding of radio concentration, and a return to local managers, program directors, DJs and play lists will undo the damage. Even then, radio would have to win back the listeners who felt abandoned. 

So after ten years of living under the spectre of the 1996 Telecommunications Act, there is general agreement that it has benefited the industry in some ways, but the unintended, unforeseen consequences have caused massive tidal waves of negative change. This month Bridge Ratings will release a study at the heart of which are a series of interviews with listeners, congressional leaders, broadcast executives and advertising agencies. The core question was "Is radio better off than it was before the Telecommunications Act of 1996?"

Ten years later, the radio industry has begun to examine the fallout of this legislation and tackle its most important issues. The question is: can the radio industry adjust to its new status of being a mature business and not the growth sector it once was?

Your feedback is vital to our company's on-going success. I look forward to hearing from you.


Sincerely,

Dave Van Dyke

President

 


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