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Bridge Ratings Analysis
Terrestrial Radio's Run Through the New Media Gaunlet


Wednesday, May 16, 2007

The 10,000 Foot View

Terrestrial radio was having a great run when in 1996 the U.S. Congress passed a bill that allowed consolidation among broadcast companies expanding ownership by any given company within a radio market. The buying and selling frenzy which followed this legislation had never been experienced before and the industry was excited about the prospect of how cost savings and sales strategies developed by virtue of these consolidations would improve the radio business and make it more competitive than ever.

However, no sooner than consolidators began to operate their large market clusters did radio find itself faced with new technologies that individually in the beginning didn't pose much perceived threat but would become a competitive juggernaut when considered together.

In the 9 years since 1998 when Napster first was introduced into the consumer consciousness, traditional radio has been met with severe new competitive considerations. In many ways, the volume of competition has been a compliment to an industry that had been experiencing double-digit revenue growth rates through the nineties.


Principle #1: Since the introduction of technology such as file sharing service Napster in 1998, terrestrial radio listening levels have been affected.
       Favoriteness is Bridge Ratings' measure of loyalty to a radio station. In the example of the following chart, the blue line indicates the trending of the percentage of 12+ audience that had a favorite radio station. Over the past nine years, favoriteness/station loyalty has diminished due to increasing choices of new media.

Principle #2: A tipping point in radio listening occurred between 2001 and 2002.
The number of 12-21 year olds listening less to traditional radio precipitated an overall downtrend for years to come. Bridge Ratings Index is defined as the relationship between weekly radio listening (cume) and favoriteness. The number of weekly radio listeners has only dipped slightly in the 9 years represented by this chart. However, favoriteness has decreased at a faster rate than weekly cume causing the precipitous trendline here:

Principle #3: Weekly listening among older radio listeners has also decreased but at a slower rate.
Listeners 55+ still listen to terrestrial radio more than those under 55 as exemplified in this chart. While 95% of 55+ radio listeners listen each week it is only down a little over 2% in 9 years. The misconception of radio listening overall being down signficantly is powered primarily by the effect 12-21 year olds have on overall listening.



I. Dodging Bullets

Since the late nineties, terrestrial radio has been presented with opportunities for not only traditional audience growth, but also to boldly enter the digital era. But because the timing of the dot-com bust caused many radio companies to "circle the wagons", in many cases those opportunities were cast aside. Many of radio's biggest and best companies took full advantage of the dot-com funding boom to back up the trucks and unload the cash, but by late 2000 that money started to dry up, the economy softened and most radio companies decided to concentrate on their core business: selling air time.

Meanwhile, Napster was introducing music file sharing to the youngest listeners. Napster got so powerful and important, it was shut down.

Thus radio's first close call was in 1998 upon the introduction of Napster and the proliferation of the first phase of file sharing. Napster allowed radio's most vulnerable listeners to appreciate the fact that there was a way to have their music their way - to consume it when and how they wanted. And thus this analysis of radio's march through the new media gauntlet officially began in '98. And while the impact on listening wasn't statistically large, consumers with heavy listening to terrestrial radio had begun to learn there were options. Radio maintained its listening levels fairly well during the following four years, but its saving grace was a combination of Napster's demise and a soft economy yielding a slightly softer commercial load.

The following chart displays the 9 year period covered by this analysis trending a) radio station weekly cume listeners, b) station favoriteness and c) the index or relationship between cume and favoriteness.

By 2002 traditional radio had experienced Napster plus the introduction of satellite radio and Internet radio. Though all three were in their infancy, the "perfect storm" of the three together began wearing down radio listening. Weekly cume to all radio was only slightly affected. Bridge Ratings estimates that almost 96% of Americans still tuned in to an AM or FM radio station at that time, but what we began to notice was significant change in "favoriteness" or loyalty among average listeners. This sudden decline below 80% of the audience who had a favorite station was a first and marks a tipping point in media use. And while favoriteness was down below 80% for the first time, radio maintained solid cume numbers and avoided further loyalty attrition for two years.

The following charts reflect Bridge Ratings' analysis of weekly radio cume and "favoriteness" over time. Each year is represented by the technology that was either introduced that year or was a competitive factor for radio. As more technology reached a broader consumer base, the affect of those technologies multiplied the impact on terrestrial radio.

The chart shows another tipping point in 2005 when Bridge Ratings' favoriteness measurement fell to 71.4% while cume was continuing its slide - creeping under 95% of the U.S. population. The Index or relationship between cume and favoriteness fell, too, now down to 75%, indicating that listener loyalty among all Americans had shifted down significantly.

However, by 2005 traditional radio had figured out that it had programming, marketing and research issues it had to correct and many major radio companies did the best they could to reinvest in their properties and attempt to make an effort to improve its content. Radio had also embraced technology by this time and with podcasting and Internet radio simulcasting leadering the way the industry began to reverse some of its loyalty problems as is evidenced by the charted rebounds for favoriteness in 2006 and early 2007.

In addition to radio's course correction, satellite radio had some marketing and subscriber problems of its own in 2006. It is true that satellite radio still signed significant numbers of subscribers in '06, but the growth had slowed and Bridge Ratings had detected a softening of consumer interest in the technology which still exists today. The combination of a more aggressive terrestrial broadcast industry and softening consumer interest in satellite radio permitted radio to recover slightly from a downward cycle.

This story is magnified when we isolate the historically most active segment of radio's audience....those between 12 and 21 years of age.


II. 12-21 Year Olds : 4 Near Misses and 2 Direct Hits

While we see three moments in time that radio for all listeners faced highly focused competitive pressures, the most active audience component (12-21 year olds) responded to new technology more quickly. This contributed to the overall perception by media and Wall Street analysts that radio as an industry was in trouble.


In addition to the three 'tipping points' shown in the 12+ chart, the 12-21 year old audience generated additional listening changes in 1998, 2004 and 2006. This chart covering the nine year evolution of listening change for the 12-21 year old radio audience explicitly displays the major role this audience segment has played in radio listening attrition.

This group of radio listeners quickly latched on to the peer-to-peer (P2P) experiment launched by Napster in 1998 as Napster clones appeared offering free music sharing. These consumers quickly realized the advantages of using computers to share music and the beginnings of on-line communities were formed.

By 2001 the P2P train was gathering fans primarily in this age group and a tipping point began to develop gaining much more momentum in 2002.

With the mass introduction of iPods which triggered its own sector expansion unseen in consumer markets, American youth loyalty to radio fell to 70% of the segment. Loyalty revived a bit in 2005 as "iPod fatigue" began to set in among the earliest users of this MP3 technology, but the slumped again in 2006-07.

And while this whirlpool of behavior change was occurring among 12-21 year olds, it wasn't as pronounced in older demographics.


III. 18-34 year olds

While far less attrition has been experienced by 18+ listeners in general, nonetheless, there are points along the nine year continuum that represent listening deterioration as the 'perfect storm' of satellite radio and Internet radio had the greatest impact on 18-34's by the end of 2002. With MP3's and the iPod turned into more than just a youth fascination, by 2005 the technology had been sufficiently adopted by young adults.

IV. 55+

Even older radio listeners - often the keystone to radio's listening stability, experienced attrition of some import by 2003. When compared to the other charts in this analysis, one can see how stable listening among this age group has been as 90% of 55+ Americans still listen to terrestrial radio on a weekly basis. Favoriteness has been affected among this generation as well, but not due so much to technology. Interviews conducted for this study reveal that program offerings were the primary reason for lower loyalty followed by more time spent on cell phones and computers.

V. Final Thoughts

This analysis of terrestrial radio's run through the technology gauntlet over the past nine years reveals the specific moments in time when new media had its greatest impact on radio listening. A variety of problems plagued the radio industry during this term including an economic breakdown which began in 2000, worsened in the fall of 2001 and has never really fully recovered.

Listener apathy also has played its part as sharing of music files boosted the sexy new tech of MP3 players on the young end while satellite radio's effective marketing blitz - spearheaded by XM in 2002-03 - painted that technology as the next generation of radio; adults have been more apt to adopt this technology. Satellite radio's strong two-year consumer love affair seemed to overshadowed traditional radio in those years as the radio industry searched for revenue solutions that weren't necessarily linked to improving programming content.

Once terrestrial radio en masse became more proactive by improving programming and marketing around 2005, this analysis shows that for certain demographics, there was an improvement to loyalty.

This study has been both an excercise in historical perspective and an opportunity to expose the trends that have shaped the competitive landscape for terrestrial radio as new media is adopted over time by the public. Listening levels will continue to be affected by the introduction of new technologies and the adoption by a growing number of consumers of more recent audio tech improvements.

As this analysis attests, traditional radio is more resilient than the press would have many believe.


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