As can be seen in the recent Edison Research study, 67% of music listening while in the car is to AM/FM.  This is 52% greater than when all locations are considered.  The focus on the car as a listening environment and the changes taking place in-car infotainment systems is justified and should be a focus of the radio industry.  I have struggled to determine how the radio industry can resist the force of consumer choice and automotive movement to make more listening options available.  screen-shot-2016-11-04-at-10-15-21-am-copy

The RAB just released 2013 radio industry revenue information which reflected no growth over 2013 in total.  However, while spot radio was down 3%, digital revenue increased 18% over 2012.  The percentage of digital revenue is still small, only 5%.  Digital represents the greatest hope for increasing radio revenue.

We need better information on the components of digital revenue as there are many;

– website advertising (banners and pre rolls)

– streaming audio ads (desktop and mobile/ banners and pre rolls)

– other destination sites (separate URL – local community news, events, etc.)

– reselling other tools to advertisers (reputation management, SEO/SEM, social media, etc)

Some radio groups understand the need to be competitive for digital revenue and are forming digital agencies.

As the percentage of digital revenue increases we need additional data to understand what areas are gaining the most traction.

Ever since the rise of Pandora’s audience there has been an effort to try to position the service as “not radio”.  I understand the defensive posture that terrestrial radio would like to take but in my view anything that competes with you is probably quite similar in nature.  Consumption of audio takes many forms but in the end there are only so many hours in a day.  Listening to Pandora most likely means less time spent listening to terrestrial radio (or did all of the 69.5 million active Pandora users never listen to terrestrial radio?).  We can argue about which form listeners prefer.   Currently terrestrial radio has the lion share of listening.  Pandora’s audience seems to have peaked.

Frankly I’m surprised that Pandora has not attempted more music curation and localization (they certainly have the user data given registration).  Could I choose which version I want?  Time will tell.

Google has finally arrived at the Internet Radio table although I must say the name of its service, “Google Play Music All Access” leaves something to be desired.  Apple will most likely follow by the end of the year.  There are still a lot of unknown details especially if any free ad-supported models will be forthcoming.  One thing is for sure, there are only so many hours in a day to listen so most likely everyone’s share will decrease.  This includes terrestrial radio.  Terrestrial radio appears too busy trying to bail out the waning AM radio service and  make non interactive HD radio work to attack IP audio.  CBS was an early leader but their bets did not pay off.  Clear Channel has now grown an impressive Internet radio service with over 30 Million registered users.  However, we have gotten to the point where Clear Channel’s future interests may not fully align with the rest of the radio industry.

We just returned from the NAB last week and while there we attended the NAB’s day long session, Digital Strategies for Broadcasters.  The panels were well prepared but sadly there were only 60 people in the room (92,414 attendees at NAB).  One of the better panels covered the connected car.  Panelists were from the Consumer Electronics Association, Connected Vehicle Trade Association and a consultant formerly with Lexus/Toyota/Scion.  One slide I wanted to highlight came from Michael Bergman from CEA.  This slide illustrates what is projected to occur through 2016 in the car.  Note Internet radio growth with over 80% in-car penetration by 2016.  Penetration is more than twice that of HD Radio.  As I have posted previously HD radio lacks full two-way interactivity, a few extra channels with no compelling advantage in content and/or audio quality cannot compete with Internet radio.  The Digital Strategies session opened with a chart showing current internet listening vs. terrestrial radio.  Obviously an emphasis on today rather than the future…

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We just returned from the Consumer Electronics Show in Las Vegas.  The primary theme was Internet radio in the car.   One of our portfolio companies, Livio Radio, announced FMConnect which allows terrestrial radio stations the ability to now take advantage of two-way communication (read; digital) utilizing the cell phone connected to your car’s entertainment system.   Also Kudos to Fred and Paul Jacobs for inking a deal with Ford for their Ford Sync product.  Unfortunately the car ecosystem is fragmented and confusing to a degree that is frightening.  While developing an app for Ford is an attractive idea, keep in mind that this app will not work with all the other car companies’ entertainment systems. As currently stands a station would have to develop a different app for each car platform which is what Livio Connect is trying to eliminate.  Livio is integrating with all car companies and their suppliers.  Internet radio in the car can be achieved by many means as follows:

1)  physical cable

2) Blue tooth

3) Wi-Fi

Some systems just mirror the phone with navigation still done on the phone.  Others such as provided by Livio Connect  allow listeners to control access to streams from the cars control.  This makes controlling audio options much safer.  This is also true of Ford Sync’s product but it of course is one of many in the car ecosystem and I don’t think that Chrysler is going to allow the Ford platform into their cars.  Thus the need for a company like Livio which can work with all car companies because it has integrated into the chipsets of major suppliers of the in-car entertainment systems.  Radio companies should leave getting connected in the car to auto industry experts given the vast, confusing world it represents and should partner with a company like Livio to deal with integration.

This morning Fred Wilson, Partner at Union Square Ventures wrote in his blog post about sustainability which applies to Internet Radio.  Some of Fred’s thinking comes from Clayton Christensen whom I have cited before in my blog.  Here is Fred’s blog post:

If you want to stay in business forever, you have to focus on the long term. You must construct a business model that builds confidence and trust with your customers and keeps them coming back day after day, year after year.

Many business schools teach executives and entrepreneurs that business is about profit maximization. I don’t believe that. I believe business is about making a profit that sustains the business and enriches the owners but is not maximized in any period (month, quarter, year). I believe the goal of a business is sustainability so that all the stakeholders (customers, employees, owners, suppliers, etc) can rely on the business for the long term.

Let’s use an example. You own a business that operates on the web. You are a leading supplier of ecommerce to a vertical market. You generate $50mm in annual revenues and make a profit of $5mm a year. You see the launch of the iPhone and Android and think that your customers are going to want to connect to your business via their mobile phones. You ask your VP Product to scope out what it would take to build a comprehensive set of mobile apps that will allow this. She tells you it will take an investment of $5mm over two years to complete this project. You gulp. That is going to reduce your profits by $2.5mm a year in each of the next two years. What do you do? You make the investment because you must invest in the long term success of the business even though that is not a profit maximizing event. It may simply get you back to the $5mm per year of profits you were making before. There may be no ROI on this investment in a positive sense. It may simply be a defensive investment. You still need to make it to ensure you will be around for the long run.

Clay Christensen talks about this kind of thing all the time. Big company executives are asked to calculate a return on investment (ROI) on the investments they want to make. If the ROI isn’t greater than some minimum hurdle, the company doesn’t make the investment. And so along comes a smaller competitor who makes the investment and they eat the big company’s lunch.

ROI is not the right framework for companies to evaluate investments. ROI is for the wall street folks. They will use it to decide if they want to invest in your company. But when you make investment decisions in your company, don’t use the tools that wall street uses. Use the tools that animals use. Survival instincts. What will it take to ensure that your company is around in ten years, fifty years, 100 years? That’s how to think if you want to stay in business.

One of the most difficult decisions entrepreneurs and executives have to make is the decision to disrupt their own business. Let’s say you are a cable operator. You are making billions of dollars of profits each year providing voice, video, and data services protected by a monopoly business model. Along comes the Internet and it allows voice and video to be delivered to your customers via any IP network (wireline, cable, wireless, etc). You know that over time, this is going to disrupt your business. What do you do? Do you invest in this new technology and drive it into the market, hastening the decline of your monopoly protected business model or do you do everything you can to slow down the advance of this technology?

Sadly most executives make the latter choice. Most entrepreneurs make the former choice. The latter choice is about short term profit maximization but can, and often does, lead to the demise of the business in the long term. The latter choice is about survivability even though it will almost surely lead to a less profitable business in the future. Tough choice. But to me its an easy choice if your goal is long term survival.

One of the reasons entrepreneurs make these hard choices when executives don’t is entrepreneurs think like owners. They have that survival instinct in their gut. They don’t want their baby to die. Executives are hired guns. They are focused on maximizing the success of the business (and their compensation) over a short period that they will in the corner office. They have no incentive to think about what happens in 20 years or 50 years. They know they won’t be around. And so the company isn’t around either.

So when you construct your business model and create the culture of your business, emphasize sustainability over profit maximization in everything you create and do. This does not mean that you don’t need to make a profit. Profits are the essence of survivability. You can’t and won’t survive without profits. They are everything when it comes to sustainability. But just because you need to make a profit doesn’t mean you need to maximize it. Balancing the need for a profit with the need to sustain the business is the art of what you must do as the leader of a business. Do both and you win.

There appears to be a growing movement questioning the cost of ad insertion for terrestrial radio stations that are streaming.  Saga Communications recently decided not to insert different ads into their streams but to let the same programming going out over the air to be distributed on their streams as well.  This movement if successful will sound the death knell for terrestrial stations that are streaming.  Given the other Internet radio listening options consumers will not choose to listen to a stream that is running 10-14 ad units an hour complete with some 60 second spots.

I understand that many stations are not making money from their streaming operations.  What I suggest is that rather than inserting PSA’s and other filler content that music stations insert songs.  The technology exists to do this and there should not be a charge for this type of non revenue producing insertion.  Some stations are doing this and there are no audio quality issues.  Ad insertion fees are not significant when compared to bandwidth and music royalty fees.

The course that is chosen will have considerable influence on the upcoming battle for in car listening.  Stopping ad insertion may save a few shekels in the short run but long term it will have more significant costs.

RADIO STATION WEBSITES

January 13, 2012

For the most part there is nothing compelling on radio station websites.  The primary reason that most people visit is to start the station’s stream or find information about what a station is playing.  In a just released survey by The Media Audit, visits to station websites declined YOY from 17.7% of U.S. adults to 17.6%.  As more and more options exist for listening to a station’s stream off website (through mobile app, Facebook, etc.) traffic will continue to decline.  Most stations don’t promote their website because there is no original content and when the station’s website is mentioned it’s usually due to a contest which in my view artificially drives traffic to a site.  Tweets and posts show up in a listener’s stream in many cases so no need to access the website.  So how can radio develop unique content?  Without investing a considerable amount of funds I don’t think there is much that can be done.  However, I do believe there are other opportunities to create content and develop other brands.  For example, one company I am working with Inner City, has for many years put on a weekend event in New York City called Circle of Sisters where over 40,000 people attended.  There is an opportunity to further develop this well known brand apart from the radio station.

At Angel Street Capital we have invested in a local news site called GoLocal Providence (www.golocalprov.net) and they are in the process of rolling this same platform out to Worcester, MA.  The site has been incredibly successful in challenging the local newspaper. Initially GoLocal launched in Providence with a local radio station partner.  This opportunity exists for radio companies but I would suggest partnering rather than trying to develop it internally.  Radio stations have a giant megaphone to launch other brands as they have been doing for their advertisers for many years.  It’s time to use this megaphone themselves to develop brands they have an equity stake in.

We have been watching the recent developments in Internet radio audience measurement.  Here are the stakes:
ARBITRON   is trying to develop new business and generate more revenue
PANDORA wants to have audience data to sell advertising and capture a portion of ad revenue going to radio
ANDO/TRITON wants ARBITRON to stay out of Internet audio measurement so it will not have a giant competitor
CLEAR CHANNEL et al don’t want Pandora to be able to compete for radio advertising.
What all parties need to consider is what advertisers want.  I have to chuckle at some of the points raised recently by Arbitron.  Does a moving people meter really mean someone is listening to radio?  If an audio source is present near a people meter did the listener actually initiate it?  Was it really their choice?  I have always believed that server side data is better than an estimate.  PPM methodology is an estimate based on a representative sample (many argue the sample is too small).  With server side data you have actual data – use it.  Ando Media currently uses server side data to prepare its Webcast Metrics Internet radio top 20 ranker.  Arbitron has announced that they are going to utilize server side data as well although many of the details are still forthcoming.  Arbitron is being held hostage by its existing terrestrial radio clients over measuring Internet radio only stations such as Pandora.  Of course terrestrial radio companies represent the bulk of Arbitron’s current revenue.
Audience data is utilized in Internet radio as a predictor of the number of ad impressions that can be generated.  Audience measurement data is not used to calculate ad impressions. When a listener starts a stream then most ad servers, including Ando, will then insert ads prior to the stream playing ( preroll) or then begin inserting audio on receiving an ad cue.  You do not have to be listening for any set period of time.  By its very nature, in Internet radio each impression is counted when a listener actually hears the ad.  Do advertisers care that different people hear different ads?  You bet but not why ARBITRON raises this issue.
Maybe what we need is an impression measurement validation firm.  In any event it’s going to take some time to sort out Internet radio measurement and it’s unfortunate that there is not a larger advertiser voice?  Some big dogs are in the fight.
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