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Trading Spaces, Shifting Gears

Some observers have remarked that this spells trouble for radio as other competitive services become increasingly more convenient.

By now you may have heard about a recent study indicating that most radio users favor radio’s convenience over its content.

Some observers have remarked that this spells trouble for radio as other competitive services become increasingly more convenient.

Let’s think about what this really means, however.

First, radio is considered so convenient because of its high service availability and the low cost — and resulting broad deployment — of its receivers.

This advantage cannot be easily dismissed. With about 14,000 stations in the United States (not counting translators and boosters) and estimated billions of radios in use there — with tens of millions more sold each year — radio has a formidable penetration that will not soon be matched. So the convenience of radio is clearly well established, and cannot be easily overtaken.

Note also that the “availability” metric doesn’t just mean “service area.”

It also includes the cost of service, and any other inconvenience the listener might have to bear. Thus to become truly equivalent in convenience, any new competitor would also have to match terrestrial radio’s other attributes, such as free service, instant on, no external antenna, and so on.

So does this mean that radio need not be concerned? Certainly not.

Any entity that allows its users to be actively dissatisfied with its service, using it only for lack of a viable alternative, does so at its peril. This condition creates pent-up demand, which can eventually cause quick and devastating change.

And while radio appears to have a nearly insurmountable lead in the penetration race, there are indicators that even this trend may have already started downward.

One example appears in CEA’s tracking of “home radio” sales (tabletop, portable/handheld and clock radios, with no other audio source built-in), which have shown a dramatic decline from their historic peak in the 1970s and ‘80s.

(click thumbnail)Annual U.S. unit sales in this category today are at about a quarter of what they were back in those glory days. Even more telling is that 2007 sales in this category are half of what they were in 2001 — unmistakable evidence of new media’s impact.

Listening levels are down, too, but not by nearly as much. One might conclude that consumers are biding their time — still listening to the radio almost as much as before, but not investing in many more receivers.

They are thereby poised for change. If a truly equally available service were to emerge, radio listeners might switch to it in droves.

Worlds apart

We’ve spoken here before about how easy it is for radio stations to get themselves onto new platforms like the Internet, while Internet radio services cannot do the reverse.

So if listeners really do switch to Internet radio (and/or new devices don’t include terrestrial radio receivers), radio stations have little difficulty making their content accessible on the new devices.

But on this new platform, stations will be competing with a far larger set of players, many of which are happy to work under very different rules (i.e., much lower cost structures, non-commercial operation, and willingness to be satisfied with audiences that are tiny fractions of what most broadcast stations attract today).

For radio stations to keep anything like the shares they are used to in the broadcast world will be next to impossible on an Internet radio platform.

Moreover, even if a radio station were to match its over-the-air audience in the online world, this is also a losing proposition, since the cost of serving each listener is higher. Of course, this analysis also requires some nuanced understanding, especially given that such a transition would likely not happen overnight.

Consider that for over-the-air broadcasting, the cost of service delivery is all front-end loaded. This is because the cost of delivering the first listener is several million dollars — the capital cost of initially establishing the radio station — after which each additional listener essentially is delivered for free. Put another way, the marginal cost of adding a new listener to a radio station is zero.

On the other hand, it is relatively easy and inexpensive (in terms of capital cost) for such a facility to add Internet radio service, and grow it gradually.

Thus in this case, there is relatively low fixed cost to reach the first online listener, but a continuing marginal cost added for each listener thereafter.

Given this cost and relative-value differential, it seems wise to think of these two service delivery venues with different metrics, not as a simple 1:1 trade or crossfade over time.

Of course, the best of both worlds for radio stations is to maintain as much of their on-air audience as possible, while adding new online listeners (not simply trading on-air for online listenership).

Tweaking your game

Let’s stipulate the following, then:

  1. Listeners have shown an interest in moving to new platforms, and many prefer the content they receive there over typical broadcast radio fare.
  2. Nevertheless, listeners will largely stay with radio as long as it maintains its current large lead in convenience.
  3. Meanwhile, radio broadcasters can continue to operate their legacy channels while trying out service on new platforms.
  4. Finally, broadcast and online service models exhibit almost reciprocally opposing service-cost-per-listener models.

What coherent conclusions can be drawn from this mixed set of circumstances?

One might be that broadcasters should evaluate each new platform over which they can deliver content (from both technical and business perspectives), and consider how to format that content optimally for the platform.

This implies that just copying the on-air signal to the new platform may be a poor choice. After all, if listeners are just waiting for a better delivery service to quit listening to the radio, why would that same radio content do well on the new platform? Yet that content may continue to be appropriate on the legacy service.

Consider that a good tennis player plays a different game on grass, clay or artificial courts, trying to optimize his or her intrinsic skills to the venue at hand (i.e., same engine, different drive chain).

A similar approach should be taken by broadcasters as they present their wares on different platforms. You can’t compete the same way in a finite (i.e., licensed), local environment as you can in an infinite (i.e., unlicensed), global one. Yet the skills, acuities and resources developed in one venue may serve you well by repurposing them for another. The key lies in assessing the differences, and understanding how to adapt to them.

Next time, more on platform adaptation, as we consider other coping skills for the new media evolution.