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Who Wins in ‘Creative Destruction’?

Rick Ducey says radio needs to ask itself what business it's in

Rick Ducey is the chief strategy officer for BIA Advisory Services. I exchanged e-mails with him recently in advance of the NAB Radio Show and want to share his thoughts.

Prior to joining BIAfn he was senior VP of NAB’s Research and Information Group. He’s also been an educator and worked in radio and cable.

McLane: What theme do you expect will be the most immediate concern?
Ducey: Clearly, the most immediate concern is revenue and how to get more of it!

The NAB Radio Show’s official theme is, “The Dial and Beyond: Profit From What’s Now —And What’s Next.” I think that’s the bull’s eye.

Radio broadcasting needs to transform itself to extend its business model beyond the dial. No other business has that radio dial, so that’s a critical asset; but looking ahead, it will be an asset increasingly challenged by other content delivery and engagement solutions.

The story needs to be about revenue growth. We’re done with cost-cutting to protect margins.

We hear people like Lenard Liberman and Ed Christian saying that they have cut as much as they can without permanently impacting the quality of content. It’s now about growing the top line as there’s nothing left to cut from the expense line.

Rick Ducey By now there can’t be much fat left in the industry. It’s a tough economy and advertising is particularly hard hit. The subtext to the official theme ought to be things like, “How can I get incremental revenues?” and “Where can I learn to do business differently?” and “What’s my next job going to be?”

The lack of available financing is going to be another big topic of discussion as it has reduced deal flow to a crawl.

McLane: What adjective would you use to describe the business outlook for radio in the next three to six months?
Ducey: “Obstinate.”

It’s a bit frustrating to see how we can shake loose and successful in this business environment. We want to get into positive territory but that’s not going to happen in the near term.

We are seeing at least that it is not going to get worse from the revenue side; the negative numbers are going to get smaller. So that’s good, but it’s still negative. But we really need to figure out how to grow top-line revenue to get margins and valuations back where we want them.

That’s a tough nut to crack in this market with so many things in flux at the same time. No easy answers to navigating this market, it is indeed an obstinate market.

If I may go out longer term and have two words, I’d like to borrow from the economist Joseph Schumpeter and answer, creative destruction.

I love this insight into how free markets work. Back in 1942, Schumpeter said that the “fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”

That’s the business outlook for radio. Radio needs to change and be creative with new business models or face destruction as the marketplace provides new products and services better suited to what listeners and advertisers want.

McLane: What examples do you see of how radio can build success at a time when revenue and time spent listening are down?
Ducey: On a local market level, it is really encouraging to see how creative people can be in claiming new media space.

Jim Brewer of Brewer Media in Chattanooga is one example. As he told a NAB 2009 Radio Management panel his mission is to “have something to sell to every business in town.” This was basically impossible to do with his radio station cluster given the formats and demos he had to work with.

So he acquired a traffic network; started vertical Web sites with a Chattanooga theme; acquired a local weekly alternative newspaper; expanded digital ad inventory to include streaming video; and redesigned his approach to sales including a seasoned digital sales manager as a new hire to run that part of the operation. This has been very successful for Brewer.

Similarly, GapWest’s Erik Hellum on that same panel shared his approach to integrated sales and marketing leveraging broadcast, digital, mobile and hyperlocal Web sites to offer unique and integrated campaigns that his advertisers found to be very attractive.

McLane: What have BIA research or projects revealed about how the industry is trending or should be trending?
Ducey: We’ve launched a new service, Media Ad View, that offers a diagnostic view of current and forecast advertising revenues on a market-by-market level for 12 media platforms. This really allows radio operators to dissect the anatomy of the local market advertising pie.

Radio revenue growth is going to have to come from other slices of the local ad pie and not from other stations. Media Ad View lets operators size up the local market and see who’s getting what revenues now and what the different slices look like in the 2008–2013 forecast period.

The next thing, once you’ve got the revenue picture, is to understand the business models out there, including those of your competitors, which will be generating these revenues.

Our approach to assisting our radio and other media industry clients is to offer a series of continuous advisory services, conferences, forecasts and special reports focusing on innovation, market trends, case studies and though leadership.

Finally, we offer our strategy consulting services to help bring this all together in the context of a specific company and its unique mix of resources, challenges and opportunities.

We’re seeing a number of companies facing or approaching covenant defaults and bankruptcies with little room left to cut expenses. There are no odds in shutting down these businesses but the upside is harder to see and perhaps further away than operators and lenders want to tolerate. However, that’s the environment we’re in right now.

Smaller and medium-market operators and private operators tend to be doing much better than public companies and larger-market companies. One reason is these operators tend to be closer to the sale. They live more on local dollars and direct sales premised on strong community and advertiser relationships. Creating unique service mixes of on-air, digital and events makes it hard to get compared on a CPP basis and creates stronger ties to the advertiser who can see accountability and results. That’s where radio needs to be.

McLane: How is the industry doing at getting itself onto new platforms and devices?
Ducey: The most successful radio companies are those that are evolving into more seamless, integrated media operations from the perspectives of both advertisers and listeners.

For example, you may have call letters on your business card, and most of your revenues today may come from air sales. But if you are also running vertical Web sites; mobile Web and text messaging campaigns; live sponsored events; streamed and downloaded content; e-mail marketing and perhaps affinity clubs . . . are you really a radio company anymore?

It comes down to how you program, promote and sell. You are better off seeing yourself as a local content company providing programming over many different venues and selling access to all of those audiences at these different venues.

Dan Mason’s repositioning of CBS as a content company vs. a radio company is very interesting. It really opens the possibilities. He’s been doing a marvelous job.

I’ve heard some of the CBS local market people say that rather than sell airtime first and then digital inventory, they’re directed to move the digital inventory as the primary sales effort and then use broadcast time to help close the deal. The deal CBS did with AOL for streaming their content is a high-water mark for radio’s new media implementation in terms of partnerships and seeing what’s possible.

Jeff Smulyan’s mission on behalf of the industry to get radio on every cell phone is tremendously important to the industry. Any retail business lives or dies by its distribution and shelf space. Without carrier and device maker deals, radio is being left off an increasingly important personal media platform.

This is still a story in the making but the industry’s very fortunate to have someone of Jeff’s caliber working this opportunity.

Vivian Schiller’s approach at National Public Radio to remaking national radio and helping local radio reposition into more of an integrated media community resource is very compelling.

Her background and success in digital media is a terrific asset she’s bringing to radio. While her focus is public radio, I think commercial radio can learn a lot from her approach to reinventing both national and local radio.

Getting into Search Engine Optimization (SEO) and Search Engine Marketing (SEM) business lines will be critical. Look to examples such as what Regent is doing with Localeze are doing together. We’re seeing local search as a revenue growth engine and a good place for radio to be because of its local sales force and ability to drive Web traffic.

Finally, a company like former Susquehanna head, David Kennedy’s new Flycast venture, offers another new opportunity for radio to reorient itself as a local content and advertising resource across broadcast, mobile and Web platforms in an integrated fashion. Since he joined the company full-time, they’ve attracted new funding, gotten more aggressive with the iPhone platform and developed new applications and approaches.

McLane: What other questions should radio (and radio trade journalists) be asking right now?
Ducey: “What business am I in?” The answer to that question will drive your strategy and set you up for which side of creative destruction you’ll end up on. Radio broadcasters have to expand the ways they deliver programming and sell audiences.