Larry Miller is the Director of the Steinhardt Music Business Program at New York University, and for some reason he’s written a report that dumps all over you. The release of this report, backed by SoundExchange, comes at a most interesting time — when just about every radio station in America is giving up airtime to help the residents in Houston and the Gulf Coast.
The report is called Paradigm Shift: Why Radio Must Adapt to The Rise of Digital. Miller rightly highlights music’s “long, technology-driven disruption and transition to on-demand streaming.” What he appears to conclude is that the radio industry is not adapting to digital and deteriorating relationships with record labels and that’s leading to radio’s decline. We’re guessing you beg to differ.
Miller says he’s long wondered about the prognosis for AM/FM radio in general and music radio in particular during this long transition. “Writing this paper gave me an opportunity to think about radio’s changing role in the American musical diet, and the sources and effects of that change on music, on radio, and on us.” Here’s what he had to say…
In the executive summary of the Miller’s 32-page paper he lays out eight specific points that take direct aim at radio. As you’ll see in his bullet points below, Miller says radio’s resilience is weakening, radio’s role generating hits is diminishing, radio is declining as a source to discover new music, and radio is being pushed further away from the dashboard in vehicles. His list goes on and on.
A New Challenge: AM/FM radio has been a resilient medium in the Internet era, but that resilience is weakening. While it was able to survive and adapt to the introduction of television, new digital services are beginning to change the way people listen to music, endangering radio once again.
From Tastemaker to Validator: Record labels and key industry charts are flocking to digital in search of tastemakers and breaking music. Increasingly, digital plays are being integrated into radio-driving charts like the Billboard Hot 100 and touted in trade ads seeking spins for new songs, weakening radio’s traditional role as a minter of hits.
Dawn of the Digital Generation: Gen Z music fans, born in 1995 or later, are embracing digital formats at the expense of radio use. Having grown up as true digital natives, this generation is uninterested in AM/FM radio and prefers the increased interactivity and personalization of digital services like Spotify and Pandora.
Discovery Migration: Radio is declining as a source to discover new music. Younger music fans are increasingly turning to sites like YouTube to find new artists and songs, leaving radio in the lurch.
Revenue, or Lack Thereof: Broadcast stations pay no royalties to record labels for the use of master recordings. Digital services, by contrast, are a source of discovery and revenue.
Dashboard Invasion: Cars, once the bastion of AM/FM radio, have now introduced competition to the dashboard, decreasing radio listenership. As newer models with improved technology continue to proliferate, radio is being pushed further and further from the center of in-car entertainment systems as drivers demand choice and access to more customized, often commercial-free, digital services.
Talking Is Not the Cure: Smart speakers like the Amazon Echo have sparked a new opportunity for audio-only entertainment in the home and are shaping consumer practices and preferences. Unlike cars and traditional home audio receivers, smart speakers access wi-fi networks and don’t have an AM/FM antenna at all. Without a strong digital presence, and a focus on digital streaming services, traditional broadcasters are going to be left behind in this critical and growing part of the market.
Improper Measurement: Radio’s ratings system can be gamed and fails to deliver on the specifics that advertisers demand. Nielsen’s current system, reliant on Portable People Meters (PPMs) in top markets, fails to take into account the passion a listener feels toward specific stations, under-samples younger and ethnic demographic groups, and has led to the mass format changes by stations devoted to softer music genres that can’t mask the PPM signal in noisier music, and led to a race for technology-driven advantages that allows richer stations to buy bigger ratings.
Miller’s conclusion regarding radio’s sustainability and growth? “Unfortunately, it’s easy to describe and hard to do. But unless the industry is set to make peace with a long and inevitable decline, radio needs to invest in strong and compelling digital services. If it does, radio can look forward to a robust future built on the strong foundation it already has in the marketplace leveraging the medium’s great reach, habitual listenership, local presence and brands. If it doesn’t, radio risks becoming a thing of the past, like the wax cylinder or 78 RPM record – fondly remembered but no longer relevant to an audience that has moved on.”
Read the entire Miller report HERE
In my experience, improper measurement is only the tip of the iceberg. The “BOOK” shows that no one in “The Inland Empire” region of Southern California has ever listened to KCAA in 20 years, although we have 250,000 hours of monthly podcast downloads, a dozen shows on iHeart and three signals on the air in the market.
Unless you buy the book and get respectable numbers, you will be an “also ran” in a race you can’t win, regardless of your format. The old saying holds true, “If you live by the book, you die by the book”.
The “BOOK” causes a staggering amount of ad revenue to be improperly allocated by ad agencies to a few stations in each market during every billing cycle. This rigged system has stolen hundreds of millions of dollars from stations each year that received no agency revenue while a few stations that bought the book received more than their fair share.
If you think about it a little more, it gets real simple… like they say, just follow the money.
The ad agency disrupts the relationship between the radio station and the advertiser so the actual advertiser never has a personal relationship with the station. This disruption is rewarded by a 15% agency fee that should have been paid to the local sales representative of the radio station for his personal services. If the agency works through a sales representative at the station, the station pays a double commission on the sale. To prevent the double commission, you can tell your sales team that all agency business is “house” and see how well that works for you. Double commissions happen when rate are “gross” and if rates are “net”, the advertiser overpays.
Now, let’s measure the size of the iceberg below the water level. Agencies follow the “book” and allocate 100% of the advertiser’s radio budget to a fractional portion of the total radio audience in the market, which in some markets can be only 50% of potential listeners.
The radio stations who buy the book know that their revenue will collapse without “the numbers” so they religiously pay to play (buy the book) and suck up to the agencies.
The whole system is rotten to the core and we all know it. Some of us benefit from it but the vast majority of us are screwed by it.
The result is a perfect circle of income for a few stations in each market at the expense of the many. The station pays for the book to get in the book. The ad agency reads the numbers and makes buys exclusively based upon a flawed system that everyone knows is flawed because it excludes many stations.
So, we end up with a system that adds to the cost of every spot while improperly directing the broadcast of all spots to a few stations. The system creates additional cost while actually reducing the value of each spot that is broadcast. .
The battle to prove ROI becomes more and more difficult as stations and agencies hear, “We don’t buy radio any more because it does not work for us”. I WONDER WHY???
The other fact this “study” ignores is that as popular as streaming has become, none of the streaming companies have turned a profit. The reason is the digital royalty rules were drafted in a way that actually penalized these companies for becoming popular. What that points out is that while consumers may want to stream their music, the companies that provide the service are all hurting. They have also killed small indie online radio. Since the latest revision of the royalty rules which eliminated the small webcaster discount, hundreds of small online radio stations have shut down, unable to pay the rising royalty rates. These small stations were promoting indie artists and less popular genres, and they now have no outlet thanks to punitive royalty rates. None of this is covered in this study, and it makes me wonder why.
Digital royalty rules, as you mention, penalize streaming companies and are the major roadblock to them becoming profitable.
Radio has been exempt from these costs: public performance royalties.
When radio loses its exemption and must pay performers – as is the case in every industrialized country outside the US – plus BMI, ASCAP and SESAC, what will be the repercussions to the industry then?
I believe that’s the elephant in this room and is the bigger question …
The real question is why is the music industry penalizing the platform it wants to promote? YouTube and Sirius are paying the label royalty, and they’re constantly attacked by the recording industry. Plus the terms of the label royalty are unfair to songwriters, who are suing for a more equal share of the money. Obviously paying the royalty simply opens the door for more litigation. That’s why Congress is staying out of it.
Another subject left out of Miller’s report is that a lot of AM/FM stations stream their signal, and when they do, they pay the label royalty. So attacking AM/FM on the royalty issue ignores the fact that they follow the law.
The kneejerk reaction to this article from people in the industry is predictable and very sad.
The radio business – my mistress for a wonderful career of nearly three decades – has become the business of radio, alienating not only me but millions of listeners with ownerships’ abject greed: bloated commercial loads and parity formats with little-or-no emphasis on content.
Hello, radio: media habits have changed. For every subscriber to satellite radio, Pandora and other radio alternatives incuding iPads, Apple and Amazon music, etc., that’s one more listener that radio has lost.
This is the reality radio will not hear. An industry based on listening is deaf to its own need for change.
As Chad and Jeremy said in the 60’s, ‘Yesterday’s Gone.” Newspapers stuck their head in the sand and their world collapsed. Network television’s audience continues its decades-long decline and cable television is now struggling with households ‘cutting the cable’ for online alternatives. No industry is exempt from change, despite radio’s fervant belief in its own invincibility.
Every Amazon customer is a loss for brick-and-mortar retail. 5,300 store closings so far in 2017 with 315 retailers bankrupt: repercussions of shopping habits changing and corporate retail not paying attention. Clearly radio will not see this reality and chooses to ignore it.
Radio stocks reflect the industry’s reality: Cumulus is 40¢ a share, iHeart is $1.45 a share, CBS radio lost over $500,000,000 in 2016.
Radio has been exempt from paying artists for airplay – public performance of sound recordings – which digital services are not. Paying ASCAP, BMI, SESAC – song writers – is wholly separate from compensating the artists who perform the music terrestial radio plays. That exemption will end – the US is the only industrialized country not paying for public performance – and given the state of the industry, how is that bill going to be paid when it comes due?
This article should elicit a wake-up call rather than a rally of defensive proclaimations from those within an industry that continues to ignore change by not acknowledging it.
‘Criticize, ignore and repeat’ – a comment appearing within this thread – is both accurate and prophetic about radio’s response to the points raised in the article.
What happens when commercials air but nobody’s listening?
We’re on the path to find out …
My communities rely on us AND use digital too. The sanitized internet music services (not internet “radio” no such thing) still don’t hold a candle to us. If I have to wait for people born in 1995 to start feeling the pinch, I’ll wait. Everybody else is still a big market and they’re all living longer!! Medium market sized local radio lives! And Gives!! Like Rick Peters said why is my phone ringing off the hook? Why are my customers reporting impressive results? Is this the big lie? Keep repeating radio is dead to try and make it so?
Ten years ago, a similar report came out of the University of Houston, and the recording industry used it to justify its view that radio was dead. That was ten years ago.
The recording industry needs to do a study on how streaming has killed the album, and how the record labels need to shift their business model from albums to singles. Labels still sign artists to album deals, the marketing push is still built around album releases, and the industry still rewards platinum and gold album sales. All of that is dead thanks to streaming. None of that is covered in this report.
Radio Ink’s response to this study trouble’s me, but it’s likely consistent with the reaction of many longtime industry leaders: criticize, deny, ignore, repeat, then celebrate being down only one percent when the next earnings report comes out.
You know, I remember when the two biggest selling albums over the last decade (Adele and Taylor Swift) decided that radio wasn’t great for music discovery and didn’t release their music to us because they thought it would interfere with their sales. Because consumers couldn’t get it for free on the radio, those albums sold millions when they didn’t let us play them, proving that radio is not a factor in music discovery or sales.
Oh….wait……
Radio would do itself a service to read this report fully…and with less of a “they’re calling our baby ugly” mentality.
There is a ton of stuff in this report that bothers me and is way off base, and as a radio broadcaster… bothers me tremendously.
BUT, it’s well researched and as anyone who went to any of the DASH conferences would attest..a lot for radio to be aware of.
Think like a consumer and not like a broadcaster.
My 2 cents….
I find this to be a very interesting article and for the most part it says nothing that is not true. Ask yourself if you use radio today the same way you did 5 years ago. If you go back 10 you sure do not. I grew up in the business and in the early 80’s the industry started to change. Radio competed in the early days against TV because of its’ portability. Today’s competition is just as portable and some cases more so.
I think this article like others is a strong wake up call to one of the most important industries and inventions in the world. Sadly I do not think enough are paying attention. Look at Newspapers they did not when the alarm was sounded. TV you are not immune either as streaming and social media is moving in on you no matter how much you post video.
Sadly a tragedy like Harvey points out that it is about local , local , local and sense of community. OH yes
and product. TV pay attention here as well. Streaming media, digital media (unless it is local ) can not do what the local outlets can do. Get involved. I applaud those who still do and shame on those who have forgot about community involvement.
Right you are Carl. Broadcasters need to do what the Big Box internet streamers can not do. Be local, live and relevant. Be involved with your community and by all means interact with your audience using tools both new and old, work the phones, do the remote broadcast, twitter and facebook. HEY Pandora, Slacker, et al. what have you done to help out in Houston? Any donations, listener donations, marathons…Look at the long list of radio stations both in Houston and group owners around the country who’ve rallied to help out. Internet “radio” stations, anyone, anyone…? Hmmm just the sound of crickets. So who is more relevant? Ask the folks in Houston…bet they didn’t turn to Pandora for emergency info or even a companion, a friendly voice who knew what they were going through. Radio will remain relevant as long as it plays to its strengths. Those may not be the almighty arbiter of pop music taste or supplier of music royalties..so what? Radio has plenty of other strengths. Play to those and you’ll win.
BRAVO!!!!
There is nothing in here that is not true.
If Radio is so unimportant to the record labels, then why do I get dozens on calls and hundreds of emails a week begging, cajoling, and pressuring me to play all these new tracks from their peomotion departments? Why, because the artists, management companies, and yes, the labels know better. You don’t have a hit till it’s on radio. Oh, and Radio is and always has been an “amalgomator” of tastes and wants from the audience. Breaking new music is overrated. Playing what the audience wants is the key to our success.
Here’s the key comment:
“Broadcast stations pay no royalties to record labels for the use of master recordings. Digital services, by contrast, are a source of discovery and revenue.”
Obviously this “study” is drafted to counter the argument that radio provides discovery of new music. Therefore they should pay through the nose to the record labels like the pure streaming services, since no-one is listening to radio anymore. Of course, based on that logic–where do they think the money is going to come from.
Apparently his view is to grab the money now before the broadcast business collapses. Vultures.