Radio: In search of truth serum

Do you often wonder what alternate universe the radio industry exists in these days?

Let me introduce you to Scott Sperling, the co-president of Thomas H. Lee, one of the two equity firms (Bain Capital being the other one), that ponied up $17.9 billion to take Clear Channel private just moments before radio stocks fell into the incinerator.

Last Wednesday, he told Reuters that Clear Channel and another Thomas H. Lee media investment, the Hispanic network Univision (a $12.3 billion deal in 2006) are "inherently great businesses" and that the recession in the ad market would reverse.

Now let’s visit with BAI Financial Network VP Mark Fratrik, who researches broadcasting and related communications industries.  Last week, he revised his original radio revenue forecast he issued last December.  Based on his most recent studies, he now foresees 2009 radio revenue to be worse than he initially projected with no improvement in 2010.

So whom do we believe?

The BAI study is little more in-line with the latest study from Pulse Research, which in a study prepared for the Cable & Telecommunications Association for Marketing (CTAM), shows that over seven out of ten or 71 percent of US households believe that the economy is heading toward a depression. 53 percent of US households are doing less shopping, 52 percent are eating out less, 51 percent are taking fewer vacations, and 50 percent are attending fewer concerts and theatre performances.  The study also showed that most are not willing to give up broadband and cable TV.

(I’ll buy the broadband part – but not cable.  Just this past week, three people – unsolicited – told me they were downscaling their cable channels – and one intended to drop cable service entirely due to increased use of Hulu and other TV on-line, on-demand services.) 

We're also hearing that in the future rounds of Clear Channel cuts even some of their hard-core, brown-nosing bum-kissers will be getting the axe.    It’s not just the billing and traffic departments that are living on borrowed time. Hell hath no fury than a woman scorned or a loyal-to-a-fault Clear Channel manager being told that the elevators are at the end of the hall.

That’s like calling sewage perfume.  You can actually call it anything you like but you can’t prevent its stink.

 The more I hear and read comments like “we have to contract before we can expand” from Clear Channel execs and their private equity suckers, the more I’m convinced that the last batch of Kool-Aid they make will be for themselves.

Lyin’ Diane Warren at the HD Digital Radio Alliance churned out still another press release, this one announcing a “major milestone.”  According to the Alliance statistics (yes, a flag was just thrown on the field) there are now “1,000 multicast stations” broadcasting and 100 various                      HD Radio models “now available at retail.”  The Alliance also announced still another new ad campaign (yes, another flag on the field), which will be carried at no cost “on over 700 stations in the top 100 media markets.” They called it “extending the broadcasters' commitment to promoting the technology to 42 months.”

Allow me to translate Lyin’ Diane-speak into truth: To be precise, that's 1,000 HD stations that few will ever hear and 100 receivers on warehouse shelves gathering dust. 

The new campaign “will combat the mistaken perception by many consumers that they already own an HD Radio.”  No, I couldn’t make this up if I tried.  An unidentified spokesperson for the Alliance adds that the new flight “will continue educating consumers that they need a new receiver to enjoy the HD experience,” and will word-up their slogan, which will go from “It’s time to upgrade” to “If you don’t have an HD, you’re not hearing HD.”

True genius.

Let’s, of course, not confuse iBiquity and the HD Digital Radio Alliance will the facts.

Sure, iBiquity’s failed miserably in new product development resources and expertise. They followed that with a series of flawed marketing research, sales, distribution, advertising, and promotional resources and skills. 

Have you seen any HD Radio marketing assessments other than Alliance’s own?  Did you see even one independent, impartial market evaluation since the deficient product was introduced?   But I digress. 

How about radio still hawking those Internet radio ratings, which claim CBS Radio and Clear Channel to own the lion’s share of on-air listening?   

The only one buying that hype is the radio industry.   No one that counts in new media believes that misleading hype.  Read Ken Dardis’ current Audio Graphics for specifics.

As long as hypocrisy is in the forefront of radio pitches, the medium will continue to loose ground.

We live in a transparent world.  You can’t avoid it.  The consumer is in control.  Facing up to the reality will be your first step forward.  Deal with it.

Radio and the labels: Suicide watch

Radio and the labels.

They’re doing themselves in.

There are no heroes, just villains.

Not only do they hate each other – they hate the people that made them successful.  The consumer.

The “free” business model being adopted on-line and elsewhere essentially has its roots in the relationship radio and records used to benefit from.

Radio played the music the labels sold.

Radio didn’t own the content it played any more than Google owns the content it delivers through its search engine.

Certainly, the old radio-label relationship was not a perfect world.   What is?

Sporadically, labels manipulated airplay through payola and paper adds.  

And today there are web sites that try to manipulate search rankings with their own tricks of the trade.

But the issue at hand is occurring at a time when the free business model is becoming the most efficient means to market.  The labels, through their influence peddling lobby group, the Record Industry Association of America (RIAA) are on a hell-bent quest to charge for content that’s always been free.

You already know how the story ends if they get their way.  Both radio and the labels will be out of business.

We’re dealing with two industries where below average is the new average.

Radio’s broke and broken. Brand-name radio groups are teetering on the edge of bankruptcy, owing more on their properties than they’re worth.  Some have found transitory ways to delay the evitable but time, like luck, will run out.

But that didn’t stop the CEOs of these distressed radio chains from rewarding their failure by paying themselves hefty salaries and bonuses.    Right, Mr. Dickey?  Right, Mr. Mays?  Right, Mr. Suleman? Wink, wink, nudge, nudge.

The labels are also broke and broken.  They ignored downloading because they didn’t think of it first and then tried to sue its customers for getting their product on line through file-sharing programs, which they had initially rejected.   The CD is now as old as the vinyl album it replaced.  Those buying physical product are in the minority – and eventually that shrinking market will be made up of mostly collectors and hoarders.

It still doesn’t stop the CEOs of these troubled label groups from rewarding their failure by paying themselves hefty salaries and bonuses.   Take Warner Music Group CEO Edgar Bronfman Jr. He received a $3 million bonus check for his company taking a $56 million loss in 2008. Did I mention that Warner Music stock dropped over 25 percent in 2008?   The Wall Street Journal reported that his board awarded the bonus because he did a “good job in a tough environment.”

And you thought AIG had effrontery?   You’d never know there’s a severe recession from inside the corporate offices of radio and the labels.   They’re still partying like it’s 1999 because they refuse to recognize how business is being done in the 21^st century.  It’s nice to have family and friends controlling your board.  Right, Mr. Dickey?  Right, Mr. Bronfman?

The labels ignore consumer complaints but will gladly sic the RIAA Dobermans to sue a few dozen file-sharers in a battle that is mathematically impossible to win.

Radio ignores its listeners. You can’t even detect a heartbeat at most radio station studios during middays, nights or weekends. Its rapidly declining TSL confirms that those who are listening to terrestrial radio are listening less – and, according to share parity, most do not have a favorite radio station.  

Neither the labels nor radio understand the power of peer pressure when applied to the Internet.  We now inhabit a customer-driven, customer-critic marketplace.   The two sides are clueless as to their roles as entertainment providers in 2009 and beyond.  You give the people what they want and when they want it.

Before blaming illegal downloading on the labels’ ills, know that the convergence to the Internet has impacted the video rental market, too. Netflix is now streaming a catalog over 12,000 videos, which provides a low-cost alternative to brick and mortar Blockbuster. Netflix signed up its 10 millionth customer last month February and, in the last six months its stock increased by 31 percent.  By comparison, Blockbuster’s down 73 percent.

The labels are talking ragtime by demanding two bailouts from the radio industry.  A performance fee for terrestrial radio broadcasting of music and a second, cost prohibitive deal brokered between the RIAA’s SoundExchange division and the National Association of Broadcasters (NAB) on behalf of the radio stations it purportedly represents.  The former was covered in a prior blog.  The latter’s details and costs to broadcasters can be found here, courtesy of Radio Business Report. 

Radio is of less value to the labels because of the collapse of brick and mortar music sales.  Airplay was imperative when it could be converted to data for label salespeople to pitch retail.  But with over-the-counter retail terminal, the labels talked themselves into believing that radio airplay has zero influence on-line sales, which is false.

Let’s stop here for a moment and clear something up.  I’m not saying that radio is the only influence for music sales.   The younger one is, the less likely radio plays a role in shaping musical tastes.   How many college kids do you know that say the musical fare on commercial radio speaks to them?  Thought so.

The royalty rates aren’t a fixed issue - yet.  Last week the U.S. Court of Appeals for the D.C. Circuit heard arguments challenging the constitutionality of the Copyright Royalty Board’s decision in allowing the RIAA’s SoundExchange to be the sole agency for collecting Internet radio royalties.

If found illegal, it could negate the Copyright Royalty Board’s decisions.  

Internet radio stations already have an option of cutting their own individual – and fully confidential – royalty rate deals with SoundExchange.   There’s one question that begs to be asked:  Are discounted deals being offered in exchange for the labels’ partial to full control of a station’s playlist?  Just asking.  

Even the labels know that passion can’t be bought, outsourced or faked. They also know that radio has no incentive to hire and groom future talent to be culturally aligned and motivated.  Attention to detail in music presentation has been replaced by two buttons – schedule and print.  To the labels, radio is somewhere between being worth less to worthless. 

If radio doesn’t take an urgent stand to challenge the legality of these highly dubious fees the labels plan to impose – radio will take a major hit.    And has anyone asked David “Fumbles” Rehr whose side the NAB negotiating for when it gave away the store for on-line streaming?

The labels didn’t even need a mask for this hold-up.

Does Fumbles realize that client “accountability” means delivering real-time facts and figures, which is what Internet broadcasting can do that terrestrial-only delivery can’t?   Streaming will be vital to a station's survival sooner than you think.  Arbitron, sharbitron.  People meter, sheeple meter.  Clients will demand audience measurement and other data in real time - not eventually.

That’s why Fumbles failed in the beer industry. I wouldn’t even trust him behind a bar.  He’ s so desperate for attention that he’d be doing non-stop free drinks on the house, and forget to lock up at the end of the night.

Maybe Fumbles is sucking-up to the RIAA for a lobbying job knowing that the countdown to the end of his NAB tenure is on.

Radio still has its blind spot.   If music radio doesn’t prepare for the great convergence to the Internet – and challenge the legality of these fees, it won’t have a future to look forward to. 

Certainly, there are other alternatives – but the big four labels are so blinded with greed and debt; they fail to see that they’ll be signing their own death warrant should either of these unjust fee structures become law by eliminating the two prime systems for potential consumers to hear music.  It will give new meaning to the term: cutting off your air supply.

 ----

Honk If You Love Rock & Roll

 

Radio: The royal scam

At this point, I can’t see how radio can avoid paying that wrongful Performance Royalty Fee.

The inefficient chairman of the National Association of Broadcasters (NAB) David “Fumbles” Rehr, believes the only solution to a problem is to write long letters about it to all the wrong people. While he was composing, the labels successfully positioned themselves as the lesser of the two evils.

You do understand why Congress will not get directly involved in the matter.

Two wrongs don't make it right.

The NAB even allowed the Record Industry Association of America (RIAA) to depict radio as being more disreputable than the labels.

Congress knows the labels are far from squeaky clean – but at least the RIAA's chairman Mitch Bainwol knows what hot buttons need to be pushed on Capitol Hill and when.

Bainwol is a skilled lobbyist. Fumbles is a skilled….er….you get my point.

Meanwhile, back at NAB radio ranch, when Fumbles ran out of letters to write, he sent stuffed duck toys to Congress to, for some reason known only to him, illustrate that most of the labels represented by the RIAA are foreign-owned.

You know, “if it walks like a duck….”

The NAB would’ve been better off being represented by the agitated Aflac duck. At least it would’ve gotten some attention.

This isn’t a first for you, Fumbles. You left the National Beer Wholesalers Association in similar shape when vacating your headship post there for the NAB in 2005.

The truth is that NAB is a pot-holed boulevard of broken schemes. It’s an organization that has outlived its effectiveness – at least under its present administration. It’s a haven for those who could never get work anywhere else in this industry.

The NAB was playing softball while the RIAA was playing hard.

Is there an industry other than the newspapers that has its priorities so scrambled that they routinely set themselves up to fail?

Some of our largest radio groups are on the brink of financial collapse and were teetering toward disaster long before the economy went south.

Fumbles, let’s take your shady campaign with iBiquity for HD Radio. Answer the question, Mr. Rehr. How many HD Radios have been sold to consumers? The word, Fumbles, is sold – not manufactured. And we’re talking completed radio units – not chips.

How about your “Radio Heard Here?” Never mind here, let’s try where. Have you seen that campaign anywhere?

There’s your push for even more radio deregulation? Isn’t that what got this industry into this chaotic state?

You even launch campaigns against issues that don’t even exist! Take the Fairness Doctrine. That was abolished twenty-two years ago. President Barack Obama doesn’t support its revival. It’s not an issue. But that doesn’t stop you from wasting time and NAB dollars to campaign against its return.

Fumbles is the like the boy who cried wolf. Now, there’s a real wolf at his door. Its name is the Performance Royalty Fee, and Washington is ignoring his terrified weeps and wails.

The Subcommittee reviewing the proposed royalty fee suggested leaving it up to the labels and radio to work out – and working it out means for both sides to come up with a number that’ll be acceptable to both sides.

Do you need a translator, Fumbles? That suggestion means radio will be paying a fee. The question now is “How much?”

Fumbles, you blew it. You lost. You couldn’t even argue that the labels have a history of gypping artists out of royalties – a well-documented on-going practice that goes back decades.

When the RIAA began strong-arming Internet radio, Fumbles ignored it even though the results of their bullying would spill over to the terrestrial radio stations that also stream on-line.

So what does a back-against-the-wall Fumbles do? He’s writing more letters and launching even more mediocre ad campaigns to combat the RIAA’s well-organized drive.

At last week’s subcommittee hearing on the performance tax, Steve Newbury of Commonwealth Broadcasting, who’s also chairman of the radio board of NAB, went right for the throat, claiming, "The record labels walk away with more money from this bill than do featured artists.” He rightfully blamed the labels for not paying their artists royalties owed, citing singer Toni Braxton as one such victim. He noted that "Free radio play is the best friend of artists and record labels" and claimed that if the tax became law, he’d be forced to cut services, switch his formats to talk or file for bankruptcy.

Then, not knowing his close, Newbury added that the fee would lead to new music not getting played and composers not getting their share of royalties. You can read his entire statement before the Subcommittee here.

I have only one question. Why would someone representing the NAB make a not-so-veiled threat of refusing to negotiate with the labels in front of the Subcommittee? Forget reading the room. Begin by knowing what room you’re in.

Mitch Bainwol, who spoke as a member of the musicFIRST coalition, another RIAA front, effectively played Newbury and the NAB like a Stradivarius – and did the improbable. He actually came across as the good guy.

Bainwol presented five points. First, radio pays nothing to performers but collects billions in revenue. Second, unlike other countries that abide by copyright laws, the U.S. does not pay a performance royalty. Third, more than half the songs played on U.S. terrestrial radio are older songs – not new music – and its promotional value has diminished. Fourth, the bill is aimed at major radio chains. Fifth, the tax does not transfer money to the labels.

Bainwol even went as far as to say that music promotes radio – not the other way around. You can read Bainwol’s statement here and if you’re a true glutton for punishment, you can view the entire hearing here.

You can judge a person by the friends they keep – and amongst those Fumbles is closest to is one he’s shared many a stage with - consultant Fred Jacobs. The Coot’s best shot to fight the Performance Royalty Fee was to ask radio stations to take photos of the gold and platinum awards received over the years to “prove” that radio sells music by airplay.

Yes, Fred. Radio does sell music – but those gold and platinum awards are another matter and in the real world should not part of that equation. You know what they really are. They’re strokes – and nothing else – from the labels for playing their biggest hits. One label exec told me he still has letters from program directors, general managers, and even station owners, asking – and even demanding -personal copies of gold and platinum albums. With many of these managers out of work, we’re seeing some up for bid on eBay and other auction sites.

Another thing, Fred. We’re talking today – not fifteen, twenty years ago. The question the other side's asking is. "What have you done for me lately?

If you don’t want to get shot or stabbed, don’t befriend people who use guns and knives. You don’t want to get mugged, don’t leave a bar drunk.

That holds true for radio, too.

Over a decade ago when Randy Michaels, with well-publicized fanfare, instituted “legal payola,” a pay-for-play scheme at Clear Channel that forced label to fork over dollars to radio through third-party influence peddlers for an annual up-front fee, I said this would come back to haunt radio. And it did.

But other chains, like penguins, followed Clear Channel’s lead. Legal payola allowed only labels and artists management to pay to get radio airplay. Instead of radio being a soundtrack for popular culture, it became a privatized jukebox for those willing to pay the steep price under the pretext of non-traditional revenue.

Simultaneously, artist management and independent labels found alternate ways to expose their music – television shows. In many cases, the producers of these shows approached the labels or artists – not the other way around. And, unlike radio, television actually pays a licensing fee to play the song. 

Shows that appeal to younger demographics like Gray’s Anatomy and Gossip Girl are breaking new music ahead of current music terrestrial formats. And that’s been s.o.p. for a few years now.

This is the definitive battle radio is up against. It must prove that it still can sell product through airplay.

It’s not that the radio industry hasn’t a strong case against it. It does. The problem lies with the fact that, so far, there is only one person who could plausibly argue the case against the labels’ thieving tax.

His name is Bob Conrad, the president of Cleveland’s classical music station, WCLV.

He’s doing what radio used to do – taking the campaign to his listeners by asking them to contact their local Congressional leaders and urge them to support the Local Freedom Radio Act (H. Con. Res. 49).

That’s the difference between Jacobs’ go-for-the-gold-record campaign, which is industry inbred – and Bob Conrad’s, which takes the campaign directly to its listeners.

Conrad saved the classical music format in Cleveland whereas in Detroit, Jacobs convinced Greater Media to dump its classical music format in favor of his abysmal Edge alternative rock format, which failed.

If the only responses come from classical music listeners in Cleveland, you’ll know it’s too late.

Pay-for-play. It was wrong when radio demanded it from the labels. It’s equally as wrong for the labels to demand it from radio.

Buzzard St. Patty's Day, 1983