Sunday, March 22, 2009

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 21st 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



Anonymous said...

Good points. At a time when most industries are trying to work with one another during these rough economic times the radio and record industries go in the opposite direction.

Anonymous said...

So what's the second fee? That Radio Business Report link doesn't work.

Anonymous said...

Who was asleep at the switch when the Digital Millennium Copyright Act was passed? Didn't anyone from radio bother to read it and realize the problems it would cause? It is bad enough that the RIAA wants to syphon money from internet broadcasts. Now they are going after over-the-air terrestrial broadcasts, too? This is absurd. The old excuse was that the internet is digital and everyone would get their "clean" music for free. That turned out to be false and even illegally downloaded music is highly compressed and not a clean copy. Over-the-air broadcasts are processed and not even close to a digital copy. So why do they want to tax that? Just because they can?

Anonymous said...

You made it make sense. I always wondered why the labels turned adversarial on radio.

How are the record labels measuring on-line sales influences?

Since radio no longer occupies that space something had to replace it.

The major problem with the labels today is that you do not have visionaries like Mo Ostin, Herb Alpert, Jerry Moss and others that "got it".

Who are the visionaries at the major labels today. Are there any?

Anonymous said...

The Radio Business Report link is working. I just checked those rates. How could the NAB endorse and how did it approve those rates for radio? The rates should be based on revenue. How can a station in New York pay the same rate as a station in Eugene. It does not make sense. You are right about the NAB. It has outlived its usefulness.

Anonymous said...

Empowerment. That's what the radio CEOS are afraid of. When Walkmen challenged radio listening it delivered a better product which meant that consumers were stocking their walkman with tapes of songs they heard on the radio. Today radio is completely out of touch. How could the stuff its playing except for the biggest top 10 hits have appeal. Did PDs and MDs leave their ears at the door? Radio you did it to yourself. You have only yourself to blame. It's not the iPod or satellite radio. It's your crappy programming and lack of respect to the listener.

Anonymous said...

When the RIAA went after the burgeoning Internet radio business and got the accursed DMCA passed, where was the NAB to help fight it???

Now the wolf is at YOUR door.

Even if times were good economically, and there were no threat from digital media, this would be a death knell to the music radio biz.

How stupid and shortsighted can an organization be??!

Anonymous said...

When the RIAA went after the burgeoning Internet radio business and got the accursed DMCA passed, where was the NAB to help fight it???

Now the wolf is at YOUR door.

Even if times were good economically, and there were no threat from digital media, this would be a death knell to the music radio biz.

How stupid and shortsighted can an organization be??!

Transistor Radio said...

"rewarding failure, paying themselves hefty salaries and bonuses. Dickey? Mays? Suleman?

So greed is good, greed is right for radio's fatcats. While employees and stock holders are just screwed!

Something isn't right in America!

Anonymous said...

i never put the 2 + 2 together. radio was one of the first examples of providing free a third party free to provide its content so the product could be sold. what the labels want to do in effect is to charge radio stations "commercial time" to play their music. something is radically wrong and dumb with this picture and even more so if it has gotten this far. why would the nab ever agree to any form of royalty payments for free airplay on line and why are the labels going to charge radio to play music period. what you are saying is if a station also streams they are paying a double "tax" or "fee". why isnt radio up in arms unless those running the chains plan not to be around when the balloon payment fees hit.

Anonymous said...

There is more heart and soul and flesh and blood on my iPod on shuffle than there is with most radio station playlists today. You are right about Selector schedule & play. Selector is a good system but if you want to build AQH you have to massage the playlist. That may be easier said than done at most stations today where one PD is overseeing multiple formats he or she know nothing about and have to fake their way through it. If you wonder why there are so many train wrecks in every format today that's why. The more restrictions you put in to Selector the more difficult it is to spit out a music log, too. Most PDs/MDs (the few remaining) don't have the time to do anything more than hit schedule, then print.

Anonymous said...

I don't think the RAB gets it and I don't think the NAB even cares anymore.

In this morning's Inside Radio it mentioned that a joint venture between the American Association of Advertising Agencies and the Association of National Advertisers will add bar codes to orders to make spots easier to track. THAT IS NOT THE PROBLEM.

Gorman, you should send them your blog. ACCOUNTABILITY is not about proving the spot ran for Christ's sake - ACCOUNTABILITY is about providing the client INSTANT REAL TIME INFORMATION on R&F!

How can the RAB be in radio and not understand what its clients want from radio today. You cannot measure radio accurately. Even with the people meter there is a lag time. Clients want instant access and you can do that through the internet and show how many are listening and when - and even break it down into details Arbitron could never do.

That is why it makes no sense that the RAB ignores this fact and the NAB negotiated a deal with the RIAA that makes it cost prohibitive for most stations to stream on line.

Add the performance tax and you will have some worthless not worth less stations.

Anonymous said...

My prediction is that a few months from now we will be reading about long-time radio stations going silent/off-the-air just like we are now reading about newspapers shutting down. It is inevitable. In the newspapers's case they did not know how to deal with the internet so they ignored it. Radio, the same thing. Radio will never understand that the iPod and satellite radio did not put them out of business. It was their own greed and lack of foresight that killed them.

Anonymous said...

The dumbness and stupidity spills from one industry to another....

Anonymous said...

This is why Fred Jacobs's GO FOR THE GOLD campaign was so dumb to begin with. He wants to rub the labels's face in it. Now that the labels are ignoring Fred and not stopping by to kiss the ring when visiting Southfield he wants to bite the hand that fed it all these years. I understand where he is coming from. He wants to look like the hero to radio. I am not saying olive branches are necessary but we would not be in this mess if radio didn't hold up the labels a few years back in the pay for play scam when the labels needed them.

Anonymous said...

If I'm going down you're going down with me. Either the labels said that to radio or radio said that to the labels and does it really matter?

Anonymous said...

Your analogy with Google is correct. There were early attempts by certain web sites to block Google entry. The web site owners had a change of mind when they realized how much traffic Google was delivering to their site and products. Google makes money selling advertising to cover the costs of their search and other specialties. Radio is to music what Google is to search. It should be free and should remain free. Thank you for your explanation. You cleared up any grey areas I might have had about this.

Anonymous said...

the difference i see between old media and new media is that new media is not afraid to make mistakes and admit to them. new media has to be customer-driven and approved to be successful. the consumer has the power through blogs, facebook, what have you. old media ignores the consumer. whether it be someone calling a radio station & no one answers because the voice on the air is really automated to just getting basic questions answered. i put sirius & their attitude with old media. i also put microsoft into an old media category because of their "always right" attitude. the labels charging internet radio is just wrong. there are a lot of internet stations that program new music of all genres. i have bought dwnloads based on what ive heard on various internet stations. don't the labels understand?

Transistor Radio said...

New media still has to deliver ROI which is always measured in sales,
and customers. New media is much more data friendly.

Anonymous said...

Transparency is another part of the equation. Today's successful businesses keep no secrets. Successful new media falls into the same category. Radio and the labels still try to control what you hear and when you hear it. The more control they try to put over the consumer, the more ground they will lose.

Anonymous said...

Transparency is another part of the equation. Today's successful businesses keep no secrets. Successful new media falls into the same category. Radio and the labels still try to control what you hear and when you hear it. The more control they try to put over the consumer, the more ground they will lose.

Anonymous said...

If terrestrial radio could charge listeners a fee to listen they would. Terrestrial radio would be better off paying people to listen.

But seriously folks. Your point about "free" is a valid one and it only makes sense that both the labels fail to see this advantage because they are stuck so far into the "old school". Even if the labels' executive teams know its value they are not going to risk their own corporate downsizing.

It will happen in spite of them thanks to the indie labels. Most of the indie labels market through the net, pay their artists royalties quarterly without taking out major bucks for manufacturing costs, promotion and marketing and other bullshit expenses. The future will belong to them not Sony, not UMG, not EMI, not Seagrams favorite son.

Anonymous said...

There are generations of young music fans who have grown up without radio or record stores being part of their lives.

The fault lies with radio which took advantage of deregulation to lower quality programming and the labels which took advantage of their mergers to work nothing but existing superstars.

The problem is that both radio and the labels continue to blame the consumer for all of their problems.

The old model is over. If the labels try to stifle internet radio's growth they will have a rude awakening.

Terrestrial radio deserves the performance tax. No one under 40 is listening anyway. Let them change their formats to all talk and religion.

Anonymous said...

"Terrestrial radio deserves the performance tax. No one under 40 is listening anyway. Let them change their formats to all talk and religion."

Let the RIAA roll over the NAB Big Boys, as their (Struble's) IBOC jamming machine has done to community radio! I'm cracking up just thinking about all of the music-oriented FMs that will have to flip to AM's news/talk/sports formats - LOL! AM lives on, until IBOC totally destoys it! Hopefully, this will kill Struble's HD Radio scam and put an end to the Big Boys, who are already looking at bankruptcy - LOL!

Anonymous said...

I think your buddy Lew is about to take the pipe. Not looking good unless he puts some cash in the right hands.

Anonymous said...

I blame Fred Jacobs

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