Media Curmudgeon

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April 10, 2006

Radio Shoots Itself in the Foot

I was away in Panama for spring vacation--May 25 through April --and I've been trying to catch up since I got back. The day I returned, I noticed two items in the New York Times that were on opposite pages in the Business Day section, but they should have been side by side.

An article on page B2 by Jeff Leeds had the headline, "Music Industry Sales Post Their Sixth Year of Decline." The first two paragraphs of the story read:

"Global sales of music CD's and DVD's dipped for the sixth consecutive year last year and surging digital music sales failed to offset the decline, an industry trade group said yesterday.

Global music sales, including 'physical' and digital formats, fell to about $21 billion in wholesale revenue, a decline of 3 percent. Measured in units, CD's fell 3.4 percent and music DVD's were flat, according to an annual report released by the trade group, the International Federation of the Phonographic Industry.

Sales of digital music, included in the annual report for the first time, are rising sharply but did not compensate for the decline of CD's, which have been the industry mainstay for two decades. The number of single songs downloaded online or to mobile phones rose more than 190 percent, to 470 million units, the report said. Revenue from digital sales nearly tripled, to $1.1 billion from $400 million."

On page B3, another story by Jeff Leeds had the headline, "Radio Industry Said to Seek Deal to Settle Payoff Accusations." Here's how the first several paragraphs of that story read:

"The nation's biggest radio broadcasters are in discussions with the Federal Communications Commission to resolve accusations that station programmers accepted improper payments from record companies in exchange for playing specific songs, officials involved in the talks said last night.

But the talks have stalled on questions about how much money the companies -- Clear Channel Communications, CBS Radio, Entercom Communications and the Citadel Broadcasting Corporation -- might have to pay to settle the case, said these officials, who insisted on anonymity because the talks are at a delicate stage.

Clear Channel, which operates about 1,200 stations and is the industry's biggest player, has been pressing for the agency to agree to a range that would place its financial penalty at $1.5 million to $3 million, according to a person involved in the talks. F.C.C. officials had balked at its earlier offers of $500,000 and $1 million, the officials said."

Put those two stories together with Erik Sass'a April 4th report in Media Post titled, "Radio Reports Another Weak Month, Wall Steet Downgrades Medium." Sass wrote:

"Amid reports of stagnant or declining radio ad revenues, the Radio Advertising Bureau claimed a small victory as national sales climbed 4 percent in February 2006...but local ad dollars--radio's main source of revenue--dropped 3 percent compared to last year, dragging revenues down for a 2 percent overall decline from 2005." The Media Post story went on to indicate that Wall Street downgraded its expectations for the first quarter to no growth.

Why is radio revenue down? The Media Post article quoted a Merrill Lynch analyst who singled out "sagging automotive ad spending as a major factor" in radio's decline. But why is automotive ad spending down in radio? I believe it's primarily because the audience for radio stations that play music is down. Audiences for sports, news, and talk radio are up slighly, so it's clearly the music stations that are dragging down the medium and causing auto advertisers to switch their dollars to the Internet.

Why are music radio station's audiences down? I believe it's because the major chains such as Clear Channel, CBS Radio (formerly Infinity, built by Mel Karmizan), Entercomm Communications, and Citadel Broadcasting (all named in the NY Times payola story), have taken payola and played music they were paid to play by the record companies.

In the good old days of radio, music stations that won in the ratings were stations that played the hits as determined by what people bought, as indicated by the charts, and by what call-in and auditorium research told stations people liked. It was a mantra of successful radio programmers such as Bob Pittman (probably the most successful program director in radio in his time) "shut up and play the hits," which meant, "don't play unfamiliar and unpopular music the record companies want you to play."

Therefore, when record companies pay stations to play lousy records, typically based on how much they cost the companies to pay some has-been artist and to produce, not based on popularity, greedy (and dumb) stations play for pay, not for popularity and, thus lose audience to downloaded music that young people can control and listen to without commercials on their iPods. No wonder Apple has sold almost 30 million iPods. No wonder music stations are losing listeners.

The radio industry's answer to increasing profits? Try to haggle with the FCC to reduce fines, not, it seems, to play better music.

Posted by Charles Warner at April 10, 2006 12:15 AM

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