If It Ain’t Broke . . . It Will Be

This post from Harker Research’s Radio InSights, called “Trading Broadcast Dollars for Digital Dimes,” analyzes the failure of digital radio to build an ROI (return on investment) for those stations who’ve bought into HD radio — 40% of whom are public radio stations, funded at least in part by your tax dollars, through the CPB:

Last year local radio’s revenue declined $3.3 billion. Radio’s digital revenue last year was $480 million. The digital change machine gave radio a little less than 15¢ for every broadcast dollar it lost. In the latest quarter, broadcast revenue grew 6% compared to last year, while digital grew four times as fast. Yet only 4¢ out every dollar of  local radio revenue came from digital.

Despite all the effort and money going into radio’s digital product, 96¢ out of each revenue dollar still comes from broadcast. And digital dollars were up 25%!

This is the fundamental problem radio faces as it adapts to a digital world: A digital change machine that dispenses pennies on the dollar.

Newspaper is well ahead of radio in generating digital revenue, but it is not even close to replacing the print dollars it is losing. Does radio have any better chance?

Even if we use the most optimistic newspaper numbers to estimate radio’s future digital revenue outlook, there’s still a good chance that local radio, once a $20 billion industry, will become a $6 billion industry. Think that is too pessimistic? Double it and it still translates into a decline of $8 billion from 2005’s peak. Between the recession and online competition annual radio revenue has already declined nearly $7 billion in the past four years. Can radio afford to drop another billion from here?

We’ve seen the impact of this decline on radio: a massive reduction in programming investment. Robo-radio replacing local live radio in even the largest markets. Marketing and research completely eliminated. Radio stations becoming ghost towns.

What will happen if radio declines another billion, or two or three? If radio’s future success depends on the quality of its content, many radio groups are going to be in trouble. Too many groups have already seriously degraded the quality of their radio products. The history of newspaper’s transition shows that degrading the product to protect profits only accelerates revenue erosion.

Listeners have been very patient with radio as it has cut back on local programming. They have continued to listen while radio becomes homogenized and nationalized. There is a limit to their patience, however. And it is running out.

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