Radio's Big Challenge: Finding Its Way Forward In This New Digital World
Twenty-plus years into the digital revolution, the radio industry is struggling to hold onto longtime listeners and advertisers while attempting to puzzle out how best to build out their digital offerings. A few radio companies are figuring it out, says Gordon Borrell of Borrell Associates, the local media research outfit, but too many still see their job as selling radio spots, with digital a sideline. To do it right, Borrell argues, they need to rethink their businesses to focus on how they can put radio and the full range of digital offerings to work for advertisers, with the goal of driving sales, and doing it better than competitors.
How do you see spending on radio trending over the coming years? Our five-year forecasts show average annual declines of 3.8 percent overall, from $11.8 billion last year to $9.5 billion in 2022. Local radio advertising is slightly more insulated, so we're forecasting declines of 2.8 percent annually, from $9.3 billion to $8 billion. What revenue trend lines do you see for digital? And what’s driving it? Digital is trending up in the low double-digits for most stations. What's driving that is relatively cheap pricing and high targetability. I can't say stations are selling the exact right products, however. They’re heavily reliant on banner ads on their sites and spots in their streaming audio programs. Neither is in high demand by advertisers. To maintain good digital revenue growth they need to offer other digital services that more directly complement radio campaigns. Do you see digital revenue gains ever making up for declines in terrestrial? Yes, but only for stations that maintain an aggressive focus on digital products. And it won't happen anytime soon. It'll be five or more years before digital revenue gains completely offset radio revenue losses. A huge issue for traditional radio has been figuring out how to integrate digital and turn it into a revenue generator. Are stations still struggling with how to do it? Can you put a number on how many have figured it out? There are a handful of smart operators that I'd classify as "figuring it out." But I don't think anyone will say they've definitively done so. You can count Entercom, Cox, Hubbard, Townsquare and a few others in that club. One of the key characteristics is that their digital leaders are from outside the radio industry--people who can see digital opportunities from a different vantage point. In the end, the advantage goes to those who see it as an opportunity to reach an entirely new customer set. A few years ago there was a huge resistance to digital among many in radio. Digital was the enemy. Has that resistance eased at all? I think so, mostly because a lot of those idiots have retired or been asked to leave. To grow and thrive, radio needs to understand that its role isn't to sell radio spots but to leverage all the marketing tools at its disposal--spots, events, digital advertising, and marketing services -- to help its customers sell products and services. What is the biggest threat to radio at this point? Straight up, the biggest threat to radio is myopic leadership. We're in a period of remarkable growth and opportunity, yet so many leaders believe their job is to defend "radio.” The industry needs leaders who spend more energy pursuing growth. The industry needs leaders who see dashboards, podcasts, and smart speakers as opportunities instead of threats. It needs people who truly understand they have the assets and tools to leverage themselves into a much broader business than terrestrial radio. What other challenges do you see radio facing? An aging listener demographic. Industry leaders are spending too much energy trying to hold onto the hairy-eared listeners and not enough time trying to figure out how to reach the pink-eared ones. Some see a future for radio in which it reinvents itself all things audio, encompassing over-the-air, digital, and satellite, as well as podcasting, and with two revenue models, ad-supported and subscription. Do you see this as a realistic goal for the industry? Do you see it happening? I'm optimistic, but I don't think my crystal ball is clear enough to say it will absolutely happen. Transforming a company is hard work. The core business needs to be maintained while the disruptive business is cultivated. And as profits from the core business dwindle, someone needs to convince the owners that some of those dwindling profits need to be invested in a new business. It's going to take great vision and great wherewithal, but I do see a few companies that could indeed be successors to what we know today as radio 10 years from now. When you are out talking to radio people, what advice do you give them about how to build their businesses? What success tips do you offer? They need to be able to see two things: First, a clear vision for the "new" industry that they would create. That vision involves being part of a bigger business than terrestrial radio. It involves morphing into a marketing powerhouse in which radio is only one part of the offering. Second, they need to see the steps that should be taken today. Just what steps depends on where the station is at the moment. If they're not selling marketing services--especially digital services--they should get started. If they're not thinking about buying a local newspaper or starting a direct mail initiative in their market, they should. If they haven't set up a quasi-TV studio, they should. You get the picture. These are all steps toward the vision of being the go-to marketing company in their markets. If they're successful at that, they'll capture business from every flat-footed newspaper, TV, Yellow Pages, direct mail, and radio rep in their markets.