Posted by: Rick Ducey, CSO BIA

During the Revitalizing Traditional Media Webinar (which can be viewed at: http://www.bia.com/webinars), there were more questions asked than the speakers had time to answer. In an effort to answer those questions, BIA will post a couple blog entries with the questions followed by the answers. This is the first of two blog posts.

Q: What other types of non traditional revenues are being pursued?

A: In terms of digital media, we see radio stations successfully pursuing opportunities with platforms such as: Internet advertising inventory (display, video, search, iTunes downloads, email and streaming); mobile (SMS text; iPhone applications); datacasting (traffic, iTunes tagging) or even syndicating local content and talent to other websites. Stations can brand their multiplatform enterprises with their call letters or on-air positioning slogans or launch independent brands leveraging core strengths in programming, sales, promotion and platform management.

Q: Are there any companies we can buy these solutions from today? Any one stop shop?

A: We advise against the “silver bullet” and “one stop shopping” mentality. The reality is that as the media ecosystem becomes more complicated so too must the solutions. We recommend that you make the investment in your companies of your own intellectual capital. Be thoughtful, objective and honest. Come up with your goals and strategies. Prioritize them. The last step in this process is buying solutions, implementing them and finally evaluating their effectiveness. Do not short change yourself by spending time looking for a simple and effective solution to a problem you have been willing to invest your own time and effort in defining. Saying, “we have a revenue shortfall” is not a helpful definition of the problem. Something more along the lines of, “how do we create value for our advertisers and listeners that distinguishes us from the competition” is a better problem statement. Once you figure out how you want to approach that problem, then it becomes appropriate to being the search for tactical solutions and tools to get you where you need to be.

Q: How do you transition internet from value added to true incremental revenue?

A: This is squarely a sales strategy and management problem. Until the proper policies, compensation, training and products are in place the Internet will remain a “value add” to the customer instead of increasing your own valuation.

Q: Ducey said “we now have an equilibrium on content licensing expenses” How is that so since if there is no settlement of sound recording performance rights fees for streaming radio stations, a new proceeding will start before the CRB next year to set rates for 2011-2015

A: Good point. By “equilibrium” we meant that at the moment a number of radio broadcasters have decided to offer and even expand their streaming service offerings. This compares to a time in the recent past when copyright decisions compelled many radio broadcasters to turn off their streams. We do not see this as a particularly stable equilibrium until the new rates are set which indeed may define a new plateau for radio station streaming services (or not!).

Q: Any thoughts on access to capital given the challenged environment in the financial markets?

A: This will depend on your unique circumstances. As Tony and Bud said, if you are a privately held company with excellent relationships into local banks, you’re in good shape. Otherwise, the compelling need is to demonstrate prudent expenses management and a convincing path to revenue. Obviously the capital market is less tolerant of risk; puts lower valuations and multiples on radio stations and will seek terms more favorable to lenders and investors. There is significant money parked on the sidelines. This money cannot earn returns unless it is put to work. Sooner or later, we’ll see the capital dam start to spring leaks.

Q: How will HD radio be any different than AM stereo?

A: This is a challenging circumstance but we see several key distinctions. First, we have broad commitment from leading broadcasters both in terms of deploying the technology at their stations and backing the de facto standard. Progress is being made with consumer electronics and automotive companies to deliver on the devices side. We didn’t see these ecosystem factors emerge in the AM stereo case. HD Radio offers the industry an opportunity to reinvent itself using its own medium as well as diversifying into other media platforms by offering a rnage of new services. For example, a project BIA is working on for the NAB FASTROAD initiatives is developing an Electronic Program Guide (EPG) that will allow a market level guide to tell viewers “what’s on” radio. This has the potential to elevate radio’s service to audiences and advertisers and drive more use and revenue. For more information on the HD Radio EPG project see: www.nabfastroad.org.

Q: So much of Radio’s web potential depends on the ability to stream. Yet, with the RIAA/SoundExchange royalty system, streaming is not cost effective, and it doesn’t appear that it will ever be. I streamed until the end of 2007, when it became clear to me that the streaming business model was upside-down. Why do so many consultants (including BIA/Kelsey) insist on pointing broadcasters down this dead-end road?

A: Solutions need to be customized to individual companies and how they want to do business. However, streaming can be an excellent way to extend radio’s brand and service into the Internet environment in a powerful way. Internet advertising is a growth area, it makes sense to explore how radio can position itself in a unique and powerful way. With streaming to PCs and now mobile platforms increasing, it makes sense to continue working on finding ways to do this profitably. Remember, FM stations initially had little to no value compared to AM stations. Consider Internet streaming as possibly the FM stations of the future.

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