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The Future and Past of Broadcast Radio

BY Admin  May 4, 2005 at 2:17 PM EDT

But these new sounds and new ideas are making their way to market only as broadcasters seek to stem the flow of listeners headed for other audio formats.

The approximately 13,000 American broadcast radio stations still have a hold on an estimated 280 million pairs of ears, but declining ratings and competition from new technology have broadcasters scrambling.

The Radio Boom of the 1990s

During the 1990s, radio enjoyed a boom that paralleled the infamous “Internet bubble.”

Car radio

The 1996 Telecommunications Act relaxed radio ownership rules, allowing one company to own multiple stations in a single market. Broadcast companies responded by going on a major buying spree that resulted in large radio corporations like Clear Channel Communications and Infinity Broadcasting, which is now owned by the larger media and entertainment conglomerate Viacom.

In 1999, the top three radio companies — Clear Channel, Citadel Broadcasting Corp., Cumulus Broadcasting Inc. — collectively owned less than 1,000 stations.

By the end of 2004, the top three owned around 1,920 radio stations, according to a report by the Project for Excellence in Journalism. Clear Channel alone owned nearly 1,200 stations, followed by Cumulus with about 300 stations and Citadel with 220. Infinity owned 183 stations.

These new large radio companies were able consolidate operations and maximize profits. The result, critics and some industry insiders say, was “blandness” in radio sound. Song lists, promotional spots and even the voices of DJ’s began to sound the same nationwide.

“You’re talking about a business that over the last 30 years plays fewer and fewer songs,” Chance Patterson, a spokesman for XM Satellite Radio, a direct competitor to the broadcast radio companies, told the Chicago Tribune in October 2004. “There are more and more commercials, there’s less and less diversity.”

Bob Edwards, the former National Public Radio morning host who has since moved to XM Satellite Radio, told PBS’ Tavis Smiley in March 2005 that “commercial radio has just been a horrible failure” and is run by “just a greedy bunch that’s turned it into a cash register.”

Defenders of the consolidation have pointed to the fact that the companies were turning greater profits for their owners and shareholders while providing a product that consumers obviously wanted and enjoyed — for free. In an era of subscriber-based media — such as cable television, satellite radio and Internet service — broadcast radio stands out as an entertainment and information source that comes without direct costs for listeners.

During the 1990s, ratings and ad revenue rose rapidly. Industry revenues grew from around $11 billion per year to nearly $20 billion between 1994 and 2000, according to the Radio Advertising Bureau. After 1996, revenues grew by double digit percentages every year until 2001.

But the advent of new technologies — some spawned by the dot.com companies — and a post 9-11 advertising slump soon took a toll, resulting in revenue losses followed by sluggish growth.

The Post 9/11 Slump
iPodThe collapse in advertising budgets that came in 2001 hit radio hard, cutting revenues by 8 percent that year to $18.4 billion. In 2002 revenues bounced back with a 6 percent increase. But 2003 saw a slight increase of only 1 percent, bringing total revenues to $19.6 billion. In 2004 revenues topped $20 billion, which represented radio’s best year since 2000.

While revenue growth slowed, ratings — the number of hours that listeners tune into radio — declined. According Arbitron, which tracks ratings nationwide, the average listener over 12 years old tuned into radio for 21 hours and 30 minutes per week during daytime hours in the fall quarter of 1998. By the fall of 2004, that number had dropped to 19 hours and 30 minutes.

In February 2005, two of the largest American broadcast radio companies “wrote down,” or decreased, the value of their radio operations — Clear Channel by $4.9 billion and Viacom’s Infinity Broadcasting by $11 billion. Both companies had experienced stagnant ad revenue growth in the fourth quarter of 2004.

There is some disagreement as to what this sluggish growth will mean for the radio industry in 2005. A Wall Street Journal article in March warned that the entire industry was “on the ropes,” while a Los Angeles Times article in February declared that radio’s profit margins were “healthy.”

What most industry insiders and observers seem to agree on is that radio has lost some ground with listeners and needs to make adjustments.

Though radio “still produces a tremendous amount of cash,” Viacom President Leslie Moonves told the L.A. Times in February 2005, a top priority was returning the business to “a growth path.”

Challenges to Radio: On Demand, Commercial-Free and More Choices

Much of broadcast radio’s troubles have been attributed to new technologies that allow listeners to customize their audio choices to their personal taste — the antithesis, industry critics say, to what homogenized broadcast radio has become.

More and more would-be radio listeners, especially teenagers, are now opting for on-demand and choice-driven listening provided by new technologies like MP3 players and satellite radio.

Satellite radio allows subscribers to tune-in to hundreds of genre-specific stations — alternative country, Dixieland jazz, liberal talk radio — so they can hear precisely the type of content they want. XM Satellite Radio, the largest American satellite broadcaster, and Sirius Satellite Radio have subscriber bases of 3.2 million and 1.1 listeners respectively, and those figures are expected to grow as the companies continue to sign contracts with big-name radio hosts and professional sports leagues.

iPod

MP3 players, or digital music players, present another challenge to traditional radio. Players like Apple’s iPod allow users to carry around thousands of songs in a tiny
computer about the size of a cell phone. Many Americans can put their entire CD collections on an iPod and then select the music they want to hear. Digital players also allow people listen when they want to, freeing them from the broadcast schedules of traditional radio.

Satellite and digital players are also both commercial free, a huge plus for many listeners who have grown weary of ad-saturated media.

Adjustments in the Broadcast Industry

Next to the new on-demand and time-shifting technologies, traditional broadcast radio, with its uniform set list of the most popular music, sound-alike DJ’s, and commercial interruptions, can seem rather old fashioned. But the radio industry has responded with new technologies, new formats, and new plans to increase value to listeners.

Many stations have begun to turn hour-long chunks of programming back over to DJ’s who choose which songs to play instead of relying on computerized playlists. These sessions are usually wrapped around a theme.

For example, the classic rock station 94.7 “The Arrow,” which broadcasts in the Washington D.C. area, sponsors a daily “eclectic lunch hour” and nightly “box set” program. The eclectic lunch usually features recordings, sometimes rare or obscure, tied together by a daily theme. Recent topics included songs with “day” or “night” in the title and a set list from “dead rock gods.” The box set program highlights an hour’s worth of songs, minus time for commercial breaks, from one band or artist.

Broadcasters are also looking at new formats in talk radio, long a bastion of politically conservative personalities. By February 2005, Clear Channel had switched 22 of its 1200 stations to a liberal talk format in areas considered heavily Democratic. The shift is particularly significant for Clear Channel because the radio giant has long been the home of many conservative talk shows and its owners give more money contributions to Republicans than to Democrats.

Todd Webster, a radio consultant who helps stations switch to liberal formats, told the Associated Press that “there is a tremendous appetite for progressive talk.”

Besides trying out new formats, broadcasters are looking to new technologies like digital broadcasting to provide variety to listeners. Digital broadcasting allows multiple content streams in a single broadcast signal. A station, once digitally formatted, can broadcast multiple programs simultaneously, providing listeners different types of music or talk content. Converting a regular broadcast station to digital, however, is expensive: $100,000 per station, according to the Wall Street Journal. And digital programming requires that listeners buy digital radio receivers, something relatively few consumers have been willing to do.

While exploring ways to bring new sounds to listeners, radio is also looking for new audiences. The burgeoning Spanish speaking population in the United States is a prime target. Rock or oldies stations in Washington, D.C., Orlando, Houston, and San Francisco have recently switched over to Spanish programming. According to Arbitron,Spanish language singer Celia CruzSpanish language radio has been one of the fastest growing “formats” in the industry.

Radio executives have also moved to reduce the length and number of advertisements heard on the broadcast waves. Clear Channel launched a “Less is More” campaign designed to reduce the total number of ad minutes per hour of airtime. They’re also trying to teach advertisers how to make shorter, more entertaining commercial spots. A guide on Clear Channel’s Web site is entitled “How to Make Commercials that Don’t Suck.”

In addition, some broadcasters are directly embracing technologies widely thought to be a threat to traditional radio. Some stations have begun to “podcast” established programs or extra content related to those programs. Podcasting entails sending out an automatic feed via the Internet that includes a link to an MP3 audio file. Software on listeners’ computers automatically download the audio file and transfer it to an MP3 player so the user can listen whenever he or she wants.

Some stations have also begun to seriously consider Internet broadcasting, a medium in which a growing number of “independent” Web radio producers are having success. The Internet allows established radio programs to reach listeners in their offices and to provide additional types of content, including Web exclusive content designed to bring in listeners.

Finally, radio broadcasters have started to play up some of their inherent strengths, such as their connections to local communities. Broadcast defenders point out that quality local weather, news and traffic information can only be found on local stations.

In addition, numerous radio stations across the country have won accolades — and loyalty — from listeners by championing local artists and causes, including spearheading fundraising efforts for regional crises and natural disasters.

“The truth is that, historically, we have not been an industry of self-promoters,” David Field, president and CEO of the radio broadcast company Entercom Communications, told Billboard Magazine in Feb. 2005.

“There’s a disconnect between the perception of radio and the reality of radio. When I see what our program directors…are doing to break local music, discover new, unsigned artists and to provide the most compelling music — local, national and international — to their audiences, candidly I think many of the critics just don’t get that. And it’s a shame, because they misrepresent and distort what this medium is all about,” Field said.

Broadcast executives, such as Moonves and others, hope that these adjustments in format and investment in technology will bring back some listeners and boost radio’s growth.

However, in mid-March Viacom announced it was considering splitting the company into two — one that operates its fast-growing properties, like its cable TV networks and the Paramount Pictures movie studio, and another that operates the more mature broadcast radio and TV networks — to boost stock value.

In a press release, Viacom chief executive Sumner Redstone said the move took into account the reality that the conglomerate’s separate businesses, including radio, “have inherently different growth characteristics,” and, unless divided, would “likely to continue to limit Viacom’s ability to receive full value for its assets and its prospects in the investment community.”