Tuesday, October 26, 2010

Simple...but complicated

To most radio listeners and TV viewers out there, the sea change in technology that is radically altering over-the-air broadcasting is little more than a hum.  They still see images flickering on the TV screens...though admittedly now in high def or even 3-D and with a lot more choices...and there are 800 million radios so switching one on and finding some music or people screaming at each other on talk or sports radio is still an option.

It's simple.  Radio and TV are still there, just as they have been since the 1920s for radio and 1940s for TV.  But behind the scenes, it is vastly more complicated, and how broadcasters are handling change is shaping the future of the media for viewers/listeners, advertisers, and station owners in fundamental ways.

Case in point is the ongoing haggle between music licensing entities and radio broadcasters.  Unbeknownst to most listeners, radio stations pay for the privilege of broadcasting music.  That money goes to the people who write and produce the songs we listen to.  The amount each station pays is determined by a formula based on how much revenue the station takes in.

Now the music guys want to change how things work.  With radio stations not only casting out radio signals but also streaming their music programming on the Internet, the music licensing agencies have dollar signs in their eyes.  They want more money for the use of their songs.  This really complicates things.  First, listeners are not aware but the union for voice talent has been lobbying for more royalties for their members because of streaming.  So far, stations have resisted paying that, and that's why, if you listen to your local station's stream, you won't hear the commercials.  They're covered by music, station promos, or other commercials that don't use union talent.  I won't even go into what a hassle that is, or how it effects things like the rates advertisers pay or how it negatively impacts the potential reach and effectiveness of a station's commercials.  Or the fact that stations typically make no money on their streams.  Complicated!

The National Association of Broadcasters has a committee that has been negotiating with music licensing groups, trying to come up with a new formula that would include some payment for Internet music usage.  Broadcasters are in a tough spot.  Audiences are diluted.  Revenue is down.  Wall Street still demands stations' bottom lines increase year-over-year.  Ratings services can't really measure listening on the Internet combined with over-the-air.  Advertisers don't know what they are getting for their money. 

As mentioned, commercials only play over the air, not on the Internet stream.  Stations have not been able to figure a way to make money on the Internet stream, yet they are convinced audiences demand it...whether that is true or not.  So why pay more--for commercial talent and the music you put on the air and the stream--if you are not making more money?  Especially when stations are struggling to make a profit at all.  And don't radio stations help sell music by playing it on the air?  And on the Internet?  There has even been talk of CHARGING record companies and artists to expose their music.  That has not gone very far at all, nor will it.

All this leads up to the announcement yesterday that the NAB committee has proposed a plan in which royalties paid to play music will increase, but not necessarily in response to streaming.  No, it would be tied to penetration of chips in smart phones that would allow the devices to tune broadcast radio.  Not apps.  Chips, inside phones.  The broadcasters have been lobbying for a long time to have the Federal Communications REQUIRE in all phones sold in this country.


First, if broadcasters have not figured out how to make money off streaming existing programming on the web, how do they expect to make money--and pay bigger royalties--based on smart phones being able to get over-the-air broadcasts?  As mentioned, there are 800 million radios already.  Pandora and all those guys who compete for listeners with terrestrial radio don't need chips in phones.  They have 80 million users without it.

Truth is, this chip-in-the-phone thing has been a priority for broadcasters for a while now.  For some reason, they are convinced that having a "radio" built into a cell phone will solve all problems. 

Here's the simple truth: radio is ubiquitous already.  Being able to get a station is not the problem.  There are apps for that already with more on the way.

No, putting something on their air (and Internet stream) that will entice people to listen to them instead of robotic sources like Pandora or satellite niche formats like Sirius/XM is what needs to happen.  Monetize those outlets by learning who listeners are and providing advertisers multiple ways to target and reach those listeners with a compelling message.  Build a loyal tribe of listeners (and viewers, too..."radio" MUST become a visual medium!) who respond to what the station and its sponsors say.  Then work with the people who own the music and who voice commercials for real-world licensing so stations can do what they need to do. 

Oh, and convince music providers that their wagon is hitched to radio's star.  If radio goes away, the plight of record companies and music publishers will be worse.  Make them partners, not enemies.  Tie royalties to broadcaster success, not to government-mandated gizmos in cell phones.

Determining license fees based on penetration of mandated "radio" chips in cell phones is a waste of time and effort.

It is, at best,a solution in search of a problem.

Don Keith N4KC

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