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The Ugly Divorce of FM Radio and the Music Industry  Print E-mail
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Written by AV News   
Friday, 17 February 2006

In terms of marriages, the relationship between FM radio and the music industry was a long and successful one for more than 30 years. Today, emotions and business models are shattered, with both sides wondering what went wrong when things had been so good. Traditional terrestrial radio’s relationship with the record industry has been a mutually beneficial one that allowed the music industry to grow at unseen levels from the mid-‘60s until the mid-‘90s, resulting in a business that at its peak was selling in the neighborhood of 30 billion dollars of merchandise per year.

Radio at the time was flying high like a dot com CEO the morning of his IPO. Thanks to Congress, radio was in the process of going from being a highly regulated industry to being highly deregulated, which allowed the acquisition of more than 1,000 radio stations by the same company when the historic limit was that one company could own was a total of seven FM, seven AM and seven TV stations. Radio’s feeding frenzy created zillionaires and gigantic players like Clear Channel and Infinity/Viacom. But it was specifically this unprecedented success and the arrogance it created that ate away what was left of the long-lasting marriage between radio and the music business.

In the days before MTV and the Internet, an artist absolutely needed radio to get his or her songs to the record-buying public. While FM radio is still a powerful medium today, it no longer reaches the record-buying public in the same ways. Nor does it carry the emotional branding that it did in the ‘60s and ‘70s. As hard as it is to believe for today’s youth, people actually used to associate themselves and their personal style with the radio station they listened to. That marketing power is long gone, but what remains is the immense pressure of running profitable radio stations under the corporate umbrella of gigantic public companies. My father, who is the former publisher of the radio trade publication Inside Radio and is now a clinical professor and Director of Executive Programs at the University of Southern California’s Thornton School of Music, notes the lack of any new successful radio formats in more than 10 years. When you think about it, he is right. Arrow and Jammin' Oldies are just that – a reinvention of an oldies format. ‘90s music is hardly a hit format.

Norm Pattiz, the founder of the syndication company Westwood One, years ago pointed out that radio has never earned more than seven percent of the overall advertising market, falling significantly behind other media, including print magazines, newspapers and especially television. In a recent interview with Audio Video Revolution, Pattiz noted, “Since radio consolidation in the late 1990s, radio’s ad revenue has increased at a respectable rate, with the overall earnings increasing from around 15 billion per year in 1996 to closer to 20 billion today.” Part of the growth comes from the effects of the vast economies of scale from the consolidation of radio companies. If one group broadcasts the same classic rock station to 55 different cities, then one person or a small team of people can program all of those stations, instead of having one well-paid program director in each city. The savings to the radio group are vast, but there is also a price, as the listeners now have more and more ways to get their musical entertainment. FM radio has in many cases added more and more ads per commercial break, allowing them more inventory to sell. Sit through a commercial set during the Howard Stern Show and you could develop hemorrhoids. Pattiz noted that, in terms of the business model of radio today, “[Due to] the consolidation of radio companies’ sales forces, lower-rated stations have been re-branded to reach niche audiences, thus getting premium ad rates that their more highly rated sister stations get.” All of these factors have helped radio to stabilize as a business that can expect to see at best, conservative growth in the coming years. Even optimists agree radio will likely never see the boom that it had in the late 1990s, even in the unlikely event of more deregulation being passed by Congress. Competition for the youngest and most desirable listeners is getting more and more stiff every day from players ranging from commercial-free satellite radio to increasingly good Internet radio stations available on your PC to people swapping out their trusty old FM Walkman for an Apple iPod or other MP3 device.

The record industry hasn’t had it as good as radio in recent years. While radio was booming in the late ‘90s, the music business was dealing with new technology the only way it has historically known how to do – by fighting anything new. It didn’t take long after high-speed broadband Internet services became commercially available for Napster to poke its ugly head into the marketplace. The business model of selling an entire album of songs was immediately under duress and the record industry started suing like mad. They sued peer-to-peer (p-2-p) sites. They sued end users. They sued everybody. And none of it worked. Today, there isn’t a song you can’t steal from a p-2-p system. Lackluster CD sales, although up just slightly in 2004 after several years of decline, are forcing record companies to do all they can do to avoid more years of decline. When given the chance to add significant value to the discs they sold, the music industry – specifically the major labels – waged a feeble format war, leaving both SACD and DVD-Audio bleeding in the gutter to die. DualDisc, a format compatible with CD and DVD-Video, never seemed to even make it off the launch pad in late 2004. All of these factors left the music industry playing the role of the battered wife, complete with the black eye and deeply wounded emotions.

The value proposition of selling an album with one or two hit songs on a $16.95 disc is no longer competitive with the music consumers, especially the all-important Gen Y audience. DVD-Video movies cost a little more than $20 and offer an entire feature film containing an audio and video experience that lasts over two hours. Instead of embracing music in surround sound and higher resolutions at lower prices, the music business is now trying to reinvent itself by selling songs one at a time on legal download sites. Some progress is being made on that front, but it will always be competing with free downloads – a tough battle. Until the music business addresses increasing the quality and the value of their discs, they will be losing market share year after year as they cling on to the antiquated compact disc and continue to believe in the questionable download model. Hollywood movie studios, in contrast, are getting ready to sell all of their catalog movies all over again on either Blu-Ray, HD-DVD and.or Windows Media 10. High-definition video is a good enough reason for mainstream consumers to buy their movie collections all over again. Little mention of how to sell music on Blu-Ray or HD-DVD has been made public, despite the format’s likely launch later in 2005.

Healing Deep Wounds in the Relationship Between Radio and the Music Industry
Radio needs the music business to provide it with the content that keeps people tuning in. Oldies formats are great but people, especially younger listeners, can tire of the same 300 songs over and over. Perhaps new formats like world pop music or a better electronic music format would lure younger listeners back to radio? But how does radio launch these new formats without the help of the record industry – a business model that holds radio stations hostage with crooked independent promotion deals and other mean-spirited business practices? Much like Peaches and Herb suggested, they need to get “Reunited” and they need to do it fast.

The record business is unquestionably its own worst enemy, but it needs to look to their former best friend, FM radio, as a way out of their troubles. They need to find a way to sell music on discs that are an excellent value and can compete favorably with HDTV-oriented discs that are only months away from hitting store shelves with two-hour-long movies configured for consumers’ enjoyment. Radio offers free advertising - worth hundreds of millions of dollars per year - to the music business, which is essential in breaking and developing new artists, even with new broadcast technologies like Internet and satellite radio. If major labels focused more on creating and nurturing talent, as they did when they were most successful, and less on fighting over signing high-priced established bands and has-been solo artists, they would be able to offer radio the better content they crave. More records are guaranteed to be sold. More people would tune in for morning and afternoon drive radio. Radio and the music business would both win, no matter what the new technology challengers do.

Apple iPods are not going away, nor is peer-to-peer file sharing or any of the other technologies that have changed the musical landscape. But after a little counseling, a little self-improvement and some open-mindedness, the marriage of radio and the music industry have the possibility of working things out, with the biggest winner being people like us – music lovers.

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