Radio’s Dilemma (or Opportunity?)

38Radio’s a business. Peter Drucker said “The purpose of a business is to create a customer.” A business also needs to make profit or it won’t be in business for very long. On that we can all agree.

Surprisingly, many business people who know this still go out of business, often because they focus on the profit part and not the customer part. Plus those businesses either never had or lost their competitive advantage.

Radio’s dilemma is it lost that competitive advantage. That being having an FCC license to broadcast. Not everyone could obtain a broadcast license – they were limited by the Federal Communications Commission (FCC) – or had the ability to profitably operate a broadcast property. Profitability is when you earn money in excess of your cost of capital.

The radio business made a lot of money. Many enjoyed cash flow margins north of 50%. Its success attracted more people into radio ownership because it “looked easy” and made a bundle of dough. As more radio stations came on the air, it drove up wages, increased competition and increased multiples for valuing radio properties when they were bought and sold.

If this type of growth and expansion was all that was taking place, the “circle of (business) life” would have seen the radio industry slow down as the overcapacity from all of the new radio stations fought over the not-as-fast-growing advertising pie. It’s similar to what happen to the casino industry as expansion took off in America after just Nevada and New Jersey were no longer the only two states to license casino gaming.

Enter the great disruptor; the Internet. Radio, as we all once knew it, would be changed forever. For the Internet would now provide the world with an infinite number of “radio” options, like Pandora, Spotify, iTunes, RadioTunes et al. All trying to be ad supported like OTA radio.

Clay Christensen wrote about what happens when an industry is disrupted in his book The Innovator’s Dilemma.  He tells the reader how incumbent companies often respond to their disruptors with disastrous consequences.

Radio looked at the Internet as a “free broadcast license” and put their OTA signals onto a stream and then tried to squeeze a little extra profit by running separate ads on the stream versus over the air. It created a little extra money for the radio business but created a less enjoyable listener experience.  Sean Ross recently wrote in his newsletter “Ross On Radio” how different and better a radio station he listens to online sounded when he actually traveled to the market and heard the same station over the air. The difference was in the breaks and it was HUGE.

It doesn’t have to be all doom and gloom.

Southwest Airlines has enjoyed four decades of profitability. Like Walmart, Southwest had a root purpose for existing. Sam Walton’s Walmart mastered logistics to keep prices to his customers low and Herb Kelleher’s Southwest focused on constant improvements to make travel by air more affordable to more Americans. Like all successful enterprises, they put the customer first and profits were the result of doing everything else right.

For radio to be successful on the Internet, it needs to create a better user experience that attracts and delights the listener or that creates a new and different user experience that will enrich the end users’ lives. Radio, over the air, FCC licensed radio has the best platform to promote its Internet products. The possibilities are infinite. But each product must have a purpose beyond just making a buck.

Businesses that grow have a purpose beyond profit. Businesses that focus their growth on profits won’t have either growth or profits.

6 Comments

Filed under Education, Mentor, Radio, Sales, Uncategorized

6 responses to “Radio’s Dilemma (or Opportunity?)

  1. Dick….a hundred years ago (well, really only back in the early 70s) when I first got into radio, it was a business, but it was the business of broadcasting. Too often lately it’s just been about business and less and less about broadcasting. You mentioned Southwest Airlines today…let me mention a couple of other airline names….Pan Am, TWA, Eastern, Continental….names that were part of the fabric of travel worldwide. Names that are now part of history because profit became the most important product? The customer is not an inconvenience, the customer is the reason a business exists!

    Frank

    Liked by 1 person

  2. Pingback: Radio’s Dilemma (or Opportunity?) | artversnick

  3. I notice a distinct tendency that businesses that seem to forget the “customer” part are all publicly traded on a stock exchange. Coincidence, I think not! 😉

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  4. Radio would be a lot better off if the FCC did it’s job a little better.60% of the market in Richmond,Va is owned by 3 corporations.That should never have happened.And I might add they still do not make money.I think i was told the bigger they are the harder they fall…And “local radio”is no more.Maybe 15 % of all programming is local……that sucks.There are a lot of what used to be big stations that are now just boards in closets.And the staff are pawns on a chess board

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