Opinions expressed in this piece are solely those of the author and do not represent the views of S&P Global Market Intelligence.
Two polarized views on the future of radio broadcasting were recently circulated, but both underscored the challenges radio faces.
The bearish case, “Why Radio Must Adapt to the Rise of Digital,” is from Larry Miller, director of the Steinhardt Music Business Program at New York University. The bullish argument, meanwhile, “We Have A Very Good Story to Tell,” was voiced by industry leader Randy Gravley, chairman of National Association of Broadcasters' Radio Board in an interview with Radio World.
The equity markets are also mixed on the fate of broadcast radio. Although the average radio station stock is up 7.6% for the prior 52-week period, its gain is a fraction of that enjoyed by satellite rival Sirius XM Holdings Inc. (+37.1%) and it significantly lags the performance of SNL Kagan's Media & Entertainment Index (+13.4%) and the S&P 500 (+14.1%).
Still, the radio station index clobbered pure-play internet radio streamer Pandora Media Inc. (-42.2%).
Here's how academic Miller and radio veteran Gravley line up on a few of the key hurdles for broadcast radio (each protagonist cited various data by Edison Research and Triton Digital’s "Infinite Dial 2017" webinar to bolster their arguments):
* Audience relevance. Generation Z — born after 1995 — are more engaged by internet radio than by traditional radio, while teens aged 13-plus were listening half as much to radio stations in 2016 versus 2005. In addition, music discovery is rapidly moving toward Alphabet Inc.'s YouTube, privately held personal streamer Spotify Ltd. and Pandora. AM/FM drove 28% of discovery in 2016 but only 19% in 2017.
Gravley counters that regardless of inevitable demographic shifts in a crowded audio market, radio stations still garner 10x more listeners than Pandora and 20x more than Spotify.
* Advertising value. Gravley insists that radio offers advertisers the highest return on their investment of any media. He did not cite specific studies, but I think you will find that every media makes pretty much the same claim based on their own proprietary and often subjective research. He also notes that digital advertising has been plagued by fraudulent audience measurement, such as click fraud and ad bots, which has not been the case with traditional radio.
Miller argues that radio has been losing ad share to digital ad rivals overall and notes that Gen Z will likely account for 40% of all U.S. consumers by 2020. Gravley, however, thinks that innovative broadcast radio can rekindle growth again to be a $20 billion industry from the $17.7 billion it generated in 2016, according to Kagan estimates.
* Impact. Miller boldly predicts that despite terrestrial radio's broad audience reach it has to upgrade services to match those of digital media or face obsolescence as digital competitors grow market share. Gravley, however, counters that broadcast radio's localism offers a compelling and unique service that audiences and advertisers cannot get anywhere else.
* Smart speakers and phones. Miller notes that voice command home speakers do not have built in AM/FM antennas, which means that broadcast radio is effectively shut out of the growing consumer tech trend. The same lack of integration with phones has boxed off radio for decades. Gravley, however, sees smart speakers as a new platform opportunity to increase home penetration and time spent listening. He notes that the NAB is helping to teach radio broadcasters how to create content for smart speakers that will tie in local radio stations.
* The crowded dashboard ahead. Miller predicts that 75% of new cars will have the capability to connect to various digital services by 2020, which will likely break broadcast radio’s dashboard monopoly. He also notes that new car sales have been accelerating and that the average U.S. car was 11.6 years old in 2016. Gravley, meanwhile, insists that radio broadcasting’s long and strong relationship with automakers — AM/FM still accounts for 70% of time spent listening in car — will ensure broadcast radio’s prominence in the dashboard.
* Performance royalties. Miller says that digital services are more valuable to record companies since broadcast stations do not pay performance royalties while digital services do. Gravley notes that broadcasters and the record industry are engaged in ongoing dialogue and that record executives know how important radio broadcasting is to air play and promotion of music, concert tickets and merchandise.
