Radio Show 2016 Underway In Nashville
September 21, 2016 at 10:50 AM (PT)
By PERRY MICHAEL SIMON reporting from NASHVILLE:
RADIO SHOW 2016 opened its schedule of sessions TODAY (9/21) in NASHVILLE with the annual presentation analyzing radio's financial outlook.
WELLS FARGO SECURITIES' DAVIS HEBERT suggested that in 2016, investors are less risk-averse than they were last year, and expects ad spending to grow 2-3% this year (excluding Olympics and political ads), but the lack of political spending this year, he said, is a problem; nevertheless, ad spending should approach $200 billion this year, and radio is only slightly underperforming the post-recession market: radio currently takes 7% of total ad spending, expected to only modestly decline to 6% by 2019, remaining relatively stable as digital takes an increasing share of spending. HEBERT noted radio's stability in Time Spent Listening and said that investors undervalue that fact; he did note, however, that radio is continuing to struggle to reach mobile users, badly trailing owned music, PANDORA, and other audio sources.
HEBERT said that investors last year were asking him, "What's wrong with radio?," based on CUMULUS' travails, but are increasingly seeing CUMULUS as an isolated case and less as representative of the industry; he singled out RADIO ONE as a leading performer and TOWNSQUARE as a "laggard." He called radio 'the best performing sector in traditional media in 2016," saying radio has produced more visible results than television. But he added that investors often value audience over profitability, rewarding FACEBOOK and PANDORA for their reach; nevertheless, he said that credit markets will be open to conservatively leveraged (3-4x) radio companies, although most companies are above that level at present.
Investors, HEBERT said, are worried about radio's reliance on older demographics and limited reach via mobile, place on the connected dashboard, monetization of digital, royalty uncertainty, and leverage; they want to see consistency in revenue across station groups, more new growth catalysts, more conservative leverage, more consolidation, and more free cash flow.
On the following broadcast leadership panel, CAPITAL ONE's RAY SHU said that radio "is still a very relevant sector" but needs to get that message to investors and needs to address the leverage issue ("they need to correct that soon, it's holding back the industry"). U.S. BANK's GARRET KOMJATHY echoed the concern about leverage, pointing towards the two largest radio players, iHEARTMEDIA and CUMULUS, being over-leveraged. ALPHA MEDIA's LARRY WILSON countered that "There are a lot of great things about radio ... if you look at the whole picture, radio is doing, I think, very very well ... it works"; he touted his company's and TOWNSQUARE MEDIA's investment in digital as examples of positive developments for radio. COX MEDIA GROUP's BILL HENDRICH warned that "we will be slowly strangled to death" if radio continues to have the image with ad agencies of not reaching Millennials. BEASLEY BROADCAST GROUP's CAROLINE BEASLEY discussed her company's purchase of GREATER MEDIA and the attractiveness of adding the station's cash flow and reach. And KOMJATHY warned radio operators to "know who you're getting your money from" and whether they are used to the ups and downs of the business.
On his company's acquisition of DIGITY, MILLER noted that the deal "doubled the size of our company in one day"; he discussed the difficulty of "getting our arms around" the new additions, saying that he identified some stations that needed work and others that needed to be left alone. He added that he is not looking to go public, preferring to "tend to our business ... generate free cash flow and pay down debt." He also advised that radio should stop battling each other over sales as if no other media competition exists. And while HENDRICH said that digital offers a great opportunity for radio, BEASLEY said that the focus should be on "doing good local radio."
Asked by moderator SCOTT R. FLICK from communications law firm PILLSBURY WINTHROP SHAW PITTMAN LLP about the biggest challenge facing radio would be, KOMJATHY and MILLER agreed that the challenge is to tell radio's positive story beyond the two largest overleveraged players. HENDRICH offered that the challenge is to establish local radio's differentiation in the audio space in the face of PANDORA's positioning; BEASLEY suggested that radio needs to "do a better job" of changing the perception of radio.
Be Prepared (Radio Edition)
At the Innovation Stage in the exhibit hall, DISNEY/ABC's HOWARD PRICE offered a talk on cybersecurity and other operational disasters that he introduced by thanking the NAB to allow him to "scare the living crap out of you," with the aim of sending broadcasters off to make sure they're prepared. He pointed out that radio stations have many points vulnerable to attack, from access control systems to programming and transmitter automation and even voice tracking systems, and the expansion of the "Internet of Things" will only offer more vulnerabilities as more devices are connected.
PRICE cited recent attacks on computer systems at various stations, including a small MICHIGAN station that fell victim to a ransom attack and found its music and voice tracks locked, a HOUSTON incident that inserted a racial slur in RADIO ONE Top 40/Rhythmic KBXX (97.9 THE BOX)'s RDS display, and an EAS hack in MONTANA that reported that the dead were rising from their graves. He noted that much of the problem involves human or system errors, including out-of-date software, and exploits that take advantage of those mistakes, or prompt them via social engineering; a third of all incidents, he said, are linked to insiders, and about half are deemed "malicious," meaning that terminating IT privileges of departing employees may be the safest move. PRICE, enumerating five key steps to cybersecurity -- Identify, Protect, Detect, Respond, and Recover -- suggested that stations assemble cybersecurity teams to stay on top of the issue, and adjust IT budgets for the "new realities" of cybersecurity, as well as rehearsing the company's response to "cybercatastrophe," taking preventive, detective, and corrective measures.
Things to do right now, PRICE said, include preparing for 72 hours of self-sufficiency, training for role-swaps, keeping regular dialogue with key leaders and vendors, critical infrastructure designation, creating emergency plans, backing up everything, and owning and promoting readiness and using that as a campaign for the community (and selling sponsorships to generate revenue).
At the annual RADIO SHOW luncheon, NAB Pres./CEO GORDON SMITH chatted with DTS Chairman and CEO JON KIRCHNER in the wake of DTS' sale to TESSERA TECHNOLOGIES. The head of the company that owns HD RADIO said that the sale of the company is not expected to change the company's plans, and that he will likely be the head of the combined company. Asked what's new with HD RADIO, KIRCHNER pointed to the installed base of HD receivers in cars reaching critical mass (23% in MIAMI, 20% in NEW YORK and LOS ANGELES), and added that the company is researching on in-car display ads and finding that it improves unaided recall of the brand. He also said that DTS is exploring the global market for HD RADIO, which is on the air in MEXICO and CANADA (on an experimental basis).
"You don't want radio to become the thing your dad did," KIRCHNER said, stressing the need to appear current; SMITH warned that competitors like PANDORA and SIRIUSXM are revenue-sharing with car companies, potentially putting radio at a disadvantage, but KIRCHNER, while counseling awareness of the competition, said that radio still has prime shelf space and can counter the user experience advantages of the competition with enhancements like the visual display.
The luncheon also honored former LINCOLN FINANCIAL MEDIA President/CEO DON BENSON with the 2016 National Radio Award.
Selling: The Future
NIELSEN's podcast sales panel explored the progress being made in selling the growing medium and the attempts to move from direct-response to brand advertising. NIELSEN's BRAD KELLY noted a significant shift in consumer behavior, and that it shifted his company from following devices to following the consumer; he indicated that NIELSEN would be making significant announcements towards bringing a podcast measurement product to market in 2017.
ESPN's TRAUG KELLER said that "we are seeing a seismic shift" in audio consumption. "We're seeing it happen," KELLER said, adding that the numbers skew younger. "At the end of the day," he said, "the consumer's in charge," deciding what he or she want to hear and when he or she wants to hear it. He also noted a shift towards geotargeted ad buys on podcasts, "a great, great breakthrough for advertisers."
ADLARGE MEDIA's CATHY CZUKAS discussed her company's position as an audio-centric business and recent focus on building a roster of podcasts in specific genres like sports and women's interests and subgenres like motor racing. HORIZON MEDIA's GREG ROSETO observed that more brand advertisers have recently started to buy on podcasts; asked by NIELSEN's BRUCE SUPOVITZ on how he finds podcasts, ROSETO described how his firm has podcast networks submit spreadsheets including genres and pricing, and he added that there is no single answer to the question of where the dollars for podcast ads are coming from, indicating that the shift depends on the client and situation.
The desire for a third-party measurement of the space other than by downloads was the obvious theme of the sponsored panel, and NIELSEN's ROB KASS offered some details on his company's plans, including the issuance of an SDK that has been embedded in many players to allow it to measure consumption; NIELSEN is working with ESPN, among others, to develop measurement of consumption on a program basis. "We wanted to make sure we got it right" rather than do another download metric, KASS said of the work NIELSEN has done over the past year.
Asked about direct-response versus brand advertising, CZUKAS said that the direct-response advertisers' interest is growing but more brand advertising is moving into the space, and "it's all going in the right direction." And as for the next "wow moment" for the industry, KELLER mentioned arriving at a measurement standard as well as a continued "flight to quality" with hosts like ABC's ROBIN ROBERTS, whose podcast just launched.
The final session of the day was scheduled to be keynoted by DAVE RAMSEY and feature BIG & RICH's JOHN RICH talking about entrepreneurship and branding, plus musician GRAHAM NASH. The evening's schedule includes a reception sponsored by WESTWOOD ONE with several of the syndicator's talents on hand, and a "S'mores Storytime" with CUMULUS' MIKE MCVAY, consultant STEVE REYNOLDS, and syndicated hosts DAWSON MCALLISTER and ELIANA SMITH.