September 25, 2012
Reed Bunzel has been a believer in digital long before radio at-large took it seriously. And now, with more and more data showing that digital could be the key to fueling radio revenue growth in the future - if not today - Bunzel and his consultancy, Bunzel Media Strategies, are eager to optimize its potential by helping radio best use its big audience stick on a new playing field. Here's how he sees it:
How did you go from all your years at the radio trades to your current situation as a consultant/analyst?
I moved to Charleston, SC, about five years ago to run an Internet radio company, TheRadio.com, and in the process of being the Pres./CEO of the company, we had a client who hired me away -- Al Bell, former chairman of Stax Records. When he did that, I parted company with TheRadio.com and subsequently took on additional consulting clients. I always really loved the analysis and research side of the radio industry. It has now evolved into the digital realm, so it became natural for me to apply that interest in building my own website -- www.bunzelmedia.com -- for consulting and analysis of radio's digital and music interests.
When did you realize that digital was going to be such an integral part of radio's future?
Back around 1999-2000, when I was the Editor-in-Chief of the Gavin Report, we saw digital music coming from a mile away. At the time, it wasn't affecting the bottom line in a great way. We realized what happened when the first wave of digital music hit with Napster and other file-sharing platforms, so Gavin started a new magazine, Gavin.com, which was strictly about music on the web. We also held a digital music conference twice a year, and that focused entirely on music on the Internet. That was a period when I became really interested in the digital aspect of what was happening in the music industry then -- and I saw how it played out in the radio industry in the ensuing years when I was at Gavin and then at Radio Ink ... as time went on, it became something that had to be emphasized.
More than a few observers believe that the music industry was essentially "caught with its pants down" in how it deal with the new digital revolution, then took the wrong actions to deal with it. Could you say the same thing about radio?
I wouldn't disagree with that statement; in fact I'd go a bit further and say that the radio industry, for 70-80 years, enjoyed relatively robust revenue growth until advertisers started shifting some of their ad money to other platforms such as digital, mobile, video and all of that. The radio industry and major broadcasting groups didn't just get caught with their pants down; they essentially were in denial. They did not want see their strong revenue stream evaporate. There is still a sense among some broadcasters that with a little luck and prayer, business would magically return to pre-2007 levels, but I don't think that's ever going to happen.
There's every indication in the world that traditional media, while still being very strong, will continue to lose revenue to digital media. Remember, the newspaper industry has been the nemesis of radio for years - and now their business has experienced even worse revenue losses than radio.
I've had a lot of conversations with radio broadcasters who are focusing on digital, but a lot of them think only about streaming and music - and I couldn't disagree more. They're worrying about cannibalizing their own revenue, but what I've come to learn - and tried to relate to them - is if they don't cannibalize that revenue, someone else in their own markets will. They need to shift their focus to find ways to augment their pretty static AM/FM revenue with strong digital revenue to provide the growth that they need.
What I find interesting is that RAB's just-released data shows that radio's digital revenue was up 3% in the previous quarter and 7% in the first half, but I saw another study today predicting 16% growth in digital advertising next year. That tells me that radio is severely underperforming in the digital era. It needs to be smart and catch up; there's so much they can do with that huge audience. They can use it as a promotional and marketing tool. Radio has over 200 million people listening to it on a weekly basis; why not convert it into possibly the largest promotion and marketing tool that the media has ever seen? It can be done, but I don't believe radio broadcasters are looking aggressively enough at that sector.
How do you convince the radio heads and management that they should invest more in digital when the ROI isn't there yet -- when they're cutting back on talent and off-air personnel?
Not to get into anything political, but I've never been one who believes that you can save your way to prosperity. Still, I see a lot of budget-cutting in the radio business. Yes, I know many companies are way overleveraged; they owe an incredible amount of debt and they have to adjust human resources and staffing to return some kind of profit margin while paying down the debt load.
If you pay attention to the quarterly revenue analyses prepared by the Radio Advertising Bureau, you will see that the only segment of the business that is showing any real sign of growth is digital. It's not robust growth, but growth nonetheless. And as the exodus of ad dollars from "traditional" to digital media continues, it behooves the radio industry to invest in this area while the door to opportunity remains wide open.
Ultimately it comes down to something that every business experiences: the marketplace decides. And in this case, the consumer electronic marketplace, the consumers already have moved from transistor radios to smartphones that offer music, video, games, apps, GPS, and Facebook and Twitter, and much more. For radio to still be engaged in a debate over FM chips, justifying it by pointing to radio's excellence in providing critical information on bad weather and natural disasters, seems nonsensical. Sure, in times of emergency there is no better medium to tune to than radio, but does the industry really want the government involved in mandating an FM chip? It's only a short step from there to mandating FM content, and that's a can of worms no one needs to open.
So you're saying radio broadcasters are stuck in the "old ways" and don't quite understand the benefits of the digital platform?
Many of them are. A year or two ago I had a client who wanted to work with radio stations and try to convince broadcasters to do something different with their websites, to go beyond the usual streaming and music videos. We had major meetings with three of the four top broadcast groups, including the largest, and the one thing that kept coming up was their very limited perspective on how and what they stream.
It became very clear that they all thought they were in the music business. But I contend the radio is not in the music business unless it creates its own musical content. Aside from Talk or Sports stations that generate their own content, or those rare music stations that truly have a dynamic morning show or talent who actually does original entertainment, most radio stations today are distribution channels for other people's content. Radio broadcasters need to see how they can be more than a jukebox or a music distributor. They provide a valuable conduit between the listener and the community, and the listener and the advertiser.
How does one become that conduit using the digital platform?
One way is to create a portal that engages the community. It should go well beyond a station's listeners ... or even those in the entire cluster. You have to be able to enhance what you're doing on-air. Yes, that includes video, but I'm not talking about music videos. I'm talking user-generated videos, some that involve advertisers, some that involve the residents of the community, and others such as interactive gaming, which can generate significant advertising dollars.
You can do a lot of different things to draw prospective listeners from the overall audience, where an entire community can interact with advertisers on the web and at events. There are all sorts of different things you can use. And it doesn't have to be expensive to do; it's extremely scalable, which I first understood during my days at TheRadio.com.
There's no denying that there are SoundExchange fees and bandwidth expense that, yes, can get very expensive. But you don't need to be caught up believing that the only thing to do in digital is streaming the on-air broadcast or a related format. There are so many different things available to broadcasters today, and each one of them has monetary value of some sort.
One thing that might convince radio management to spend more in digital would be success stories, where investing in digital efforts brought in more than the investment. Do you have any?
There aren't that many - yet - but I can give an example or two. There's a fellow who owned a FM station in Canada in a market of about 150,000 people. He set up a community portal called Castanet.net, and he was able to generate $3 million from that site. It became extremely successful by marketing it via other stations in the market, and he ended up selling the station and keeping the portal. Another one is called ChapelBoro.com in North Carolina, which has significant ties to the community, as does WilliamsonSource.com, outside Nashville.
I've also had conversations with video technology companies that have made some inquiries and pitches to broadcasters to use their video products. They've come up with a host of ideas that can be used to generate revenue and also better engage on-air staff with their listeners through social media, as well as involve customers with advertisers through visual recommendations and endorsements. There are all sorts of different digital elements, including video contesting, that have significant sponsorship opportunities.
Just what kind of staffing is needed to conduct an efficient digital operation?
My experience may be in direct contrast to what a lot of broadcasters believe, but essentially all you need are a few good people on your staff who understand how things work. The digital platform is driven by social media, video, gaming and texting, and there are a lot of very savvy people in every market who live for these things. On the sales side you need a dedicated digital sales presence that works completely in tandem with traditional spot sales in order to provide a marketing strategy that ultimately exceeds expectations and excels in return on investment.
Of course, broadcasters who consider the expense side without fully appreciating the upside likely will convince themselves not to commit 100%, and therefore their efforts are destined to become a self-fulfilled prophecy.
Do you still have to sell advertisers on the effectiveness of digital platforms on their business?
There's definitely a selling job involved with that, but the shift in the marketplace is taking care of some of it. National advertisers and agencies have been leading a lot of the surge into digital, so that sector of the business is much more digitally-savvy than local.
Having said that, I know that BIA/Kelsey closely monitors local digital advertising, and their data shows that local advertisers are beginning to catch onto the value of digital advertising, either on certain websites or via mobile advertising on apps and that sort of thing.
The fact it, some radio broadcasters definitely have a good grasp of what digital entails, but they need to understand that there's a lot more going on just beyond the horizon. While some of their focus naturally has to be on streaming over the web and over mobile devices, it's important for them to see that the digital platform is not about radio. It's about consumers and advertisers ... and their needs. A lot of what I still see on radio websites is stale and self-promoting and, honestly, not that engaging. What radio stations need to do is use their sites to reflect what their communities are doing, what their listeners are doing, and what their advertisers are doing. It shouldn't be so much about them.
If you're able to go to an advertiser and say, "Look, we have this creative interactive experience you can be part of," you can create the buzz and excitement that radio traditionally has been known for. You have to be able to get advertisers and listeners engaged with things that are new and exciting. It takes a lot of innovation to move out of your comfort zone -- and it's not easy to do -- but it can be so much better when you succeed at doing it. That's the nature of change.
So how bullish are you on radio finally optimizing its digital potential?
Radio needs to stop asking the question, "Who else is doing it?" That's a job-preserving approach, and no one ever innovated from a position a fear. For a long time, the thinking in radio has been: If a new format works in San Diego, it will work in San Antonio, then San Francisco, then everywhere else. That kind of thinking has to stop.
When it comes to digital, radio can't copy Pandora, or Spotify or the "iCloud on shuffle" to succeed. Becoming just another music channel that provides a limited playlist and little listener interaction or choice, offers minimal information on what it is playing, and is not responsive to requests - at least not in the way it used to be - is just not a fulfilling experience for anyone. And it falls far short of radio's ultimate promise or capability.
The truth is, digital today delivers about 5% of radio's revenue - and it's going to take a lot of growth in that area to move the industry's overall needle upwards. Therefore, it's of paramount importance that the industry tries to get ahead of the curve on where digital is growing or, at the very least, not play catch-up. With all the audience we have as an industry, and because of our heritage, we have an immense marketing and promotional force within our audience base. We just need to collectively understand that it's not just listener cume and quarter-hours anymore; rather, it is a connection to an immense populace that's fully engaged in digital - and we in radio have to find ways to leverage all of what we have.