June 25, 2013
In part two of our All Access Power Player interview with Clear Channel Chairman/CEO Bob Pittman, All Access Publisher Joel Denver probes Pittman's ideas about needed changes for the future health of our industry -- including how we go after advertising in the future; who we focus on; how we make sure radio finds it proper place in the Media Mix Models; and how radio gets its fair share of the available advertising pool
Pittman addresses the digital dashboard and what it means for radio's future, as well as discusses the FM chip in cell phones, the company's numerous revenue sharing relationship with labels and now groups like Fleetwood Mac (Net News, 6/12). Pittman concludes with his immediate goals for the next five years.
JD: Q1 was kind of a tough quarter for just about everyone for a number of reasons. How's radio pacing looking for the rest of the year?
BP: I am not sure what we've announced, but we view the world like the rest, which is a slow recovery -- the slowest in my lifetime. We are going with that and are optimistic that we get beyond slow recovery. There are countries going through a lot worse than slow recovery.
JD: Clear Channel recently published a survey that found great satisfaction with radio, which was presented to advertisers. That suggests a lingering perception problem for radio to the advertising community. Have the survey results had an impact on advertisers? Do they buy it? Is there still a perception gap between radio usage and radio perception?
BP: There is a perception gap - and we are trying to close that. But, it's not only putting out the research but meeting with clients face-to-face. It's doing programs with them like Justin Timberlake with Target and the Rising Star promotion with Macy's. Doing things they can't do with anyone else - and they view them as unique assets that we can bring.
Being committed to results is something that's important for the future. I am always surprised when I see sales departments talking about getting $1 million from so-and-so. Is that success? What did the advertiser expect for their $1 million? Did you deliver it? Did you tell them you delivered it? Did you show how you delivered it?
Getting the $1 million commitment is step one! The goal is to make sure the advertiser gets more than their money's worth so that they tell 10 other advertisers how successful radio was. I am afraid sometimes we are focused on the transaction of "I got the money" -- and then who knows what happens. As an industry, we have to be committed to advertisers to deliver the results they expected for their $1 million and use our enormous creativity in radio to deliver the result that they can't get with any other medium.
When we look at it that way and their results, you have to ask, "What are their goals?" Trying to increase brand awareness? Trying to get prospects? Change perception with a particular group of people? Are they trying to bring in a new segment? Or, sell a certain type of merchandise or service? We have to become marketing experts with our clients to help them deliver what they are doing.
JD: What should the industry as a whole, and Clear Channel specifically, be doing that we are not?
BP: There are three areas. First, we are doing a great job creatively with the consumer and make sure we expand that into all the areas of logical platforms and places of technology that consumers are embracing. We are not going to hold back the tide of technological change.
Second, in terms of operation we have to be realistic and honest with ourselves about how we operate our business in the new world of technology, new world of competition, and new world of advertiser needs. That unfortunately requires us to constantly be restructuring to look for those opportunities to do what we do well.
And thirdly it's about sales. We must understand what our clients are looking for. This industry has historically sold almost all of its business through the buyer at the agency - they are fantastic - but they have already been allocated a pool of money.
We need to focus on how much money is being allocated to radio. By almost every objective measurement, radio is getting about half the money it deserves as an industry. Newspapers get 50% more money than the radio industry gets and there is something wrong with that.
The Internet, which has the about the same usage as radio - I would argue not quite the engagement of radio -- gets more than double the ad revenue allocated to radio.
We have to continue to have great relationships with the buyers, but we need to begin to talk to the people who affect the allocation of the budget to radio. We need to understand the Media Mix Models. I find most people in radio did not know about these - and even fewer were working with those Media Mix Models to get radio into the model.
What was happening in radio was that either the data wasn't being put into the Media Mix Model -- so the 85% of advertisers who look at a Media Mix Model looked at it and said "radio is not important" -- or the data was put in incorrectly.
The Media Mix Model put in sales information around when the media ran. So what was happening was that they were averaging radio data and it was flat across the month so it showed no correlation to the spike in sales. Now that we've worked with Arbitron, we've tested this on a real-time basis with their data we find it has a tremendous impact. Its things like this that we have to step up and do, and be realistic about.
As an industry, we are beginning to do this, but we need to do more. At Katz, they do a great job of national advertising but are becoming big advocates for radio in allocating more dollars to the radio sector. We've expanded our group of people to influence those folks as well.
JD: Let's talk about the digital dashboard. Assuming Pandora, iTunes Radio, Google, Spotify, Slacker, Satellite radio, iPods, coast-to-coast WiFi (WiMax) as well as 4G -- and yes, 5G -- technology are all in the car over the next few years, what is the perfect vision for Clear Channel in the center stack?
BP: We simply need to be there. We need to build the brand bigger and better than ever, so that we are the button you push as it's the brand you like. We have to go out and meet folks face-to-face to work out deals to make sure we are there. They are not going to intuitively understand our value; we have to explain it to them and show them the facts about our power.
JD: Here's a two-parter: With the pending launch of Apple's iTunes Radio and Google Play how do you see them impacting iHeart and, of course, your biggest broadcast brands, Z100 and KIIS-FM? And will they be disrupters to Pandora, Spotify and Slacker? What will be the iHeart Radio difference?
BP: We have to take one step back and ask, "What are audio streams?" Consumers don't use the words audio streams. Embedded in that are two entirely different businesses; they are almost mirror images. One is radio and one is the music collection.
As a kid I listened to AM and had 45s - that was my music collection. Then I went to LPs, cassettes, 8-tracks and CDs ... and now it's on my iPhone or iPod - all electronic. But the purpose it serves in my life is exactly the same.
My music collection is a reflection of me - especially when I was younger. But I play this one-on-one personal collection to myself when I want to escape the world. I build a cocoon around myself. I have had a tough day at work; I arrive home put on the headphones, pour a drink and go ahhhhhhhhhh! I don't want any interruptions. I don't want to know about the world, the time, the weather, the gossip - and this music is going to take me to a private place.
Radio is the opposite. If a music collection is how you escape the world, then radio is how you find what's going on in the world and how you join the world. It's like walking into a busy bar with my friends and they tell me what's going on. When I get in the car and turn on the radio, I expect to find the weather, the gossip about stars I like; I expect to hear new music and others on the air talking about what's going on. And if there is a disaster, then the information. Stations can give me the information we all need.
I look to the advertisers to tell me what's going on in the world - new movies, TV shows ... and I know there is a big sale going on ... so it's all a part of telling that story.
So we separate the players. iHeartRadio does both - with radio stations that are digital-only stations, and then music collections when you go to the custom stations. The custom stations are not radio. They are the quick an easy way to make a playlist. People love playlists. It's a great way to organize your music in a day where you don't have LPs and CDs; they help keep track of it and make sense of it all.
Pandora proved to the world there is a need and desire for it, but Pandora does it as a free-standing business; we treat it as an add-on to iHeartRadio. Spotify is custom radio and they offer music collections and do add-on features for their subscription service.
So it's logical that iTunes creates a custom radio feature - a playlist creator - as a feature. I don't think they are stepping into the radio space with that. They are stepping into music collection space. The bigger question what will it do to iTunes? From what I understand, that business has not gone through a lot of growth in the last 12 months, and the subscription services have cannibalized their sales. So does playlist creation help to turbo-charge their download business again? We don't know, but strategically if I was them it would be my goal.
So I don't see them as radio competitors, but I do see them as more competitor for the music collection space, which includes Pandora to the others to the iTunes download service.
JD: At what point will iHeartRadio will monetize its business?
BP: We sell advertising on our stations that are carried digitally. On our custom radio we are doing some video pre-rolls and ads to sponsor commercial-free stations; we are going to add some commercials into those stations, but that's not as good of an environment as a real radio station in terms of the "nativeness" of that advertising.
JD: Are FM chips in cell phones really necessary for radio to compete in the growing mobile market?
BP: If you add an FM chip and it's in some phones, it's not an FM tuner. It will allow apps to access to FM radio over the air. The quality will depend on FM tuner apps -- and there are a dozen phones with an FM chip. The FM tuner is not great; there is lag between station changes. It's helpful and one more way and place to get radio -- which is good - and that's about being where the listeners expect us to be.
How good will the app be? Good, I hope! And, I know we are working on some and so is Emmis.
JD: As radio companies develop more direct partnerships with record labels and their artists for royalty payments, do you see a future where all major and independent labels are participating in this new business model?
BP: This all gets down to change; no other industry has gone through more change than the record industry. We as an industry -- radio and records -- need to define a sustainable market that can grow - and a growing market is good for everyone. With our direct deals, we have found partners who are interested in the future. They don't want to get less money from SoundExchange, but they want it with a structure that allows us both to grow -- and encourages radio to build the market.
If you look at how streaming costs are set up, most radio companies are either not going into it or doing a little as it's too damn expensive not getting enough return. So the pressure is on everyone to find a solution that's not taking money from one person's pocket to put it into the other -- as that's not a long-term business.
What we need to find is how we can grow a market that can mainly feed the artists. At the end of the day, I love the record companies, but I really love the artists and want to make sure that they make as much money as they can. And going forward we have found some markets that can grow - so in five years it's bigger and even 10 years it's even bigger.
That's the goal of this. And it requires us all to do things we haven't done in the past. We stepped up and have given the participating companies a piece of our broadcast revenue. Some think we shouldn't' do that since we've never done that. And labels are going to have to do some new things if they want to succeed in this world.
That's how we look at it and I'm very encouraged by what I see happening and with the folks who've done it. They've done digital well and they are the innovators of the business, such as Scott Borchetta and Daniel Glass and others who are looking for the next new thing - and it's logical these are the folks who jumped in to create this new digital marketplace together.
JD: What's the future of spoken word radio? Are we going to reinvent it that so it appeals to younger demos again?
BP: Well, we are doing that - Ryan and Elvis don't play a lot of music, and folks like Howard Stern are not talking about the traditional things that Talk radio is speaking about. It's alive and well - and by age group it means something different.
JD: And finally Bob, what are your biggest goals for the next five years?
BP: First of all, our goals are to bring more money to the radio sector. We have to do that. Then we have to continue to embrace technology and make it work for us. And, we have to continue to develop new products and services that help our advertisers make better use of radio and help us deliver more for them than we have in the past.
If you missed Bob Pittman's Power Play interview (part one), just click here.