JacoBlog - Jacobs Media's Blog

Satellite Radio Logic

XM's first quarter numbers are out, and what do you know?  Its losses widened to nearly 6 percent, even though revenue is up.  For the quarter, XM hemorrhaged $129 million, and their customer acquisition costs rose to $73 a subscriber (up from $65 last year).

And this is a business that deserves to be rescued by the DOJ and FCC?  Is it just competition from other media or has XM (and Sirius) proved perhaps that over-spending on the programming side just isn't good business?  Or does it cost so much to "acquire" (or subsidize) new customers that this business model just doesn't make sense.

To make matters more surreal consider Silicon Alley Insider's Peter Kafka's statement that “XM Satellite and Sirius, stymied by regulators for more than a year in their attempt to merge, are doing their best to press their case.  XM’s latest move: Turn in yet another lousy quarter, which proves that it can’t survive as a standalone company.”

Now there's an interesting business strategy - keep losing mass quantities of money, and the government will be more encouraged to bail you out.

Or maybe consumers just don't want to pay for radio.

Connections

Speaking of "Radio's Hot New Team," which that we talked about last week, one of my favorite quotes of the year came from Jeff Haley, CEO of the RAB:

"Let's agree here and now that our goal will be to have radio on every mobile phone, PDA, and MP3 player in the next five years.  On-air, online, on-site, and on-demand, radio must be anywhere and everywhere there is a speaker or headphones."

And it couldn't come any sooner, because as we see in our Tech Poll IV, more and more radio listeners are using the many technologies and gadgets at their disposal.

Plus, the competition isn't resting.  XM announced recently that BlackBerry customers can subscribe to 20 channels.  Of course, they're charging $7.99/month for the privilege, so we wish them good luck with this venture.

But it underscores the urgent challenge facing broadcast radio operators in their quest to spread their content to other devices.  Haley's heart is in the right place, but the industry will need to move quickly in order to keep up with the Karmazins.

Satellite Radio - What's Next?

Our Tech Poll has provided us with some fascinating insights about the satellite radio threat during the past four surveys, and this new report is no different. As reported in yesteday's New York Times "Drilling Down" feature, XM and Sirius have some challenges retaining subscribers.

In the past, we've been able to track satellite radio growth among Rock radio listeners, as well as Howard Stern's impact on Sirius.  Last year, we noted that XM and Sirius growth had stalled out.

This year's survey provides us with some great data.  Here are some headlines:

    1. The merger doesn't appear to be of great interest to non-subscribers.  For the vast majority, there is indifference or a lack of information about the coming together of XM and Sirius.

    2. Overall growth is up - from 12-13%, but interest in satellite radio among non-subscribers is at its lowest point since the first survey in '05. 

    3. As has been the case in past polls, satisfaction with Sirius is stronger than for XM.  This could be due, in part, to Howard Stern who is obviously a big reason why our Rockers opted for Sirius in the first place.

But the big takeaway from this new '08 study comes from a question we've never asked before - how subscribers became subscribers.  It turns out that while about four in ten made the choice themselves, about one-third tell us it came with the vehicle they bought or leased, while one-fifth received satellite radio as a gift.

And here's the rub - if you made the choice yourself, the odds are good you'll continue the subscription.  But if it was pre-installed in your car or truck, or it was a gift, chances are better than you're not as enamored with satellite radio.

The implications of this are important because it suggests that not all satellite radio subscribers are created equal.  And with half being introduced to XM or Sirius because it came with a car or it was a gift, these consumers are considerably shakier.

This "churn" with satellite radio continues to put pressure on a business model that has already had difficulty turning a consistent profit.  And it speaks to the ongoing challenge of keeping subscriptions plumped up, in the face of some obvious attrition.

Commercial radio has some challenges, to be sure.  But the subscription model is a tough putt, made all the more difficult by the plethora of new - and old - entertainment choices.  While many traditional broadcasters have long been concerned about the growth of satellite radio, this data suggest that our challenges are clearly coming from other sources - notably, iPods, cell phones, and the Internet.  Of course, these areas spell opportunity for broadcasters, and we'll continue to cover these topics in upcoming blogs.

If A Tree Falls...

Three years ago, this news story from late last week would have created massive "water cooler talk" in and out of radio:

"Stern Show Rocked By Lange Blowup"

In case you didn't hear (and you probably didn't), Artie Lange walked off the Stern show last Thursday after an incident with his personal assistant.  This would have been the radio buzz, but instead, the entertainment headlines were all about Michael Johns getting booted from American Idol, Katie Couric's status at CBS, and a new Keanu Reeves movie that opened this past weekend.   

It's about environment.  While Stern's CPA is obviously reading this blog and laughing, the fact is that by placing himself on a much smaller stage, Stern has taken himself out of the mainstream of American media.  People don't talk about his show because most of them can't hear it.  Compare that to his terrestrial radio reign where even celebrities who were terrified of him went on the Stern show to promote their movies, books, and sitcoms. 

We even saw this while working for Stern stations over the years.  On the really well-positioned, solid stations, Stern pulled in those boxcar numbers that everyone remembers.  But on the dogs - stations that were poorly programmed, also-rans, and or simply doing a lousy job - his ratings were not impressive at all.  Even Howard couldn't compensate for being on a losing team.

Many personalities and operators make these same faulty assumptions when analyzing talent and environment.  The aforementioned Katie Couric is either mis-cast on the CBS Evening News or the reality that she's moved from a great gig like Today to a much tougher putt in her new job is something that even she cannot overcome. 

Many have suggested that terrestrial radio needs Howard Stern, because few personalities (if any) have stepped into his void.  Or is that Howard Stern needs terrestrial radio?

This blog was inspired by KISW's Dave Richards, the guy who has most successfully replaced Howard Stern at his Entercom/Seattle station.  He's still a big Stern fan, by the way.

Is It Any Wonder?

The RIAA continues to keep its war with broadcast radio at a high-pitched level.  Recently the CEO of the RIAA, Mitch Bainwol, applauded the XM/Sirius merger as "a powerful validation that competitors should play by the same set of rules.  On the heels of this decision, the logic for a performance right for terrestrial radio has never been clearer."  Wait - because the DOJ says that satellite radio competes with terrestrial radio, AM/FM stations should pay the same copyright royalty?

Bainwol should also check out the ratings if he wants to compare the impact of satellite versus terrestrial.  In most markets, XM and Sirius earn small shares of listening (divided, of course, by the 200 stations they offer), while AM and FM stations capture the big box shares recording artists need to sell their product.  Label execs know the difference in how a song/album sells in markets where the big FM stations add their product - or opt not to play it.

There's nothing level about this playing field.  Satellite radio has struggled to reach 18 or 20 million consumers, while hemorrhaging money every year it has been in existence.  It needed this government sanctioned merger in order to stay afloat.  Terrestrial radio continues to reach 90-something percent of the population, while always been profitable, ubiquitous, and a sure-fire way to reach America, locally and nationally.

How can he compare the benefits that recording artists reap between satellite and AM/FM radio?  It's logic like this that underscores why the recording industry finds itself in so much trouble, as its business model has been totally eroded by new media and empowered consumers.

AM/FM radio has been the best friend to recording artists over the past 50 years.  The basic symbiotic relationship has always been very simple (payola aside).  The recording industry provides free product to radio, and radio provides the lion's share of the airplay exposure and promotion.  When labels actually paid for advertising schedules on radio stations, the game had elements of being fair.

Today, radio continues to provide free and enthusiastic airplay for artists, new and old alike.  When an artist comes to town, stations in the same format fight for the "presents," providing hours of free advertising time promoting the recording industry's brand names.  When a respected DJ tells his thousands of listeners that the new Foo Fighters album is the real deal, it means more than a bunch of spins on any XM or Sirius channel.  And in the case of Rock radio, to be sure, the artists often snub local stations, content that their music will be played, and their concerts will be promoted, whether they show up for an interview or not.

The recording industry has problems, to be sure.  But biting the hand that has so happily fed it all these years continues to remind us just how clueless the RIAA truly is.  If anything, you might envision the RIAA approaching radio to find ways that two old institutions might work together to achieve each other's common goals.  Instead, the RIAA has become a toothless tiger, trotting out bizarre research studies, chasing after 14 year-olds, and issuing statements like the one Bainwol just made.

How much radio has added to the coffers of recording artists over the years is incalculable.

Rockin' The Vote - Part 2

Jacobs Media's Tech Poll IV highlights are now available on our website.  While we asked our usual techie questions in this fourth annual poll about everything from text messaging to iPods to satellite radio, we also included a section about the upcoming Presidential election.

While we have no trending data from past elections, we were astonished to find out that 84% of respondents - and we're talking about more than 27,000 interviews from 69 Rock radio station databases - say they're planning on voting this fall.  That's an incredible number, and it echoes the exit polls and primary turnouts that America has witnessed in '08.  By the way, this strong projected turnout runs across age, gender, and format groupings.

We also held our own "mock election" inside the poll, simply listing out the candidates (no matchups), and asking for each respondent's top choice.

Barack Obama comes out on top among our "likely voters" with 26%, followed by McCain (22%), and Hillary Clinton (18%).  The poll was taken in late Feb/early March, so some of the developments that have occurred since (Reverend Wright, Hillary's Bosnia gunfire gaffe, etc.) aren't factored in.

So what does this mean to radio and its personalities?  Many morning shows have been taught to avoid "talking politics" because it can be polarizing.

And done the wrong way, this can be the case.  But when 80+% of the audience is engaged by the election and plans on casting a ballot, personalities and shows need to find a way to address this event on-the-air, reflecting the local market vibe.

Jacobs Media clients who purchased their local market breakouts have an edge, because they can see party preferences in the poll, as well as the candidates of choice among their station's participants.  But even if you didn't take part in our survey, this is the type of information that is readily available by conducting a brief poll on your own among members of your database.  In this way, you can help guide your personalities with information that is relevant and market-specific.

This also should translate to a station's web presence, too.  The Sound (WSWD/Cincinnati) has a great election page, complete with useful links that direct its audience about how to register to vote, as well as information from the various parties, the electoral map, and other resources.  It reflects their audience's interest in the election, and The Sound's essence.

Once again, email databases are a critical - and often underused - connection to the audience, how they think, and what they want.  There's more to these clubs than just sending email blasts about upcoming bar nights.  They are a truly valuable resource that enough stations effectively tap.

In the coming weeks, we'll have more specific breakouts and results from Tech Poll IV.  In the meantime, with just over 200 days before the Presidential election, it's going to be an exciting summer and early fall in America.

The Merger - What, Me Worry?

After more than a year, the DOJ has spoken, and the dreaded XM/Sirius merger is finally off to the FCC, where it will undoubtedly be approved - in some form.  For traditional broadcasters, this has been one of those gut-wrenching issues that has inspired much debate in boardrooms across the country.

But that's been the case with satellite radio from Day One.  In a style reminiscent of old radio war horses like Randy Michaels, satellite radio began calling out broadcast radio from the beginning.  Remember, "Beyond AM, Beyond FM...XM?"  Why wouldn't AM/FM operators get a little nuts when they saw these ads?

But today, while satellite radio is an irritant, it has been losing momentum for a couple years now.  We've seen evidence of this in our Tech Polls, conducted among 25,000+ rockers each year - just the kind of consumers that XM and Sirius have been targeting. In our newest poll, we're already seeing that when XM or Sirius ends up in the new car or truck you buy or lease, one's propensity to renew the service is much lower than average.  And overall, we're only seeing about a 56% absolute commitment to retain XM or Sirius among current subscribers - not exactly the numbers they want to see, merger or no.

While we won't know the new restrictions that satellite radio might have to follow once the merger is approved, we can only look at the DOJ's next to last paragraph for a clue about what the future may hold:

Any inference of a competitive concern was further limited by the fact that a number of technology platforms are under development that are likely to offer new or improved alternatives to satellite radio. Most notable is the expected introduction within several years of next-generation wireless networks capable of streaming Internet radio to mobile devices. While it is difficult to predict which of these alternatives will be successful and the precise timing of their availability as an attractive alternative, a significant number of consumers in the future are likely to consider one or more of these platforms as an attractive alternative to satellite radio. The likely evolution of technology played an important role in the Division’s assessment of competitive effects in the longer term because, for example, consumers are likely to have access to new alternatives, including mobile broadband Internet devices, by the time the current long-term contracts between the parties and car manufacturers expire.

And that's precisely what AM/FM operators ought to be thinking about, too.  If you want to worry about something, consider the day when most consumers have the Internet available in their cars.  Where will our stations be positioned in that tech smorgasbord when that day arrives?  If you're in denial about that eventuality or you've rationalized that it may be many years away, consider iPod/mp3 player penetration - right now.  Our same Tech Poll tells us that nearly six in ten respondents already own one, including nearly three-fourths of 18-34 year-olds.  What does that tell us about radio's continued ability to be the "go anywhere" medium?  And what does it also signal us about the incredible potential for creating and monetizing programming in the form of podcasts for these devices?

There's a future out there for AM/FM radio, and while satellite radio just got a second wind, the true forces that will most clearly impact traditional broadcasters are far more ominous.  But radio has the opportunity to play in the new media sandbox, if it focuses - once again - on creating great content, while providing multiple distribution outlets for that content. 

Cramer vs. Cramer

Jim Cramer's done it again.  This time around, it's a frantic, wild-eyed rave against radio companies and radio stocks.  In a borderline hysterical rant, Cramer pillories broadcast radio as being the worst of investments.

And the numbers don't lie.  As he points out, radio's Wall Street performance has been horrendous.  But that's also because the stock pickers just don't understand radio's value in a digital world.  Yes, radio's financial effectiveness is being challenged, along with the medium's ability to compete against new technology.  But radio is still a great advertising vehicle that puts butts in seats and bodies in stores.  That's why radio continues to perform well in medium and smaller markets, where such arcane "metrics" like store traffic and bricks & mortar purchasing means so much.

>Cramer Rants on Radio Stocks<

But the real underlying reason for Cramer's tirade is his defense of the satellite radio merger.  And in that regard, he speaks with a forked tongue.  In the last three years, XM's stock price has lost about 60% of its value, compared to a nearly 50% dump by Sirius.  And when you look at the way these companies have flushed millions of dollars into lavish talent contracts and content, along with questionable advertising and marketing campaigns, it's no secret why they need a government approved merger to survive.  Cramer, however, doesn't address these “minor” fiscal issues and extravagances.

And this same guy, who lambastes every aspect of the radio business, goes on "Today" and nearly bursts into tears during a discussion of Eliot Spitzer's inane actions.  It's one helluva roller coaster performance.  This guy needs to chill.

>Cramer on the "Today Show" discussing Eliot Spitzer<

Where Art Thou, XM?

Amidst all the entertainment news about celebrity breakups and marriages was the big story of a media breakup - and marriage.

XM Radio and AOL broke up their relationship to stream XM's streaming radio stations.  Instead, AOL will partner up with CBS Radio, thus providing the broadcaster with an entire new exposure/revenue base.  It's a big win for broadcast radio, and the latest defeat for the mighty, mighty satellite radio machine.

In response, XM will offer its 80+ commercial-free radio channels for $2.99/month, which will increase to $7.99 after six months.  Good luck.  Consumers are even less likely to pay for online streaming radio than they are for the entire satellite package, especially given the availability of similar options on any number of sites from Pandora to Kurt Hanson's AccuRadio - and even AOL - at no charge.

This story is another great example of "old media" fighting back, and doing it in a smart marriage with digital technology.  Congrats to Dan Mason, the CBS group, and Ronning Lipset Radio on one of the big media stories of 2008.

Great Content Costs Money

In the midst of a conference call about Sirius' prospects, CEO Mel Karmazin got off one of his signature great lines:

"Great content costs money."

A no-brainer, perhaps, but given the economic pressures that all of radio is now facing, it's a quote that should go above desks and cubicles throughout our industry, whether in the boardrooms or the kitchenettes.  Sirius is struggling with expenses, of course, having paid Howard Stern a king's ransom.  At the time, it was the one big move the company had to make to become viable.  But now, Mel reports that Sirius has about all the content the company needs.  And if he can get any of it cheaper - including Howard - he will.

But the groundwork's been laid, and if satellite radio fails, it won't be for lack of content.  Maybe the model just isn't right or perhaps the sales effort just isn't there.  As Mel also noted, "We ought to be doing a better job in selling Howard."

If that sounds familiar, it echoes the same issue plaguing broadcast radio - a lack of sales for solid products.  And as revenues diminish, the budget cuts increasingly impact the product side.

Of all the things to cut, content's not it.  Cut better deals perhaps, reassess expenses, do smarter research, or more creatively look at cost savings in other areas.  But if the content goes, so will go the main reason why listeners are still listening in the first place.