Archive for the ‘Future Radio Trends’ Category
The issues of how radio responds to the ongoing developments of the connected car now that Google and Apple are now in the game is a question every operator has to answer. One of the industry thought leaders on this subject is Paul Jacobs whose blog post from today is reposted here.
Here’a recent post from Brad Hill of RAIN. John Gehron, COO of Accuradio (parent company of RAIN) will discuss this and more at the Future of Radio Conference March 23-25 in Hilton Head. Check out the agenda on the Conference tab of this website.
“The whole music subscription sector is intrinsically unprofitable.”
That is the stark conclusion of a 150-page financial research report released by British company Generator Research. Unsustainably high cost of operation will prevent profitability, according to the report, which examined Pandora, iTunes Radio, Deezer, Spotify, and other services in five major music markets.
The report lays the profitability problem plainly on cost of content — royalty payouts to music rights holders. Noting that between 60 and 70 percent of revenues are paid to labels and publishers, the study predicts that usage growth can never catch up to expense. Growth in both usage and revenue will be substantial, according to projections. Music subscription revenue will scale from $1.2-billion in 2013 to $4.2-billion in 2017. That will bring subscription revenue nearly equal with music-download revenue.
The study likewise predicts growth in the popularity of music subscriptions compared to free listening. The paid-subscription piece of the pie will widen from 4.7% in 2013 to 7.5% in 2017, or 36-million users to 125-million users.
The key metric in the study’s profit pessimism is operating cash flow, or the percentage of incoming cash that survives the cost of operation. Using Pandora as a proxy, comparing its 2% of positive cash flow to that of profitable companies (30% for Google) leads to a conclusion that Pandora can never get into the black.
The report focuses on Pandora with a tone of incredulity: “[Pandora] is in dire straits. We are at a loss to know why the company’s stock has performed so well, especially over the last 12 months.” Generator Research recommends shorting Pandora stock, contrary to investor sentiment which has driven Pandora to a market capitalization of $7-billion.
More than a grim reality check for the sector as a whole, the study recommends that streaming music companies explore new avenues of monetization. It’s either that, according to Generator Research, or sell out to a larger company which can afford the red ink. Proposed innovations include:
- Super bundles: This term refers to a proposed combination of streaming and downloading for a higher subscription fee. Generator Research foresees Apple, Amazon, and Google heading toward super bundling.
- Self-serve ads: This technical solution would reduce the cost of selling ads. Implicit in this suggestion is that Pandora’s costly build-out of a local sales force (and all other on-the-street sales efforts) is unprofitable.
- Selling behavioral data: The study seems to suggest that streaming music service borrow a page from Facebook, and sell its customer knowledge.
- Reverse bundling: In addition to seeking partnership deals with telecom companies, sell telecom service through the music platform in an affiliate model.
UPSHOT: The executive summary is that streaming music is inherently unprofitable, because the music providers charge too much for content: “Music subscription services providers are all losing money, and that is going to remain the case until they find a way to monetize a worldwide user base that presently amounts to 767 million, and will grow to nearly 1.7 billion by 2017.”
Many are debating the issue of Radio’s TSL issues. Is it real? Is it because of listening to streamers like Pandora or because of methodology changes in measurement? Kurt Hanson argues the question in this blog post from RAIN. His COO, John Gehron will lead a conversation about this issue and others when he addresses the Future of Radio Conference March 23-25 in Hilton Head, SC. If you haven’t registered, click on one of the links on our website to get more information.
Radio’s AQH Decline and the PPM
There was an interesting debate going on in the “Tom Taylor NOW” newsletter late last week over the recent release of a Borrell Associates white paper called Future of Legacy Media.
Borrell’s report argues that consumers are trading time-spent-listening (TSL) of legacy media like newspapers, radio, and TV for digital media brands, and supports that point with the observation that AM/FM radio’s time-spent-listening has declined 30% between 2008 and 2013. (Since radio’s cume has been holding essentially steady, that means radio’s AQH has also declined by about 30%.)
On Friday, Tom Taylor’s readers were asking if that apparent TSL decline was illusory — i.e., merely the result of a research methodology change, Arbitron’s switch from paper diaries to PPMs (Portable People Meters) in large markets. (“The time period coincides, exactly, with Arbitron’s phased rollout of electronic measurement,” one reader wrote.)
As longtime RAIN readers may recall, I have some experience in this area: For almost 20 years (off and on during the period 1980-2013), I ran a market research firm called Strategic Media Research that was for a while the leading music research firm in America. And when the ratings firm Birch Ratings went out of business in the early 1999s, we launched a telephone interview-based ratings product called AccuRatings that had a successful several-year run that is still remembered fondly by some old radio hands.
So, some thoughts and observations:
- Radio’s actual problem with ratings in the 1990s was one of inadequate sample size: With Arbitron using only a few thousand diaries in a given market per book, a 4.0-share radio station could gain or lose up to a full share point per book simply due to margin of error. (I used to have a slide show — literally 35mm slides; this was before PowerPoint — using a “Marbles in a Swimming Pool” analogy that illustrated the effects of standard error on a research finding.)
- AccuRatings was a product designed to solve the sample size problem: Developed with researchers like Amy Vokes (now at Radio One), Gregg Peterson (now at Market Strategies International), and Tripp Eldredge (now at DMR), it was based on a brief telephone interview that allowed us to use a sample size that was typically three to four times larger than Arbitron’s. (And it had a higher response rate than diaries did, so its findings were likely more representative of the general population.)
- Consolidation largely killed AccuRatings: We were successfully measuring most the top 70 markets in America, but as Clear Channel, under Randy Michaels, kept acquiring more and more of our station clients, Randy insisted that those stations drop Strategic Media Research and switch to a research company that he himself personally owned. (We admittedly made a few mistakes in management hiring, too.)
- Arbitron’s introduction of Portable People Meters (PPMs) solved the wrong problem: Diaries weren’t being filled out precisely to the minute (in fact, lots of respondents filled out their diaries in one sitting at the end of the week), and PPMs “fixed” this problem, but because meters were so much more expensive than paper diaries (hundreds of dollars vs. maybe a dime), Arbitron used far fewer of them per market. So the sample size issue got *worse,* not better!
- More importantly, PPMs introduced a much bigger problem: While people’s entries of their listening behavior in diaries no doubt were somewhat inaccurate, they were inaccurate *in radio’s favor*! In the markets where PPMs were intro used, overall radio listening per Arbitron dropped something like 25%. Nationally, using a mix of PPM and diary markets, radio listening appeared to drop 15%.
- I’ve always thought that radio is to be totally commended for maintaining its revenues and spot rates during the switch to PPM data. After all, if Arbitron ratings showed a high decline in AQH yet stations successfully held their rates (by arguing that their audience size hadn’t changed, only the methodology had), that means they achieve a significant *increase* in cost-per-point and cost-per-thousand. ”Good job, radio industry, on this one!”, I’ve always felt.
- But, wait: Actually, I see BIA/Kelsey data that says that radio station revenues declined from $17.9 billion in 2007 (when Arbitron was all-diaries) to $16.5 billion in 2008 (the year major markets were being switched over to PPMs) to $13.3 billion in 2009 (the first year post-transition to PPMs). That’s a 25% decline — a decline of $4.6 billion annually — that radio hasn’t fully recovered from yet. As I think about history, I attribute this decline to the recession … but is that an incorrect interpretation?
Total U.S. ad spending decline 13% in 2009, but radio ad spending revenues declined 20% that year. Was the extra 7% decline (i.e., $1.15 billion per year), to some extent, the annual (and perhaps continuing ) cost to the radio industry of switching from diaries to PPMs?
In any case, PPMs were introduced in major markets in early 2008, so Tom Taylor’s readers have the date wrong. By 2008, PPMs were already in place in most major markets, and that’s the year that radio’s TSL (hours per week per person) dipped from 17.6 to 15.2 hours.
As for the 30% decline in radio listening TSL that the Borrell study references, I believe that occurred *after* 2008.
Which leads to a big question: *Why* has AM/FM radio lost 30% of its TSL and AQH since 2008? I don’t think this question has been vividly addressed in any major national research study.
However, it seems to me that it’s due to a combination of factors, the first three all being effects of consolidation: (A) The eventual result of over 15 years of shrinking (or no) marketing budgets for stations. (Imagine if Coke and Pepsi and RC all quit advertising for 15 years to save on marketing costs. Cola consumption would probably eventually decline, right?) (B) The result of over 15 years of increased spot loads. (C) The result of over 15 years of cutting back on talented programmers and air personalities to reduce costs. (D) The growth of satellite radio (now with over 25 million subscribers, representing almost 20% of U.S. households), and almost certainly having a negative impact on AM/FM listening in cars. (E) The growth of Internet radio (now used weekly by over a third of the U.S. population), almost certainly having a negative impact on AM/FM listening in the workplace.
But blaming it on the introduction of the PPM? Nope. Primarily, that was the previous 15% decline (2006-2008), *not* the subsequent 30% (2008-2013).
As you will see in the next few weeks as we run up to our annual Future of Radio Conference, I’ve become a big fan of the JacoBlog. They have posted today James Cridland’s comments about the debate of what is radio. Cridland is a Brit who comments frequently about our business in the US with credibility. This time he jumps into the ongoing debate about what is radio which I have thought to be a silly discussion. However this is the best most credible comment on the subject I’ve seen. We’ll pick up on this conversation during the first day of the conference when Sean Ross shares his take on the subject. There are still a few places left if you’d like to join the conversation. Let me know if you’d like an invitation to our conference. Space is limited.
The core issue for most broadcast owners is how do I influence the value of my assets or what is the value of my assets. George Reed addresses that issue in this blog post he wrote a few weeks ago. He and Stephan Sloan will lead off the Future of Radio Conference, March 23-25 in Hilton Head, SC with a session on this very subject. If you have an interest in attending our conference, let me know. We have a limited number of seats and they are going fast…really. If you have already registered, you’ll enjoy this article by George Reed as a lead up to the conference.
Tuesday, October 29, 2013
What was the multiple? -by George Reed
Broadcast cash flow multiples have always been the top discussion topic with radio and television station buyers, sellers, bankers and brokers. Particularly in the convention bars. But, “caveat emptor!” There are a myriad of ways to cause an “apples & oranges” comparison. Here are a few thoughts to help you match your apples to other apples:
- Take all discussions on multiples with a grain of salt, whether directly with the participants or in published reports. Unless you have seen the financial statements and the asset purchase agreement, you do not really know the multiple.
- The multiple to the seller and the multiple to the buyer are usually very different on the SAME transaction; just ask them. Case in point: on a transaction some years ago, my client, the seller, thought that he got a 20x multiple. The buyer thought that they bought at 12x. They were both correct. The price and the cash flow at the time of the signing of the APA suggest that the seller was correct. The actual and pro forma cash at the closing, following a long LMA, suggest that the buyer was correct.
- BCF multiples can be based on a) trailing twelve months, b) calendar year, c) projected, d) reconstructed with expense savings pro forma, or e) any combination.
- Published multiples are often estimates from uninvolved parties, or if from an involved party, reflective of the “spin” that he/she wants to create in the marketplace. Brokers are often asked for the multiple in a deal; most, like us, will not give them out. Some make up their own number which often bears little resemblance to reality.
- Often, a sale will bring a lower real multiple if several markets are involved (many times a seller could net much more, and a higher sale multiple, if they break up the markets and sell to strategic buyers).
- Sometimes the “true” multiple is buried in the weeds of the transaction, particularly if swaps are involved
- How do you value the stock component of a deal if the consideration is a combination of cash and stock?
- How do you “adjust” the multiple to fair market value when there are tax considerations (such as 1031 like kind exchanges).
- “Distress” situations (bankruptcy and receivership) usually bring lower multiples than sales of healthy businesses.
- Stock sales bring lower multiples than asset sales (to compensate for the tax risk and lower basis).
- Multiples are often higher in cash flow deals where additional cost savings are obvious.
- Multiples are often higher when the seller is taking back paper.
- What is the multiple if there is no (or minimal) cash flow?
There are a lot of factors which enter into the “multiples” discussion. Take care to make sure that all involved parties are speaking the same language. Ultimately the value of the station (or cluster) is worth what a willing buyer will pay and what a willing seller will accept. A buyer should determine his/her price based on the value of the future returns, discounted at a reasonable estimate of the risk. In the end, the marketplace determines the price.
Media Services Group
P.S. Following this initial post, several additional examples of the “My Cash Flow Multiple” vs. “Your Cash Flow Multiple” argument surfaced.
- The treatment/allocation of corporate expenses in adjusting EBITDA back to BCF.
- Add-backs of “owner expenses” (i.e. whether or not they are truly operating expenses).
- Treatment of “inter-company” revenue such as traffic services and unwired nets (which often vaporizes at closing).
Here’s an interesting perspective on the future of radio originally posted on JacoBLOG last year…
Best of JacoBLOG – Why I Won’t Go To Radio Reunions
I know this post will come off as callous or even blasphemous to many hard core radio people, but I’ve been thinking a lot about point of view over the holidays.
In fact, I’ve changed my Facebook Timeline picture to show a view (in Michigan) out the windshield – rather than looking back through the rear-view mirror.
At so many formal and informal radio gatherings over the past few years, the conversation has devolved to a discussion, debate, or lamentation about how the radio business isn’t what it used to be.
Nothing is what it used to be. That’s why the phrase, “the new normal,” came into being. It’s a statement that life as we knew it has changed. It is incumbent upon all of us to adjust – or simply move on. Either decision is valid, but to stay in place and complain about how the business has gone to hell is simply counterproductive, especially for those of us who are making our way through it, trying to innovate, make adjustments, and keep it vital and healthy.
While there are so many aspects of radio that I also miss, getting caught up in conversations about the good old days erodes our ability to implement change, improvements, and to keep it moving forward.
So that’s why I’m looking ahead.
We can debate or lament the industry’s changes, and point the finger at consolidation, radio companies going public, or all the painful staff cuts that have taken place.
Or we can play the cards we’re dealt the best way possible to make it better.
So I’m done with radio reunions.
And it’s not because I don’t want to see old friends and colleagues because the past four decades have been cherished times professionally and personally for me.
But I’m hoping that the next decade is just as memorable, amazing, and exciting – even though I know all too well that it will be very different than the way things have been in the past.
No rear view here.
Eyes out the windshield.
Who’s taking the ride with me?
At the 2012 Future of Radio Conference, we noted a number of “Helping Forces” — factors that will speed up the evolution of the high-tech dashboard — and “Hindering Forces” — those factors that will slow down that evolution. And one key hindering force we said to watch for is government regulation based on safety concerns. We speculated this regulation could come in the form of laws from Congress and/or safety regulations from the bureaucracy.
As noted on NBCNews.com recently in a story titled Safety Officials Say High-Tech Dashboards Can Be Too Distracting, our prediction is becoming reality right on cue. And it’s the bureaucrats leading the way… specifically, the US Department of Transportation’s National Highway Safety Administration.
The NHSA has issued a list of “suggestions” designed to curb driver distractions. Most items on the list involve disabling the driver’s ability to interact with the system while driving. The article goes on to suggest that consumers will hate these suggestions; setting up a really interesting challenge for designers of the Connected Car.
The implications for Radio: (a) anything that slows down the evolution of the Connected Car reduces competition for AQH in the car and gives Radio more time to determine its Connected Car strategy — as an industry Radio has done very little in this regard; (b) if the NHSA’s suggestions fall on deaf ears, Radio will continue to see a greater and greater challenge to its dominance of in-car entertainment — and in-car listening is estimated to represent as much as two-thirds of all AQH.
Every broadcaster has to look at these numbers. This did not exist five years ago in any significant numbers….32% of the population streams music today. The 16-24 numbers are huge but look at 35-54 year olds…33% steam and 23% of 55-64 year olds stream. Wow!!! Where will this be in five years and where will radio be? Mobile has just started to drive the growth.
Read this article from Audio4Cast:
Global Streaming Music Trends
Early stages of adoption of a new technology are often driven by young males, something that has been true of streaming audio, according to Mark Mulligan, former vp and research director at Jupiter/Forrester Research and now independent advisor to the music industry. Mulligan recently posted an analysis of streaming audio listening based on data from EMI’s Global Consumer Insight data, an 850,000 interview dataset.
54% of streaming music users are male and 46% are female globally, with more users in Norway, Spain, Sweden and France than anywhere else. On average, 32% of the population streams music, which is exactly the penetration of usage in the US. While streaming music reaches close to 50% of 16 to 24 year olds, it also reaches 33% of 35 to 54 year olds and 23% of 55 to 64 year olds.
Mulligan created a nifty infographic that provides an overview of his analysis:
For all those trying to figure out the future of radio and all those getting mired down in how to fix this digital challenge, Mark Ramsey has the best advice I’ve heard:
Don’t look to others to find your answers or inspiration, look inside yourself and those around you and ask, “How can I serve my users better? My listeners, my advertisers, my employees and even myself?”
You know your own capabilities and your market better than anyone. Start thinking “user experience” as much as how to make money doing it. The answers will come and users will pay for it. That’s what Steve Jobs did in the late 90′s when he came back from the dark years to resurrect Apple making it one of the most highly valued companies on the planet. Here is Mark’s blog:
Chasing the Unicorn
Last week Seth Godin penned another pearl:
The easiest way to sell yourself short is to compare your work to the competition. To say that you are 5% cheaper or have one or two features that stand out – this is a formula for slightly better mediocrity. The goal ought to be to compare yourself not to the best your peers or the competition has managed to get through a committee or down on paper, but to an unattainable, magical unicorn. Compared to that, how are you doing?
The problem with many radio broadcasters is that we tend to innovate – if we do so at all – by looking over our shoulder at the other guy (usually the other broadcaster, and usually a guy).
That’s too bad, because looking over your shoulder at people who are looking back at you over their shoulder leads to lots of sideways glances and a tendency to settle for what’s already being done rather than aspire to create new value for your consumers and advertisers.
I know when I do a research project for a broadcaster my interest is always creating something new – some new advantage, some new feature, some new way to say “we’re better today than we were yesterday,” new creations in tune with the wishes and dreams of the audience.
But research is an investment, so many stations do without. Looking over our shoulders is easier, and always less surprising and inspiring – to us and our audiences alike.
Too many broadcasters can’t even imagine the Unicorn, let alone see fit to chase it.
Here’s to those who can and do.
This article by Ken Dardis was posted on AudioGraphics.com.
It’s a huge industry that has a lot of people with plenty to lose. So you expect a fight when bringing up data that suggests there appears to be a negative flow of interest surrounding broadcast radio.
Having been on the front lines of sorting this data out for over a dozen years, I’ll testify that there’s no love lost between those who try to keep the radio industry myth alive and those who are introducing the next generation of music/entertainment/information delivery.
Notice the last phrase in the preceding sentence is “music/entertainment/information delivery,” not the word “radio.” It’s because we are in a state of continuing change as to what constitutes “radio” and what consumers are pursuing.
There is a great article from The Plain Dealer posted at Cleveland.com.
Cleveland radio faces incursions by Pandora and others, as well as a still-ailing economy.”Having spent more than twenty years in this town’s radio industry, I feel safe saying (though it be a subjective statement) that there’s less quality content flowing over Cleveland Ohio’s airwaves.
One paragraph in this Plain Dealer story of a city carrying great weight in radio’s history states: “Keith Abrams, operations manager for Clear Channel locally, twice declined to comment for this story. Clear Channel’s corporate offices in San Antonio, Texas, also did not respond to a request for comment.” We all know that if things go well, people in positions of power rush to get behind the story and speak. If things are going not-so-well, we get this type of response.
Let’s not focus solely on what’s happening in my home town, though. Here’s some data supplied by 994 participants of Audio Graphics’ 55th survey of online radio listeners that suggests there’s more trouble coming around the bend. You can dwell on more data here. For this part of the discussion, I’m only going to bring up the answer to one survey question: “By this time next year, what do you see yourself listening to most?”
These are two graphics showing the preferences, according to age groups, as to whether people intend to spend more time with broadcast radio or internet radio by this time next year. Knowing that these respondents already listen to internet radio has a built-in bias, but this could also be interpreted as showing that these folks like what they hear online.
A phrase I’ve stated dozens of times is that the broadcast radio industry is not dead, and won’t die within our lifetime. Though, for anyone in it to assume its future is anything more than its past is foolhardy. They are not facing the realities stated in the comment section of that Plain Dealer article mentioned above.
People are not listening to “radio” anymore. They are listening to audio entertainment, be it talk or music based. What’s pushed out over the airwaves has diluted itself to a near equality with what’s being offered online in terms of programming. Also, online there is no element of “local” which cannot be found in a few seconds of searching. So the chant about delivering “local” content in the radio industry loses potency with each passing year.
Radio made its money being the sole occupier of audio entertainment on the dashboard. Now Detroit, Japan, Korea, and European auto manufacturers are redesigning that area of the vehicle. The monopoly is ending.
By this time next year the radio industry will be down another couple of notches on the public’s “must have” list, and at this stage of the slide there’s not much that major corporations can do. The warnings have been ignored far too long. The online competition has been honing itself. The naysayers are no longer saying nay, but being proven correct in their forecasts.
Online radio listeners are showing an interest in growing numbers. By this time next year look for advertisers to be showing increased interest, too.
Following the ears has always been the reason the radio industry had such a strong run. It’s just that the new breed of radio manager looked too closely at the expenses and knew too little about programming to keep radio fans from trying alternative sources of audio delivery.
And now it’s time to face fact:
Radio, as we knew it, is not coming back to its former days of glory. By this time next year, change will be much more evident – so say the listeners of online radio today.