Radio ain’t goin’ away

This is what I think will happen to the radio industry in the near future:

Here’s the reason radio will survive, though not in the old format: people want music, but they don’t want to work for it. What I mean by that is people want music, but most don’t want to spend time actively selecting it for themselves. Sure, music aficionados (that’s me!) are happy to spend hours sifting through the sidebar on Youtube; this is not representative of the average consumer. Pandora creates a kind of compromise for consumers: they have to give a little input, creating a channel and giving a thumbs up or thumbs down on individual songs to fine-tune what they hear. This isn’t too much work for most people, but it still is for some. It’s also not viable for when people are driving, as it’s visually distracting. Satellite radio offers, for a nominal fee, a vastly superior listening experience to terrestrial radio. Unless you don’t want to cough up the money, there’s basically no reason not to make the change other than laziness.

Because of all these superior options, the situation is looking pretty dire for terrestrial radio. If Pandora moves in on car radio, the game is pretty much up for them. There is one thing on terrestrial radio’s side though – the biggest copyright law loophole of the century, or at least one of the biggest. Online radio and satellite radio both have to pay royalties, and terrestrial radio doesn’t. This blatantly discriminatory law is in fact the only thing holding Pandora back from being a significantly profitable company. Spotify is also suffering from this discrepancy, perhaps more than they’d like everyone to know.

The only company that’s managed to dodge this bullet is Youtube, albeit through their illegal practice of hosting illegitimate uses of copyrighted material. That’s not to say Youtube isn’t doing anything about it; when they’re sent a notice by an artist or label about a video, they take it down permanently. In addition, they put ads on many videos and attempt to send a significant portion of the revenues back to the copyright owners. However, this actually puts money in Youtube’s pocket, as they are only paying money on videos from which they make ad revenue. This may not stay true if Youtube is taken to court. They would essentially employ the same argument as Napster in court: we can’t control the submissions of copyrighted material. Napster lost that battle, though I guess right now the pirates are winning the war. Perhaps Youtube would respond by trying to introduce Digital Rights Management software to the submission process; at this point, only speculation is possible, and likely nothing will change until labels inevitably start pressuring Youtube.

Practically the only advantage terrestrial radio has left is that of money from not paying royalties. Unfortunately for them, all the “special interest” lobbying in the world cannot stop the progression of technology, and I’m of the opinion that terrestrial radio is already dead – they just don’t know it.

In this part of the series, we briefly outline the three main competitors of terrestrial radio.

Internet radio

The first internet radio website, known as Pandora, came online in 2000 and surprisingly is alive and kicking today. This is no doubt due to their ambitious “Music Genome Project,”¹ which attempts to tabulate different types of music and what listeners do and don’t like about it. Interestingly, this process is (they claim) not automated at all, and is completely dependent on human input and tweaks. Regardless of how they do it, Pandora is fairly successful in their endeavor to bring relevant music to its listeners. This mission is aided by the fact that users can make stations that correspond to anything as broad as a genre to as specific as a single artist. What’s important to note about this model is that the user directly plays a part in the deejay process, an entirely new development in the radio industry. This is one of the key distinctions in online radio and terrestrial radio:

If I don’t like a terrestrial radio station, I switch to another station. This means that, for the time being, I’m leaving the first station’s audience and switching to the next. I miss all the commercials on the first station, which makes me a non-factor in the advertiser’s attempts to reach me. Advertisers, knowing that terrestrial radio audiences are fickle, are now more wary than ever of trying to advertise through those stations.

In contrast, the chances of me not liking what’s being played on a Pandora station are slim. Sure I might not like one song, but I’ll probably like the majority, since I get a significant personal say in the channel’s content. This means that I’m likely to stay on the station for a while, which advertisers like very much. Additionally, if I don’t like the channel and switch to another, I’m still in Pandora’s audience. As a result of this, advertisers can still reach me until I switch Pandora off. This is huge. Pandora is a much more viable platform for advertisers than any single terrestrial radio station. In fact, the only reason I would use terrestrial over internet radio is if I’m a local business, because I can be sure that I’m advertising to the correct geographical audience.

Speaking of location, where can you listen to terrestrial radio? Your car, and anywhere else you happen to have a transistor radio, which leaves you with a rather limited set of options. On the other hand, listeners can use Pandora pretty much anywhere they want! People almost always have either a laptop or smartphone on them, so you can listen to Pandora inside or outside of a car. Pandora is even trying to get integrated into dashboard computers, which would essentially destroy any possible desire for terrestrial radio.

It’s worth noting that there are other online radio services, one of the obvious ones being Spotify’s radio feature. However, Pandora is the preeminent online radio site, most likely due to their seniority and absolute focus on radio.

Music streaming sites

Did somebody say Spotify? It’s the most well-known music streaming service on the web as of right now. The main difference between a “streaming” site and online radio isn’t streaming; in fact, they both stream music. Semantics aside, the technical difference is that streaming sites allow on-demand listening. Spotify has gained a lot of ground on Pandora because it gives listeners direct access to the music they want, rather than indirect access through radio channels. It’s worth noting that Spotify isn’t the most-used streaming service. It is (wait for it) YOUTUBE! While not explicitly or exclusively a music streaming service, it functions as one, as many users create playlists of “videos” that are really just songs accompanied by pictures and/or lyrics.

Satellite radio

The third dark horse candidate with a stake in this contest. The only satellite radio service as of right now is SiriusXM, the result of a merger between the two previously separate services, Sirius and XM. Satellite radio is superior to terrestrial in three regards:

• It has superior range
• Its music channel are commercial-free
• Its deejays are essentially better selectors of music

You may challenge the validity of the third point, but ask any subscriber and they’ll agree. This is because satellite radio channels are much more specific in what they play than terrestrial radio stations. They play to the concept of a niche audience, which tends to be more successful in holding people’s attention than mass-market, so long as the audience is self-selecting.

In order to help keep listeners’ attention, SiriusXM offers over 100 channels, each with a different style of content. This content goes even beyond music and into talk radio, family entertainment, comedy shows… the list goes on. Regardless, the main attraction is clearly the superior musical selection.

As of right now, these three are slowly drawing terrestrial radio’s audience away, which is reducing its appeal to marketers. This is the main reason that terrestrial radio will soon be a defunct institution.

This is the first of three articles about the future of the American radio industry! This post will actually be about the past, meaning everything up until the Napster lawsuit. It’s not comprehensive, just a general overview, so feel free to comment your thoughts about anything we missed at the end!

Since the invention of the transistor radio, terrestrial radio stations were the main source of music for Americans. Back in the day, there was no Pitchfork, and “expert opinions” didn’t necessarily matter anyways because most music consumption was through radio, over which consumers had no direct control. The deejays of these radio stations had ultimate control over what music was played, which essentially made them the tastemakers of the time period.

This control had a dark side, which made itself evident in the 1959 Payola scandal. Deejays had comfortably been in control of what was played for years, and so when record labels tried to pay off deejays to play certain records, they took the money willingly. This was of course a prime example of unfair competition against less well-off labels and artists, and a practice which would have severe consequences for today’s indie artists. However, the fact that deejays controlled consumers’ music exposure actually made a lot of sense (not that we’re endorsing Payola). Back when terrestrial radio was the average consumer’s primary source of music, there weren’t actually all that many artists with the financial ability or resources to distribute their music on a large scale. In fact, the only artists with the ability to distribute were ones with a record deal, since an indie artist couldn’t pay for massive amounts of records to be produced! Unfortunately, this meant that making consumers aware of their music would not help them sell very many records. Because of this, it’s logical from an industry standpoint for deejays to promote artists who could scale.

This model remained unchallenged and unbroken until the Napster scandal, which is consistently cited as the point at which all hell broke loose within the music industry. Suddenly people were able to own music without paying for it! This, of course, didn’t make terrestrial radio stations obsolete; access to free digital music didn’t suddenly turn everyone into tastemakers, nor did it create new channels from which consumers could find new music. For the moment, it seemed that terrestrial radio was safe.

In the next post, I’ll talk about terrestrial radio’s emerging rivals, some of which are trying to put it out of business!