Monday, June 27, 2005

Does podcasting threaten radio?

Think back, if you will, to 1993, when the first web browser was released. Imagine that a very wise friend had pulled you aside and told you that the internet would create a vast amount of wealth over the next decade. And then imagine that this friend had asked you to speculate on which companies were likely to benefit. You might well have concluded that newspapers were extraordinarily well-placed to capitalize on this new medium. Newspapers had earned the trust of their local (and often national and international) readers; they owned the rights to volumes of engaging and thoughtful text content; and they had developed an enviable content-creation process. In addition, they had essentially cornered the market on classified ads for job, rental, real estate and yard-sale style ads. This gave them both method and motive to become major players in the coming internet boom.

Yet, while the newspaper industry averaged profit margins of around 20% in 2004, the internet boom largely passed them by. Newspaper circulation is in decline, and readers are as likely to get their news from an internet portal as from their hometown paper. Furthermore, several of the best-known internet brands (such as eBay, Craigslist and Monster) have largely supplanted newspaper classifieds.

At least two of the trends that explain newspapers' inability to capitalize on the internet (1. readers' preference for niche-content; and 2. the development of extremely fine-grained advertising metrics) will wreak havoc on the radio industry's attempts to take advantage of podcasting.

One of the most consistent trends over the last decade has been the explosion in the number of news and information sources. Television networks expanded from 3 to a few tens to hundreds (and if Google has their way, perhaps to millions) of channels. Text news sources expanded from a handful of major papers to millions of blogs. The underlying trend is a consistent and voracious appetite for niche-content. Radio, however, has been insulated from this trend, because until recently there has been no distribution channel for niche-content audio. The first cracks in this foundation were the satellite radio companies, which offer hundreds of channels. Yet if the rise of the internet is a reasonable analogy, once the enabling technology is widely available, listeners will demand thousands, tens of thousands, even millions of audio channels.

A second trend is the rise of extremely fine-grained classified ad reporting metrics. Companies that enable online advertisements (such as Google and Overture) provide advertisers with extremely detailed advertising metrics on click thru rates, costs per click and costs per conversion. Online advertisers can use these tools to quickly and cheaply iterate through a series of advertisements, improving them on each cycle. Newspapers had no way to match these statistics, and advertisers have shifted online in droves. Radio, of course, has never had to face this threat, because there has been no competition. And, to be fair, the advertisers that are currently underwriting podcasts are doing so on metrics which are almost certainly less credible than those offered by the radio industry. However, as mp3 players are integrated into more powerful palmtop devices, fine-grained tracking will inevitably follow. (I would go so far as to speculate that users will soon accept fine-grained (if somewhat anonymous) tracking of their phone usage in exchange for free phone calls. Phone companies, in turn, will turn that tracking into a powerful mechanism for improving advertising metrics.) Advertisers will not hesitate to convert from broad demographic ad buys to niche-content based ad buys with good conversion statistics.

Where does that leave radio? At worst it leaves them with few listeners and fewer advertisers. While other scenarios are certainly possible, radio execs have to deal with two basic facts: over the next few years users will demand unlimited options when it comes to content and advertisers will demand perfect information.

1 comment:

Jason said...

Your blog is briliant! Keep it up. Here'e something for you if your looking for some free advertising:free classified advertising
Check it out for some great free classified advertising solutions.