Chapter%207 - CHAPTER SEVEN Radio Snapshot of the radio...

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Unformatted text preview: CHAPTER SEVEN Radio Snapshot of the radio broadcasting industry in 2010 More radio stations (individual media vehicles) broadcast in the U.S. than the nation's combined sum of fullpower terrestrial TV stations, consumer magazines, and daily newspapers. Since 1970, the number of radio stations has about doubled. Radio stations are licensed by the Federal Communications Commission (FCC). A license to broadcast specifies either commercial operation (i.e., sale of air time for profit) or noncommercial operation (i.e., not for profit). Since the end of World War II, commercial radio broadcasting has evolved into a background medium that attracts niche (segmented) audiences for specialized programming and advertising messages. For most advertisers, radio is a secondary media buy, but nevertheless one that many marketers find to be a useful part of their overall media strategy. Since 1996, the radio industry has undergone significant ownership consolidation. Between 1996 and 2000, about one in five radio stations changed hands; by 2010, five group owners dominated the radio industry (in terms of revenue). Time spent listening to radio among 12 to 17year olds has decreased more than 20 percent since 1993. More than 10 percent of teenage boys do not listen to radio at all. Perspective: If young people stop listening, the radio industry will find itself in the same position as the newspaper business--most of the audience will be dead in 25 years. Radio vs. other audio content providers Managers of terrestrial radio stations (AM and FM bands) face competition from audio platforms in fixed, mobile, and portable varieties that include downloads to MP3 players direct broadcasting from satellites (DBS) Internet streaming Where things stand Older people retain a strong emotional bond to radio. Before the Internet and social networking, radio listening was an important part of growing up (ask your parents!). The marketplace is less sentimental. BusinessWeek recently reported that radio was the worstperforming sector of publicly traded media companies during the past five years, even underperforming newspaper companies. A brief history of radio broadcasting The discoveries that led to radio broadcasting began in the 19th century with two professors at European universities a young Italian entrepreneur a professor here at Purdue. Those four prebroadcast "wireless" pioneers were James ClerkMaxwell (theorized about electromagnetic radiation and detection) Heinrich Hertz (detected "Maxwell's waves") Guglielmo Marconi (built a working device for Morse code) Reginald Fessenden (built a working device for voice and music) From "wireless telegraph/telephone" to "radio music box" (19001929) Governmentimposed patent pooling during World War I helped to advance the technology for radio. After the war, station KDKA in Pittsburgh became the "Gutenberg of broadcasting to the public" in the U.S. (i.e., the first radio station of record). How to pay for broadcasting: From goodwill to commercials Many of the earliest radio stations were established by organizations seeking public exposure and goodwill. Examples include department stores, hotels, insurance companies, manufacturers of radio receiving sets, newspaper publishers, (and independent operators). The sale of time for advertising messages began in 1922 on a New York City station. Technical chaos As the number of broadcasters increased, the signals of radio stations caused massive interference, making it difficult for anybody to listen. Because those signals crossed state lines, Congress acted to regulate broadcasters nationwide. Unlike other media of mass communication, radio (and television) stations are licensed by the federal government. Broadcast regulation and the licensing of radio (and later television) stations became codified in the Radio Act of 1927 based on two principles: scarcity--the electromagnetic spectrum is a finite natural resource with physical limits; not all citizens can simultaneously broadcast at will trusteeship--those chosen to be broadcasters are public trustees of a local natural resource, and must operate stations in ways that benefit those of us who are listeners The Radio Act of 1927 was important because it established the principle that licensees (those who have been granted licenses to broadcast) do not own their channels. Broadcast licensees are permitted to use their assigned channels only as long as they operate in the "public interest, convenience, and necessity." Updates to the Radio Act of 1927 Communications Act of 1934 (established the Federal Communications Commission, or FCC) Telecommunications Act of 1996 (currently in effect) Radio's brief golden age spanned the years between 1930 and 1945. It: began as networks achieved national coverage by 1930 ended when those same networks shifted resources to television after World War II During the peak of the radio era, radio stations in different cities were interconnected by telephone lines into networks, thereby making it possible for a single program to be heard nationwide in real time. Between 1930 and 1945, about 90 percent of radio stations were affiliated with one of three companies that operated national networks: NBC Red NBC Blue (later ABC) CBS Mutual The Justice Department forced NBC to divest one of its networks. NBC retained the Red network and sold the Blue network, which later was renamed ABC (American Broadcasting Company). Radio in the age of television (19461989) Television exerted a displacement effect on network radio programming network radio audiences dollars spent on the purchase of radio air time by national advertisers. Major changes in the radio industry between 19461989 Managers developed the recorded music `n' news formula as a costeffective way to counterprogram television with: content provided free by record companies shows hosted by popular local disc jockeys Music `n' news was enthusiastically supported by local advertisers, and recording companies . . . Payola (pay for play) The payola scandal ended music `n' news programming controlled by individual radio disc jockeys. The FCC required licensees to take responsibility for all programs that aired on their stations. AM? FM? What's the difference? AM and FM represent methods of signaling in analogue radio broadcasting systems. AM (amplitude modulation) is the older method of radio broadcasting, dating to 1920. FM (frequency modulation) emerged in the 1940s. In the U.S., the older AM channels are narrow; FM channels are 200 times wider, and hence can carry more information in higher fidelity. For that reason, music gravitated to FM, and talk to AM. The shift in audience preference from AM to FM Early FM stations offered little in the way of new or creative programming until two FCC rulings in the 1960s helped establish audiences for FM stations: transmission of stereo sound on FM requirement that FM stations provide separate programming from colicensed AM stations (nonduplication) In 1978, FM replaced AM as the method of terrestrial radio broadcasting preferred by most listeners. Since 1980 the radio broadcasting industry has undergone major structural changes within the terrestrial AMFM sector, including fierce competition among licensees following an almost doubling of stations since Reaganera deregulation that began in 1981 almost total displacement of local discjockeyandrecord programming by syndicated providers of satellitedelivered digital audio that began around 1984 removal of "ownership" caps on the number of station licenses one individual or company could hold simultaneously following the Telecommunications Act of 1996 Perspective on deregulation Radio executives have long argued that because they were the ones who invested heavily in developing the medium, they should have freedom to operate stations profitably without government interference. This "corporate vision" has prevailed in the years following the Telecommunications Act of 1996. Companies are now allowed to hold the licenses of hundreds of stations simultaneously (licenses are required to be renewed every eight years). Terrestrial radio: Ways of distributing audio programming in 2010 AM and FM analogue High definition (HD) digital transmission on AM and FM via IBOC (In Band On Channel) technology The FCC has approved, but not mandated HD radio. Rather than new and fresh content, HD radio has (so far) featured "more of the same" rather than "must have" programming. Internet radio: synchronous streaming from terrestrial stations synchronous streaming from Internetonly program originators asynchronous podcasts downloaded for MP3 playback Satellite radio: Sirius and XM subscription business model vs. broadcasting on the public airwaves Since the emergence of Sirius and XM Car salesmen are pushing "aux" ports for portable digital devices. Terrestrial broadcasters are offering HD transmissions. If broadband wireless technology makes Internet radio truly portable, then DBS may become an obsolete method of delivery. On the other hand, XM and Sirius are strong brands with interesting programming. If content is king, they may survive as content providers, regardless of delivery platform. Revenues at terrestrial radio stations Sale of advertising time: 78% local sponsors 17% national and regional sponsors 5% network sponsors Small amounts from other sources (e.g., advertising on station web sites, merchandising promotions for advertisers, rental of tower space for antennas) Expenses at terrestrial radio stations 40% general administration (management salaries, office supplies) 25% sales (salaries of sales staff) 20% programming (salaries of talent, music licensing fees) 15% news and technical (salaries of news and engineering staff, acquisition and maintenance of equipment) The radio audience Much marketing data about radio listening exists due to advertiser requirements. Radio ranks second (after TV) in terms of the amount of time Americans spend using the media of mass communication. About 72 percent of people age 12 and older listen to radio each day. Where people listen to radio: At home, at work, in the car Affluent Americans spend more time listening to radio than watching TV. Nevertheless, since the mid 1990s, overall time spent listening to radio has decreased steadily across all demographic groups, and especially among teens. Individuals tend to listen to only two or three radio stations at any given period in their lives. The "most preferred" station accounts for 65 to 70 percent of listening time. People 10 years apart in age tend to belong to different "music generations" with different tastes. Radio stations competing in metropolitan areas can achieve financial success with specialized programming targeted at narrowly defined segments of listeners desirable to advertisers. Feedback paperand pencil diaries telephone recall Portable People Meter Arbitron's Portable People Meter (PPM) is able to: identify a radio station by detecting inaudible codes transmitted by stations equipped with the Arbitron PPM encoder collect audio signatures of radio stations using other (competing) encoding systems The PPM is currently used in 32 markets, with more to be added in September and December of 2010. Diaries vs. PPM Diaries measure what people say they listen to (ages 12 and older). People meters measure actual listening (ages 6 and older). Overall time spent listening measured by PPM is lower than when measured by diary. A closer look at audience metrics: ratings and shares A rating is a ratio of a given station's estimated number of listeners at a specified time (divided into quarter hours) to all people who reside in the station's market (a specified listening area), whether listening or not. audience estimate for a given station at a given time (in quarterhour chunks) ________________________________ market population An audience share is a ratio of that same listening estimate to the total number of people in the station's market who are estimated to be listening to radio at that same specified time. audience estimate for a given station at a given time (in quarter hours) _____________________________ summed audience estimates for all stations in that same market at that same time (in quarter hours) Why do advertisers require both metrics? A given station can deliver a healthy share of the available audience even with a low rating. Advertising comparisons among competing media vehicles require a metric with a common denominator (rating). Recent industry developments pocketsized satellite radio players (XM2go) and digital media players with radio (Microsoft Zune) migration of talk formats from AM to FM (e.g., WIBC in Indianapolis) FCC authorization of lowpower FM stations to "translate" the programming of certain struggling AM stations FCC authorization of noncommercial lowpower (10 to 100 watt) FM stations (LPFM) to give voice to local groups and small communities In addition to composers and songwriters, terrestrial radio station licensees might soon be required to compensate performers of music aired on stations. More to come . . . Is AM radio dying? In 2010, terrestrial radio AM listening is 83% FM and 17% AM. For persons age 1224, AM listening is only 4%. Among ages 2532, AM listening is only 9% Several radio industry consultants predict zero growth for AM in the foreseeable future; some do not predict AM to bounce back. For some AM licensees, the land on which their transmitters and towers are located is worth more than the station as a business. CAREER OUTLOOK Go to for current employment data. ...
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This note was uploaded on 01/19/2011 for the course COM 250 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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