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Is the radio broadcasting industry in the U.S. dying? An analysis

  • Radio, the most powerful medium of reach in the U.S.
  • Why the industry is moving at a slow pace?
  • Radio’s health is still sound, will it continue in the long-term?

 

Radio broadcasting companies operate radio broadcast studios and engage in the broadcasting of music, news, talk shows and other radio programs. These companies are divided into two basic groups; one having commercial radio stations, which earn their revenue from advertisers and non-commercial stations (public stations), which earn their revenue from public subscriptions or from the institutions they represent.

In the U.S., radio is the most powerful medium to reach out to the people, with 92% weekly reach (population 18+ years), which leaves behind all social media platforms and TV. It is due to its ubiquity that one can listen to radio nearly everywhere, especially in cars, which have a traditional hold for FM/AM radio. Moreover, almost 247 million; 12+ years people listen to radio each week in the U.S., according to Nielsen. The monthly online radio listener’s percentage (population 12+ years) have more than doubled to 64% since 2010 (27%), as per Edison Research.

But, in the current digital era, where there is an immense availability of the internet and new engagement ideas are attracting the youth, radio is facing disruption and is losing ground. Furthermore, most broadcasts on the radio are songs and music and this drives radio’s main advertising revenue. However, streaming services like Spotify, Alexa (Amazon Music), Apple Music, Pandora, Podcasters, etc. are now drawing more attention both from the public and advertisers. According to the Edison Research, only 50% of the people in the age group of 18-34, (who were surveyed in 2018) reported to owning a home radio, which was a fall from 94% (2008). This simply means that listening has shifted from a traditional medium to online with smartphones, laptops, tablets, etc. Further, radio generates massive reach, but all that matter is engagement as it gets paid for it not the reach, as stated above.

Advertising is the main source of revenue for radio broadcasters, accounting on an average ~75-80% of the total revenue. It can be ‘spot’ advertising (advertisements aired during the broadcasts), ‘digital’ or ‘off-air’ advertising. In the past few years, radio is losing its dominance in the local advertising spend and advertisement spending in the U.S. on the radio is falling on a continuous basis. According to the Zenith Media, ad spending on radio in the U.S. fell to $17.6 billion (2017) from $20.8 billion (2006). Additionally, radio’s share in the total advertisement spending slipped to ~6% in 2018, due to a 3.8% decline from the previous year, according to the Megna Advertising Forecasts. It also forecasts that radio advertising sales will continue to suffer in the coming years (a decline of 4.2% in 2019) due to negative pricing trend and continued decline in engagements. Interestingly, at the same time, ad spending on the internet in the U.S. is soaring and this is currently pegged more than half of the total advertisement spending, which is way more from 24% in 2012.

The U.S. is the world’s largest radio market, account for nearly 49% of the total global radio revenue (Source: PwC- Global Entertainment and Media Outlook 2017-2021), with the highest number of (15,330) radio stations on air (Source: The Federal Communications Commission). The nation is always watched for any change in the industry dynamics. In 2017, American radio station induced a total revenue of $22.4 billion, this is expected to reach $23.9 billion in 2021, with a slow pace of 1.7% CAGR. One of the major factors affecting radio is the loss of its historical ‘favourite’ tag or the first choice for listening with a 33% attrition rate from 2001 (Source: Bridge Rating Study). In addition, the time spent on the radio has significantly declined from around 20 hours TSL (Time Spent Listening) in 2007 to 14 hours TSL and this is even lower among the millennials at present (Source: Amplifi Media).

It was first the TV, then recorded music, followed by streaming and now the rise of digital that is hurting the radio industry. Though radio is reaching more people, money is not flowing the way it should have been. This struggle of the industry reflects in the ‘Chapter 11’ filings of the iHeartMedia and Cumulus, the two giants within the industry, which together owns more than 11% of the U.S. radio stations and represent 25% of the radio ad market. iHeartMedia, which owns around 850 radio stations and is one of the most popular streaming platforms in the world is laden with $20 billion in debt. The Cumulus with 445 radio stations had a debt of $2.4 billion when it filed for bankruptcy. Several other radio station operators are also saddled with excessive debt on their balance sheets.

But some industry experts believe that the problem is only with a few radio stations having a heavy debt due to inherent flaws. The radio business is not falling like other offline businesses, it is operating at quite good margins. According to the Indianapolis Business Journal, most of the stations of iHeartMedia and Cumulus in the Indianapolis market are operating at 30-40% profit margins. Radio is still a powerful and most stable medium for advertisers to build their brand. The Edison report states that radio still has the deepest penetration in the audio market with broadcast radio accounting for 70% of the in-car listenership. It is due to the omnipresence of advertising that attracts many businesses to advertise on this medium. But music remains the lifeline of the radio industry and in order to survive, the radio must embrace innovation and invest in building a digital presence. Radio will have to learn from evolving platforms like smart speakers and connected cars to build a strong future and maintain its position with advertisers. Radio offers a great reach with local presence and is a ‘favourite’ in the long-term.

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