The Shotgun Blog
Sunday, August 24, 2008
Video killed the radio star in 1979, but don’t tell that to the living dead
I admire entrepreneurs like Newcap Radio chief executive Robert Steele.
Entrepreneurs like Steele create wealth by cooperating with others to solve problems in the furtherance of human happiness. When they do this well...at least when they do this well in a free market, they get rich, and deservedly so.
Politicians, by contrast, destroy wealth through taxation, misallocation and redistribution. They coerce compliance with collectivist schemes and then masquerade as the solution to the very misery they cause. (Perversely, when politicians do this well...at least when they do this well in a mixed economy, they also get rich. I posted recently about Al Gore’s rent-seeking, $100-million carbon fortune and the massive new pay raises given to senior B.C. bureaucrats in another devastating volley in the real class war.)
It’s exciting growth for a “small Canadian broadcaster” from Dartmouth, Nova Scotia, but adding new stations is not really the same as adding value. How does Steele expect to continue to meet the news and entertainment needs of consumers in a dying medium?
The Buggles declared the radio star dead in 1979, the victim of the multi-dimensional video. And video today has gone through a staggering evolution with IPods delivering customized mobile content. And then there is satellite radio, now consolidated under the Sirius XM Radio brand. With a quality digital sound, no ads and 24-hours of 120-plus channels, satellite radio is a serious threat to its terrestrial ancestor.
All of this is having an impact on radio listenership and advertising sales, but not as drastic an impact as I would have thought.
A 2007 StatsCan report revealed that “Canadians...spent an average of 18.6 hours a week listening to the radio in the fall of 2006, down 2.6% compared to the 19.1 hours reported in 2005 and 9.3% compared to the peak of 20.5 hours in 1999.” This downward trend in listenership has decreased the growth in radio advertising sales, but not radio station profits.
The StatsCan report shows that “Advertising revenue of commercial radio broadcasters increased by 5.3% in 2006 to reach $1.4 billion. This growth rate was slightly lower than the average of 5.7% for the last five years and much lower than the 8.7% reported in 2005. It must be pointed out that 2005 was a particularly lucrative year for the radio industry, which experienced the sharpest increase in its advertising revenue since 1988.” Slowing radio advertising revenue is worse in the US. “The fact that satellite radio started in Canada later than it did south of the border may have some bearing on this situation,” suggests StatsCan.
Declining advertising sales growth has not meant declining profits for radio stations...not yet anyway. “In 2006, commercial radio generated profits before interest and taxes of $284.0 million, a modest increase of 0.4% compared to 2005, and achieved a profit margin of 20.0%, the third highest in the last 40 years after those of 2005 (+21.0%) and 1971 (+20.5%),” according to the same StatsCan report. Consolidation and rationalization made possible through deregulation has allowed radio stations to stay profitable, something worth remembering when the left complains about media consolidation.
Getting a bigger and bigger share of an increasingly shrinking radio advertising market would seem to have the same future as a strategy to consolidate buggy whip manufacturing in the early 1900s. But if companies like Newcap Radio are free to adapt, they will likely find a way to continue to be relevant to consumers. It will be interesting to watch this industry change over the next decade.
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