Friday, April 17, 2009

Radio Scenario Planning

A group of successful radio industry executives (owners, researchers, digital media, program consultants, and brokers) convened in Hilton Head a couple of weeks to ponder the future of the radio industry. I was fortunate to have been invited by the group’s host, Jim Hooker. Jim spent his career as a sales and organizational development consultant and as owner and CEO of Pride Communications, a group of ten radio properties in the suburban Chicago market that he sold in 2000 to NextMedia. Susan Hooker, Jim’s wife, and a former Motorola executive, conducted the two-day session, which focused on the development of several possible directions the industry could take in the next ten to fifteen years. She had conducted similar sessions for Motorola business leaders in past years.

Last week’s session followed an exercise Susan conducted in 1995 which accurately predicted a scenario of deregulation and consolidation resulting in an initial rapid escalation in radio station values, but also warned of a “Nightmare Scenario” in which a general homogenization of program content, declining audiences, and an increase in competition from on-line advertising, could result in significant problems for radio’s business model. That 1995 scenario work proved to be such an accurate predictor of today’s challenges to the radio industry that several people who participated in that session proposed the recent Hilton Head meeting.

Scenario planning is complementary to strategic planning, but different in that is focuses on what is most uncertain about the environment in which a business will have to operate. The purpose is to develop a number of alternative possible future scenarios, based upon the interplay of the most powerful and most uncertain of those forces that will impact the future of the business over an extended period of time (typically ten to fifteen years). Scenario planning legitimizes talking about those things that we worry might happen, but are totally out of our control. In fact the dimensions of scenarios are, by definition, forces that are uncontrollable, uncertain and will have a powerful impact on the business whose future is being contemplated.

The driving forces guiding the future course of the radio industry, as identified by the Hilton Head participants were:

1.) The state of the economy and whether or not it would return to growth in retail sales and revenue in the service sectors.

2.) The adoption rate of the “Digital Revolution” by the public and the rate at which equipment manufacturers and radio broadcasters integrate complementary technologies into their offerings.

3.) The development of local content by broadcasters as they exploit their current and future delivery platforms and the acceptance of that newly enriched content by the “listener communities” that broadcasters serve.

Over the course of the two-day meeting four potential scenarios for radio’s future were developed based on the interplay of these driving forces. The scenarios were shaped by the rate of adoption of new content, digital delivery augmentation of existing AM and FM radio signals and the overall improvement in the economic factors that shape the retail environment which is a major driver of radio revenues.

One of the conditions driving the future of the industry remains a huge variable. The leverage of the large public broadcasting groups, who control a vast majority of the industry revenues and who have been laboring to dramatically reduce costs in the current economic environment, represent a potentially negative impact on the industry’s performance and innovation. The consensus of the group was that this operating reality in the industry has not been a catalyst for innovation. Quite the contrary, this trend of squeezing out costs to try to improve the bottom line has created a downward spiral of less innovative programming and more homogeneous offerings. Risk taking has been squeezed out, making radio much less interesting to our audiences.

While back office consolidation was believed to have been worthwhile across the industry, programming consolidation was largely believed to have gone too far. The unintended consequence of consolidation may have been to have “killed the goose that laid the golden egg.” The potential breakup of some of the major groups could serve to either stimulate new investment and innovation or result in a disruptive realignment of station operation and direction.

Currently, there is a major disparity of operating results from smaller local and regional broadcasters and the largest 50 radio markets where the public companies have a clear dominance. This difference makes fertile ground for experimentation in the 50+ markets, which may be where radio’s renaissance will begin.

In looking forward to 2020, there is another possible “Nightmare Scenario,” in which economic stagflation, the “Digital Revolution,” and listeners’ evolving preferences work against the radio industry, making it exceedingly difficult for radio companies to survive and thrive.

But there is also a potential brighter future in which economic growth, technological advances by broadcasters, equipment and software manufacturers, and listener preferences will evolve in such a way that radio will thrive once again. What kind of advances might take hold that would spur a radio renaissance? If radio can become interactive, with its content available when and how listeners want it via podcasts or streaming, and open to listener input via messaging and texting as well as voice, with personalities who can captivate the imaginations of their audiences once again, then radio will have a very happy future. Look for this to occur first in some of the second and third tier markets rather than the top 50.

How will the group know which scenario is actually unfolding? We developed some twenty metrics that will be collected and tracked quarterly over the coming years . . . So stay tuned.