Tuesday, June 28, 2005

Buying the Blahs

Here we go again: Companies who can’t grow their businesses via innovations that excite customers decide to buy other companies that can’t grow their businesses via innovations that excite customers. In this case, I’m referring to the radio industry, which is in the blahs. Listenership is down, advertisers are nervous, stock is soft. According to the Wall St. Journal, a new wave of radio consolidations is heading our way. The rationale? First of all: undervalued assets, therefore cheaper prices. But then the logical question is: If the assets aren’t worth much because the industry is weak, why buy them at all? The official answer is twofold. One, to reduce costs—like having multiple radio stations share facilities and personnel. Two, to improve marketing efficiencies—like giving advertisers opportunities for cross-selling.

But I think there’s a third, unofficial answer, and that’s the one that matters: Other than buying each other, these radio companies don’t know what else to do in order to grow! In this case, the acquisitions represent a myopic, strategy because it doesn’t solve the basic problem. Radio executives are in a world of increasing commoditization of their own making, and their plans for cost-cutting and advertising won’t resuscitate the weaknesses.

This problem is not new. In 1995, the Gavin, a now-defunct radio rag, interviewed me. Here’s an excerpt of their questions and my responses:

Q: How do you view radio?
A: The problem is that many stations sound alike. That’s the kiss of death in any industry because there are so many competitors screaming for the attention of the consumer that if you’re not seen as different, special and better, then you’re done for. You can get by, but it’s always going to be a struggle.

Q: The challenge is being innovative and new, but people like familiarity and reliability, even in music.
A: I don’t buy the notion that people want the comfortable. People know the comfortable. That’s a problem with market research. If you ask people what they want, they’ll tell you what they know… Market leaders pull the customer to new places, they don’t simply respond to the customer. They take some chances. They don’t always succeed, but they have enough pilots out there that even though they screw up occasionally, overall they turn out winners. People in radio have become hesitant. They wind up creating something that appeals to the least objectionable sector and sounding pretty much the same. That, in turn, doesn’t generate much customer loyalty or identification with a particular station.

The situation is worse today. With the sizable debt and sunk costs of prior acquisitions, (partially explaining the hideous increase in the number of commercials per hour), coupled with the obsession with conventional market research (which guarantees “me-too” product), and the mass-produced automated playlists (which kills station individuality), radio stations have chosen pseudo-safe, predictable (a.k.a. dull) formats and succeeded in imitating each other perfectly within those formats. Then they wonder why their financials are flat and listeners have little brand loyalty. Meanwhile, entirely new forms of competition—satellite radio, MP3 platforms and mobile players, digital file-sharing, podcasting, and all other permutations of broadband—are vying for listeners’ attention with freewheeling, no-holds-barred innovations that actually turn on customers.

When one dull company buys another dull company to reduce costs, you know that at best, they’ll buy themselves a little time. But you also know that since there’s no real growth strategy, the time they buy won’t be a long time.

1 Comments:

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