Curse Of The Control Freaks

Perhaps you've heard about the new plan Fox has come up with that will allow its TV affiliates to make Fox programming available in their DMA on local broadband. The affiliates either charge the viewer a fee or use pre-roll revenue which is then split 50/5o down the middle with Fox. Such a deal!

This is just the latest in a series of moves by traditional media to take back its power to control the distribution channels for programming and product. It sounds like a great deal for everyone all around. Or is it?

One view is that traditional media companies are obsessed with locking the door to content distribution that they do not absolutely control. You can't blame them, right? But in terms of the next generation, these old line media companies may be making a big mistake and if you don't have the next generation you don't have the promise of future and sustained growth through their lifetime. And if you don't have the next generation with the promise of sustained growth through their life time, you have....well, you have...

Radio. Forgot about Gen Y and spent the last ten years programming to Wall Street money people in a sense.

You have the record labels. They're going nuts trying to contain the very Internet that should be leading their next growth spurt. Damn it, you're going to buy CDs one way or the other! No, they're not.

And you have satellite radio -- missing an opportunity to attract young listeners who they desperately need for growth even though these listeners cannot afford the subscription fees. Satellite operators want to control access to the delivery system when it should probably be free and supported by -- dare I say -- commercials! Not 12 minutes an hour, the load that helped kill terrestrial radio -- a few minutes an hour. Not all at once -- spread out here and there.

Viacom apparently has something against YouTube. Whatever it is -- not enough compensation for their programming or not enough control over who sees it -- they did a deal with Joost -- a company that has no operating web site yet. Viacom's CBS followed suit -- no surprise.

I could go on, but the point is: should traditional media be so obsessed with controlling the delivery of their products and programs or should they be focused on making better programs and selling the rights to various, interactive distributors.

On one hand you can appreciate the feeling all of humanity has to gain as much control as possible over our worlds. It's sure no different in business -- maybe even worse. But on the other hand is the disturbing reality that the Internet and the present generation that is forcing us to redefine our reasons for being is not at all about control.

It's about choice. About connectivity. About on-demand usage.

So I'm wondering if these traditional media companies who somehow strike me as getting ready to make yet another blunder might be wise to consider this old adage and avoid the next big mistake:

To gain control, you have to give up control.

Send Clear Channel to Rehab

I hope the rumors are false.

I hope that Clear Channel is not about to deal hundreds of stations to one buyer creating an instant mini-Clear Channel.

Clear Channel is selling off its assets after running the shareholders value down and they are in the process of settling on a buyer for the majority of some 400+ stations they are looking to deal. These stations are obviously non-essential to their new plan which is to remain in the big markets once they've sold off these stations and other assets.

What's upsetting and probably not surprising is the prospect that one operator could pick up this critical mass of radio stations. If an existing group owner gets the bulk of the stations, then Clear Channel helps to make another consolidator bigger. If Clear Channel sells the majority of these smaller market stations to a new entity then it has accomplished in one move what most of the other consolidators took years to do -- create a big platform of stations.

It's all about the money and timing -- they want to get this done, get their money and get out.

Clear Channel could have decided to make the majority of these stations available to mini-groups -- minorities, special interests, regional operators who want to get into radio. In a way the biggest consolidator ever could help break up some of the mass that has been weighing down the industry. That move would be helpful to the industry because as Clear Channel well knows size alone doesn't insure success. Why do you think they are getting out?

If Clear Channel really cared about the industry they helped drive under, they could rehabilitate themselves (and rehab is in these days) by making it possible for smaller groups to take the baton. They could also provide some financing or lean on some of their investment banker friends to help new owners get into the business. I know what you're thinking. What has this guy been smoking? Look, a big company can make money and care about the industry they're in. And Clear Channel owes radio and owes a lot of radio people.

Clear Channel leveraged some of the best stations, markets and people in the entire industry and it did it all not with cunning and intelligence but with money -- someone else's. And they let their lenders down and made off like bandits when the stock tanked.

So I say send Clear Channel to rehab. Brittany went. Lindsay went. How about a 12 step program that begins as all of them do with an admission that they have a problem. Something like, "I am Clear Channel Radio and I'm a bad investment for Wall Street".

Radio has serious problems. Consolidation didn't exactly help it to get in on the Internet revolution. Now the segment is ice cold and the granddaddy of consolidation is looking for a paycheck. (I think there will be more paychecks if they hold some properties for five years and start selling more assets).

We could only dream of a kinder, gentler Clear Channel. And I know it's a dream because they had an opportunity to help redistribute their non-essential stations for the greater good and if they are anything they are consistent.

Hey, Brittany may have been in and out of rehab in one day, but Clear Channel never went. If any one media company needed to pay a debt of gratitude to the industry they failed this is the one.

I hope I am wrong and Clear Channel makes me eat my words because they didn't sell hundreds of stations to one group.

Content and Branding -- Pleeease!

I have to laugh when I see how the traditional media business is responding to the awesome attack of interactive media on their space.

When they are not doing next to nothing to respond, they are busy creating content and brand managers to take them into the new age. Now the thought is a a good one -- make your comprehensive content and marketing come together under one person. But in my view they are doing this in name only.

We already have such a person in terrestrial broadcasting. That's the program director. It's cool and everything to elevate programming to "branding" but the nomenclature is not the solution. It misses the point. Putting the resources behind radio's program directors and doing remedial education to get them back on their feet after consolidation is the right approach.

After all, these PDs have had their mouths duct taped shut during consolidation -- especially if they wanted to keep their jobs. You see where this move has gotten radio -- in the desolate world of sameness. One PD running two or more stations is not the answer to content innovation. Being conservative to avoid risk is not going to grow anything. Cutting budget doesn't enrich the content. Putting the fear of God in program directors who want to add new music because they might attract increased payola scrutiny of the feds is a loser idea.

It's not just broadcasting, it's everywhere. The new age answer is create so-called "brand managers" and "content managers".

Here's what radio needs:

• Take the duct tape off your program directors' mouths. Let them at their markets and stations without the burden consolidators have placed on them. That burden? To create new formats without spending money (don't anger Wall Street), without taking chances and without committing to an Internet and mobile strategy to go along with the new format.
• For God's sake give them electronic ratings! That way they can cut back on the annoying pounding of call letter mentions into the brains of their listeners and maybe get on to entertainment. The meter will pick up the listening.
• Adopt the "Rule of One" -- Make one terrestrial format a top category achiever in ratings and revenue before you try to put another format on an HD sub-channel. Or, how about not putting another HD sub-channel up until you have one HD listener. Common' -- admit it -- HD is a turkey and you're spending valuable time and money on it. It's a scheme to access more channels and grow the platform except few can hear the channels.
  
• Encourage and finance your PD's efforts to utilize the Internet and mobile space in conjunction with everything you do on the air. Help them, help you. No realistic mobile or Internet strategy? Shame, shame, shame. What have you been thinking about all these years -- quarterly results?
  
• Adopt the "Rule of One More" -- no PD programs more than one station. We used to call that program director a genius. One genius per station, please, instead of one PD stretched to his or her limits.

So, call it "branding" if you must, content managing if you have to, but a better idea is don't call it anything if you're not prepared to open your wallets and start spending on your product and people.

And that's what I'd label -- "effective management".

It's time the consolidators who fell in love with their investors start supporting the only people who can help them win back the listeners -- their program directors without whose content they would be selling vacuum cleaners.

Some of the smaller radio groups know exactly what I'm talking about because they're doing it.

Satellite Vs. Radio Vs. WiFi

A few days ago when the two -- only two -- satellite operators announced their merger intentions, I wrote a post about what it would take to succeed in a world where radio is everywhere. At the end of the piece I warned that if the merged satellite operator didn't make some major changes, it wouldn't really matter whether their merger succeeded or not because their mission wouldn't.

Now, it's time to mention the killer app.

When universal WiFi or its equivalent is available and consumers can take the Internet with them then it's all over for radio. Ditto for satellite radio.

That is, of course, assuming that terrestrial radio broadcasters don't have an epiphany soon and decide to get into the Internet radio business. Ditto for satellite.

So far, the excuses are pretty lame.

Radio is a fading industry thanks to the misdirected major consolidators. They've lost the next generation as they migrated to their mobile devices and the Internet. So what does that say? Well, when they are not fighting Arbitron's People Meter or when they stubbornly try to sell HD radio as the next big thing, they make excuses.

Can't pay the music licensing fees to stream our terrestrial signals. It would be prohibitive. No, it would be suicide -- not to stream the signals. Pay the fees and get your programming where the next generation is -- online. The rights fees will eventually come down. And Arbitron, that company you've been fighting for the past eight years over The People Meter, will include your simulcasted Internet listeners with your terrestrial listeners. Hey, cut out a few lawsuits this year and pay for music and talent rights.

More excuses.

Can't get into the Internet radio business and develop new separate stations. No! Radio executives would apparently rather develop stations-on-the-cheap for their HD sub channels where no one is listening than get into the Internet radio business where everyone is listening. Go ask Kurt Hanson, publisher of RAIN how he is doing it. And he's doing it well with AccuRadio.

Perhaps you're beginning to see where I am going here. Radio and the merged satellite radio company need to get into the Internet radio business now because tomorrow Internet radio will be the next radio. Why? Because that's where the listeners will be and universal WiFi will make it all possible.

And radio is uniquely qualified to ride the Internet radio wave because they have massive terrestrial radio platforms from which to launch more channels -- not in the Siberia called HD radio but the utopia that will someday be known as universal WiFi.

And since terrestrial broadcasts will likely give lip service to this, the one remaining satellite company could do it and be bigger than Clear Channel.

A few years back a major radio group was set to spend hundreds of million dollars on a terrestrial radio group acquisition. Fortunately for them, they wised up and someone else overspent to do the acquisition. Take a fraction -- I mean a very small fraction of what they were willing and anxious to spend on that old school acquisition and put it into developing the next radio and they become the future as they develop thousands of Internet radio stations with associated advertising platforms to go along with them.

It comes down to this.

Listeners of tomorrow are online today.

They have their cell phones on during all their waking hours -- on their person or nearby. Even the ubiquitous radio does not enjoy that kind of access to their audiences.

Will a major broadcaster please stand up and get into the Internet radio business in a major way now and not too late as radio has a habit of doing?

Satellite And HD Radio -- Perfect Together

If and when Sirius and XM Satellite Radio get the green light to merge, new radios will have to be manufactured to allow both services which use different technology to be heard on one receiver. The FCC had always mandated that when satellite radio was created, both satellite networks had to be heard on all receivers. Somewhere along the way, the FCC let this little detail slip away. Could you imagine an AM/FM radio that only receives one station? Well, actually, I can because WBEB-FM, Philadelphia founder Jerry Lee used to manufacture and give them away to advertisers before a crackdown stopped his great promotion.

So follow me on this. The merged XM and Sirius will require a new satellite radio receiver in order to pick up both services. What if a third band for HD radio was included. This immediately eliminates the anti-trust issues and gives ‘terrestrial’ broadcasters a reason to support the merger. One of my radio friends sent this idea along to me. I am intrigued.

This is a win-win. It avoids a knock down drag out regulatory battle that could spook the public from committing to satellite service while everything is in flux.

Radio manufacturers can sell radios.

The destructive issues go away because satellite and terrestrial radio interests would be forced to hold their noses and compromise. Who would have thought -- terrestrial radio companies in bed with their obsession, satellite radio.

Heck, even the many satellite employees certain to be out of work with this proposed merger of equals could find employment in -- you guessed it -- HD radio.

Your imagination could run wild:

• HD channels with new programming and a new market that doesn't bastardize their existing terrestrial sister stations
• Satellite programmers might be able to provide new channels for HD stations in business arrangements with terrestrial operators
  
• Real time traffic, deep specialized programming, improved fidelity among other things would be a welcomed addition to "radio" as it would eventually be known
• Build interactivity into the receiver
• Focus on being the "joint" hit-maker to a new generation
• Oh, could someone please get rid of those dorky looking HD radios and design some cool ones in case anyone wants young people to listen (think sleek iPod-type design)
  

Radio people like each other -- even love each other in some ways -- but it's in their DNA to be fiercely competitive thus terrestrial radio wants so badly for satellite to fail and satellite so badly wants to reinvent radio. But imagine the two interests together.

Okay, we'll let them be greedy -- after all even fantasizing can't change that. But there is a real possibility that this new kind of joint radio can serve the public interest in a way that has not happened to date.

Radio gets to keep being AM and FM.

Satellite gets welcomed back into the radio (literally, through the new receivers)

HD actually has a reason for existing and more importantly gives the consumer a possible reason to spend more to upgrade what they never would upgrade -- a radio.

Some day they'll even sell their platforms together -- not a bad thing. This is where Sirius CEO Mel Karmazin could be a real killer. And who is going to quibble over a monopoly by then?

So while we're being outrageous -- and we are to think that the only two satellite operators could become one without being a monopoly -- why not bring that dead radio walking (HD) into this extreme makeover.

I'm sure some of the terrestrial radio execs will get their underwear in a knot over this idea -- ooh, getting into bed with satellite radio -- revolting, but radio programmers know better. They are the ones who develop the content -- always have, always will. And if this isn't a way to get back to deep, rich content -- the stuff that could reinvigorate the medium and maybe attract the next generation -- nothing is.

Labels Acting Like...Well, Labels

Put this in perspective.

• Warner is trying to buy EMI again. The two record labels have been doing the merger dance for many years now. Some think it's just big egos trying to best each other. All this while their businesses go to the dogs.
  
• The RIAA has stepped up its targeting of university campuses in hopes of catching more college students doing the nasty -- illegal downloading.
• And while all this is going on record industry execs are privately working on life without digital rights management (DRM) while publicly, for the most part, denying it.

It's just another day in paradise for the trouble music industry.

Here's what would be more productive:

• Warner and EMI should not even talk to each other. Merging doesn't solve any problems with regard to the challenges and opportunities the new digital world has imposed on them. Clear Channel got a virtual free pass to buy all the best radio stations and their current move to break up the company is an admission of how far consolidation got them. But, I digress.
• Every major record label should join the real world and follow the lead of indie labels in embracing DRM-free music downloads not posture one way publicly and scheme privately for possibilities in a post-DRM world.
• And, as a result, the RIAA could save everyone the legal fees and embarrassment by ceasing its lawsuit jihad against college students, young people, music lovers and unborn children they've been targeting (okay, I made up the unborn children part -- I admit it).

Hello? Do you get the feeling the labels think that they have everything under control? Really. I get the feeling they think they'll figure all this out and it'll be business as usual with a few concessions to Steve Jobs.

Denial in the music media industry is at a fever pitch. Radio is in denial that a totally free medium could every be KOed. Satellite radio thinks combining two companies will jump start a groundswell of new subscribers. Television is in denial over the reality that they may not be able to control the delivery of their content going forward (think YouTube).

The stakes are high -- almost as high as the anxiety that top media executives are feeling these days.

So it matters less if two mega record labels merge. It's time to step up and cooperate with the inevitable.

Radio Crybabies

Who's sorry now?

The radio industry liked it when Congress passed the Telecommunications Act of 1996 enabling widespread consolidation to take place. The NAB slipped the radio part of that legislation in through the back door. Wall Street embraced radio as never before. These guys loved it.

Now, the shoe is on the other foot. The two -- only two -- satellite operators must be so sure they are going to get their merger approved that they have gone and announced it. And now those same consolidators who were looking for every reason to convince lawmakers, regulators, advertisers and the public that loosening up the restrictions would be good for everyone -- well, they're crying in their beer. In fact, they're panicking.

You see, there is specific law that states XM and Sirius may never operate on a joint license, but FCC Chairman Martin says -- well, the law -- it can be changed. And the terrestrial radio interests defended by their version of the NRA -- the NAB -- is up in arms (I can't believe I said that). Because even though two satellite companies becoming one could look like, feel like and smell like a monopoly, it has an excellent chance -- not a slam dunk -- but, an excellent chance of being approved.

Those fat cat radio consolidators don't like it now when free markets work for their competitor. Actually, competitor is a bad word. Obsession is more like it. In today's radio trades (including my favorite, Inside Radio) the satellite merger talk is all they can cover. Never mind that satellite radio has never hurt terrestrial radio for one second as much as terrestrial radio has hurt itself.

We're not rationale anymore (if we ever were).

Turnabout is fair play. The satellite interests are now going to make the case that iPod, Internet and mobile entertainment is their competition so that merging the two satellite operators will really not be a monopoly. No reason for the DOJ to be concerned. Well, what's wrong with that argument? It's the same one Clear Channel made when it petitioned the FCC to allow further relaxation of radio ownership rules that would pave the way for terrestrial radio to become an even bigger monopoly than it presently is.

The only problem is: who is going to invest in a monopoly of radio stations to which the next generation is not listening. I can appreciate the egocentric aspects of our music related media, but with all due respect for all media moguls -- they are say the same things!

Radio should be allowed to own more stations.

Satellite should be allowed to have one company that owns all the stations.

See what I mean?

The Internet, iPods and mobile devices are radio's chief competitors so, please regulators, let us expand our business so we can compete!

The Internet, iPods and mobile devices are satellite's chief competitors so, please regulators, let us expand -- blah, blah, blah.

As the old saying goes what's good for the goose is good for the gander. The only problem is this goose is cooked without a viable way to attract and hold the next generation -- the people in college, young adults, military people returning home (safe and soon, hopefully).

So, let everyone have their way.

More stations for radio.

One satellite operator that owns everything.

In the end it won't matter.

I'm thinking one of my USC students will pick up the gauntlet in the next five to seven years and do what the big media companies only give lip service to -- program where the next generation lives -- on the Internet, iPod and mobile phone.

To quote a famous American, "bring it on".

Satellite Vs. Radio (The Next Round)

Sirius and XM are proposing a merger of equals.

Sirius CEO Mel Karmazin would come away as CEO of the new entity (whatever it is called) and current XM Chairman Gary Parsons would be chairman of the merged satellite company. That's assuming the FCC approves it. Assuming the DOJ approves it. And that's a lot of assuming. I've seen reporting that predicts an early closing on the merger. On that one, we'll see what happens.

What we know is that a combined company could save billions and billions of dollars. That alone should have investors jumping for joy. These bleeding companies could be profitable as one. No doubt.

I'm more interested in how satellite radio could compete with terrestrial radio -- or as some in the industry like to call it -- "local radio" going forward. To date, neither satellite service has been much competition. Satellite is offered by paid subscription. Radio is free and heard everywhere. Satellite customers would total about 15 million when a merger took place -- a nice number but nowhere near radio's large audience.

Still, you've got to look at the potential of one satellite company vs. an entire radio industry if these strategies were embraced:

1. Satellite radio could put pressure on terrestrial radio if it had a realistic plan to attract young listeners. Hint: this does not mean putting on a few more cookie-cutter music formats. It means understanding the demographic (the iPod, downloading, mobile generation that radio lost and satellite never found) and devising an entirely new form of programming.
2. New marketing efforts would be necessary to attract the next generation. This demo doesn't have the monthly fees to get the service. Time to get creative.
3. Satellite radio has to stop competing with terrestrial radio. Terrestrial radio, by the way, has to finally recognize that except for its ego, satellite radio is not its major problem. Losing the next generation is.
4. Satellite radio can be local radio with FCC approval to use its repeater network. The NAB has always been fearful of this and both sides have said that it would never happen. Didn't everyone also say a merger of the only two satellite companies would never happen? Anyway, if satellite radio can get permission to unleash their local repeaters as local "radio stations" then it, too would be "local radio". That's why the NAB wasted no time asking the FCC to reject the merger. Satellite as a local operator, too, is an awesome prospect. A national platform and a local platform.
   
5. Programming is going to have to be better. This is not to say that each satellite network doesn't have its own unique programming, but it's not enough. Not different enough from terrestrial radio except for no commercials. It's an opportunity to relaunch as something "better" than radio not just in fidelity but in programming. This opportunity may have been missed when the two services launched, but it better not blow its second chance.
6. The merged satellite company is going to have to add commercials to its music channels. Maybe not now. But it's coming -- along with monthly fee hikes. There will be some subscriber defections but if 1,2,3 and 5 (above) can be done, listeners will accept a few commercial minutes an hour providing that the satellite service has outstanding and desirable programming. Content is key (ever hear me say that before?). Oh, if 4 above is accomplished, Katy bar the door because satellite as one platform will be a local competitor to commercial radio with far less costs. Isn't that strange to say? Satellite radio could be a platform that operates with less expense than terrestrial radio stations, but one platform operated efficiently trumps all.
7. And, those commercials that will be added to each hour cannot be the kind that you hear on the satellite channels' non-music stations now. Satellite radio could and should pioneer inventing the commercial of the future (we have done some work on this in my USC Music Media Solutions Lab and yes, Virginia, young people like some commercials but what they like doesn't presently air on radio stations). If satellite radio just takes the kind of commercials that flow out of all terrestrial stations, it loses. It degrades the product and makes it harder for customers to pay for a service while they are forced to listen to commercials. HD TV stations wouldn't do analog commercials on an HD channel (I know, I know they do, but they won't). They need a whole new kind of commercial in HD format. Same for satellite radio -- a whole new kind of commercial born of satellite radio.
   
8. The merged satellite services need to have a real game plan for Internet and mobile content. What they've got presently isn't getting a ripple of notice out of the next generation. By putting resources into a) understanding and b) looking for opportunities in Internet and mobile, satellite becomes a launching point for a very substantial radio platform.
9. The combined satellite company must become a hit-maker. The disappointment in satellite radio is that it has had so little influence on popular music sales (duh, one reason is that they have so few of the music downloading next generation listening). But it's going to have to be a force to reckon with in music. What radio is slowly losing, satellite must win -- the music buying public. Terrestrial radio could be like AM -- for talk stations. But satellite -- although it may carry talk -- must be a hit-making music giant.
10. This is purely personal -- lose the word "radio". It's satellite. That's enough. The word radio has negatives. Ask the next generation -- the ones you're going to have to attract. Just call it whatever you want to name it and the word "satellite" -- sans radio. (When I worked with legendary PD Paul Drew when he was doing the Drake format at WIBG in Philadelphia, Paul would forbid us from saying the word "radio" on the air. We were the "Big 99" -- not radio. CLKW was "The Big 8" not a generic radio station. Same for all the successful Drake RKO stations. Paul was right and anyway I wouldn't dream of crossing "The Chief"). And, Toyota does call a Camry a Camry car. Toyota is enough. Or Camry is enough.
    

That's this fella's formula for winning the day when the XM and Sirius merger is approved.

Oh, and by the way, you can go up to nine of the strategies listed above and insert "terrestrial radio" where I wrote satellite radio and substitute "satellite radio" where I wrote terrestrial radio and it changes everything -- terrestrial radio will be reinvigorated and of course, terrestrial radio doesn't need local repeaters -- they are local repeaters.

So, the real race is ready to get underway. Don't fear this merger. Welcome it. The satellite networks may not be competing with each other any longer, but terrestrial and satellite will -- finally.

Start your engines -- the first platform to win the next generation -- wins the medium.

Customer Retention: Music Industry Take Note

By Steve Meyer, Inside Music Media™ Contributor

During my tenure in the industry working for two major labels (Capitol and MCA), I never once heard the words "customer retention." It was a concept already in place in many industries (airlines, hotels, restaurants, retailers, etc.) and frankly, it was a concept the music industry didn't need to employ because the existing business model back then, pre-Internet and downloading, didn't warrant it.

Obviously, times have changed. Drastically.

So what can the industry do today to create customer retention and generate new customer acquisition in light of all the problems of Internet file-swapping, downloading, and more?

The idea of customer retention is still probably alien to most labels today, but if there was ever a reason to explore the opportunities and benefits that customer retention brings, it's now. Just ask amazon.com, iTunes, or any online business.

One way to keep people buying music is via creation of consumer enhancements. The introduction of added value components that offer the consumer more for their money with promotional credits as an incentive/rewards is simple to initiate, control, and is one of the most basic enhancements used by many industries today. (e.g., credit cards that offer frequent flyer miles with purchases, hotels that offer rewards for each stay good for discounts on future stays, casinos that reward their player clientele with free meals, rooms, discounts based on how much they gamble, etc.) This simple improvement can also yield something else: data collection on consumers. Customer Database Profiles are now an elementary component in marketing at most major corporations, and the information gleaned from them, facilitates repeat business.

Other enhancements, some already in place today, include placing videos on enhanced CDs or including a bonus DVD with a CD purchase (and vice versa...again, vertical integration), providing bonus tracks and/or videos with codes included in the purchase of CDs/DVDs that allow the customer to go to a specific website and "unlock" the bonus tracks/videos. The same promotional strategy can be applied to doing national contests that offer a variety of prizes.

Opportunities abound if creative minds can be put together to provide additional enhancements and consumer benefits and of course, new revenue streams. Labels that are part of huge entertainment conglomerates could vertically integrate with corporate divisions to maximize music sales and to the benefit of all. This would make the purchase of music more appealing in the mass marketplace, regardless of what type of music it is. Everybody loves getting more for their money. It's a whole new economy out there...and price, rules. Just ask the world's #1 retailer, Wal-Mart.

You get the idea and you can see how the wheels of progress could be turning inside the offices at some labels if they were doing this more often and thinking about it as a consistent added value component to retain customers.

Steve Meyer is one of the music industry's top professionals and publisher of the new media newsletter DISC & DAT.

And The Hits Just Keep On (Not) Coming

I worked for Paul Drew when he programmed the Drake format in Philly and one of our Bill Drake-voiced station breaks said, "...And the hits just keep on comin". Back then it was true. Radio was thriving in the late 60's in large part because the music business was thriving. The Beatles, British invasion, Motown, Philly sound. Radio had hit the wall with too much talk and not enough music (sound familiar?), but the music kept radio hot.

Now the recent news that things for the record labels -- already stuck in a time warp by imitating themselves -- have gone from bad to worse.

EMI, the European member of the big four, cut its profit forecast because music sales are declining in the U.S. This is EMI, the label that signed the Beatles. To quote EMI regarding the downgrading of its forecast, it was due to "unprecedented level of market decline".

If that's not enough, Warner Music's profits dropped for the most recent quarter by 74% due to fewer albums being released and poor sales in the U.S. and overseas.

The only thing that keeps on coming is a decline in record industry sales. Yet the labels continue their strategy of trying to save the CD, suing customers it suspects of stealing music and stubbornly insisting on digital rights management (DRM) for online downloads driving a potential boom market to a potential bust.

This is all insane. The next generation has redefined how they want their music and the labels are not listening. But just as bad is the lack of new music from the labels at a time when consumers have more ways to discover new music than every before. Plainly put, a few more hits and a few less budget cutbacks couldn't hurt.

As the record labels go so goes radio, it's former hit making machine. Let's say it's a far cry from the 60's. Radio can only play what is available to their stations (with the exception of the Dixie Chicks, of course). It seems like radio and records really do deserve each other. One can't make enough hits and the other has too many misses.

So, here we are with the news not getting any better for the record labels and Steve Jobs out of the closet on DRM and MySpace, Facebook, YouTube and other social networks replacing radio as the source for discovering new music.

The record industry's problems (and radio's, for that matter) are so not due to new technology. In fact, it's the other way around -- technological breakthroughs stand ready to help transform the music business, but label execs are stuck in "label think", a strategy for operating in the future by holding onto the past at all cost.

Here is "label think" in action:

• DRM -- Fight removing rights management from downloads at all costs. We don't like Steve Jobs anyway. It's personal now. Overlook the fact that legal digital downloads are now declining and DRM is likely the reason.
  
• New Artists -- We know we need more hit acts, but corporate wants us to cut the budget. After all, we are public companies under scrutiny by shareholders. Let's just concentrate our efforts on our few big acts and squeeze as much out of them as we can. We've gotten by on that strategy for years since the record industry consolidated. This is no time to be innovative.
• Save The CD -- It's not declining, alright? And we're not in denial, really. It doesn't mean anything that individual group or artist album sales are dwarfed by compilation albums and that even Hannah Montana can outsell Beyonce. We can't do anything to jeopardize the CD. Like it or not that's how albums are meant to be.
• RIAA -- You have to sue these kids that steal music. They couldn't go into a record store and walk out with a CD they didn't pay for. Why should this be any different? If we drop the ball on this everyone will be stealing music. So stay tough and stand up to thievery at all costs. We in the record industry never believed peer to peer would sell more music that the music that might be stolen.
  

Any record label that wants to come forward right now and come up with radically different solutions to the above illustrations might discover that there is life after the CD, that the RIAA should be scaring the labels not their customers, that you have to spend money to make new hit artists and dropping DRM now will make you money sooner because one way or another -- sooner or later -- DRM is history.

Try -- try as you may -- not to be history along with it.

What's MySpace Without The Video You Want

MySpace has taken another step in the direction of protecting the rights of music and publishing companies by announcing the implementation of technology from Audible Magic Corp that will provide a second layer of protection from posting unauthorized video clips. The system scans video clips and searches for signature vectors such as a unique digital fingerprint and compares it with information in their database.

Now, MySpace can block content and with this system search for unauthorized use through the fingerprinting technology. Unless, of course, the record label wants the video to be used as a promotional tool and then MySpace can accommodate that, too. This is all well and good for MySpace which has a separate lawsuit from Universal to deal with regarding copyright infringement, but it begs the question what will the next generation think of a social networking site that is starting to control them.

Social networking to Gen Y is the holy grail. It helps them to feel like they have some control over their digital lives. That's one of the reasons they like to use MySpace to search for new bands and even buy songs -- at their option. What they may not like is the residue of a movement that is underway currently with social networks such as YouTube to take back control of artists' right. You can't blame them except that this generation may not cede control that easily.

Unprotected digital audio is expected as inevitable by the next generation. They are just waiting for the record labels to find a graceful way to give up on DRM. It is virtually impossible to protect content on the Internet. You don't have to look any further than Russia to find sites that are selling cheap music that they don't have a right to sell. Check out this too good to be true website.

More importantly, how will legitimate attempts to reign in abuse of digital rights on social networking sites sit with the "electorate". There are many who believe that even if YouTube and MySpace could operate for the next few years as they were originally designed -- without consideration to serious rights management -- that they would still peak and eventually decline in popularity sooner rather than later.

One reason for that is that the fickle Gen Y'ers have a short attention span even for what they like. Will it get shorter as site owners protect themselves from the certain lawsuits that are to come for putting their material out there to be stolen? The labels want it both ways. They want the viral buzz that comes from social networking and they want to shut it down when it comes time to selling their products.

They have a right to both, but unlike the much anticipated 2008 presidential election, this "election" is happening every day and in cyberspace everyone votes.

Another Reason Why Google's AdSense Is Nonsense

GM is cutting its ad expenditures by a whopping $600 million. Inside Radio reports that powerful ad exec Betsy Lazar told the Radio Advertising Bureau convention that business as usual won't win GM's business.

What does she mean?

No lazy 30 second ad pitches.

She wants ideas that show involvement by the station. Imagine. This from an industry that is flirting with letting Google automate its ad selling to cut costs. To radio's credit it may be flirting but it hasn't proposed marriage or even an affair with Google. Those who work in radio know that if radio is anything it is a one-on-one relationship with the listener and with the advertiser. Consolidation has turned top radio decision makers into something ugly. Just check at the station level and you'll see that those in the know (the execs the consolidators are not listening to) know that radio is in the relationship business.

GM goes further.

It wants ideas that use radio station databases in meaningful ways. That means -- God forbid -- that radio has got to come up with meaningful ways to use its own Internet presence. Radio dragged its feet on this issue and is in the process of playing catch up. It seems for some radio's idea of utilizing interactive media is to allow Google to sell its inventory on line with no relationship being established. In other words, the Google plan makes radio ad sales more of a commodity.

General Motors has problems. It has gotten itself into trouble in the auto business and it has to work those problems out. Massive slashes in advertising -- not uncommon when the auto business goes south -- is just a beginning.

But if I'm a radio executive with any decision-making power at all, I'm avoiding Google's AdSense as making no sense at all when the secret of radio past, present and future is establishing close relationships with its listeners and coincidentally with advertisers to help them solve their problems.

This yet another example of back to the future for the radio industry.

Dixie Chicks Vs. Radio Suits

Let's leave our political points of view on the war in Iraq out of this discussion. While the Dixie Chicks' ideological position on the war and their version of patriotism may have gotten them into trouble with conservatives and with country radio stations, the same position also won them some sympathy in Grammy voting where the group swept all five of the categories in which they were nominated and the coveted song of the year, record of the year and album of the year.

They were snubbed by the Country Music Association awards just a few months earlier reflecting the more conservative nature of that community. So politics may have helped the Chicks win the Grammys, may have shut them out of the CMA Awards and no doubt lost them some record sales as the nation's country radio stations reacted to Natalie Maines when said she was "ashamed" that the president came from their home state of Texas. Country stations up and revolted, banned the Chicks from the air and in what apparently was their idea of patriotism trashed them.

The real story here is that the Chicks sold 1.9 million "Taking The Long Way" albums through online outlets and Starbucks. No radio. They could have sold more with radio behind them, but the success of the Dixie Chicks is another warning to radio industry that its influence is waning and that even an obvious snub from important country outlets couldn't keep the Dixie Chicks from selling lots of product.

Radio has allowed the world to see how its hitmaking powers have declined by picking this fight in the first place. Programmers could argue that they were simply programming to the likes and dislikes of their audiences. The Chicks ticked off a lot of country fans -- still do today. The lesson out of all this is that today music can have a life of its own thanks to the Internet, word of mouth and new age record stores like Starbucks. In the past, a group could never have become successful in a pop sense without radio. The Dixie Chicks through their record sales and their sweep of the top Grammy awards now tells us otherwise.

The next time radio wants to pick a political fight over music it might want to consider that.

For Radio, It's A "Hail Mary" Full of Disgrace

Ready. Aim. Fire.

The radio industry, a business of hard working people who love what they do but are held hostage to the bad decisions of their owner, has just shot itself in its collective foot one more time. Cox, Entercom, Cumulus, Radio One and, of course, their enabler, Clear Channel are at it again. They have offered what is said to be funding in the millions of dollars to help rival The Media Audit try again to derail Arbitron's Portable People Meter which is up and running "live" in Philadelphia now; will go live soon in Houston and has received accreditation in one market already. The price for this new service has been established by the major groups that have signed on and even Clear Channel can't change that now.

Look. There are companies that have major issues with the People Meter like Cox -- a good company with sincere concerns -- but to our eyes this latest gathering of the "anti" PPM believers is yet another example of why bad things happen to an industry full of good people. These new born rebels are posturing for price.

Arbitron's People Meter will cost significantly more. Why shouldn't it? It does significantly more than the paper dairy system that this cost conscious industry is hanging onto. The new People Meter will arguably give more realistic listening estimates and will no longer rely on the recall of diary keepers to determine their ratings. The new PPM will also factor in online listening some day when radio and the music rights holders eventually work out a deal on things like being paid for commercials meant for the terrestrial station but also aired over the net. But, we digress.

Look at what Jim Boyle, veteran industry analyst wrote from his perch at CL King Associates:

"Radio Holdouts Give Partial Funding to ARB’s Competitor, Presumed Dead – It’s Still About the Price: Five of the major radio groups are providing partial funding for ARB’s competitor to test their smart cell-phone much later this year. This is a negative surprise. Whether one feels it is a last-minute desperate action (akin to football’s “Hail Mary Pass”), or one feels it is a “horse race” again, it is a negative, either as a perception or reality. We believe it is a stalling tactic, or bluff, by the five PPM holdouts to influence price negotiations with ARB. However, uncertainty and delays could cause eventual PPM revenue to come slower."

It's all about the money.

This from an industry that has been handed near monopolistic powers to merge and grow.

This from an industry that has courted Wall Street by repeating a mantra something like this
"it's all about shareholder value".

This from an industry that has not delivered shareholder value. Here are their most recent share prices: Clear Channel $37 (not the $90 something it was in the early days of consolidation). What happened? Entercom $30. What happened? Cox $16. Cumulus $10. Yes, $10 a share. Radio One $7. How could so many deciders run their share price into the ground so badly.

How about this. Poor decision making.

The radio industry has been getting it wrong consistently since the early 90's.

• Failed to gather around an HD technology and strategy before satellite radio. If HD was going to give the radio industry an edge, it was then, not now.
• Failed to develop new radio formats to keep the medium live and relevant. You can count on one hand the truly new radio formats since 1990.
• Failed to see that consolidation and the rush to public markets that followed was tantamount to "be careful what you wish for because you may get it". Others saw the pitfalls. Radio consolidators didn't want to.
• Failed to take the Internet seriously. When Clear Channel sent its controversial Radio CEO Randy Michaels out to pasture in 2002 they sent him to the Internet department. The Internet was radio's version of Siberia. No one ever heard from Clear Channel or Michaels while the hottest business in the past 20 years -- the Internet -- took off.
• Failed to keep the growth of listening to next generation listening going when their heads were turned by the Internet, iPods and peer to peer file sharing because radio's heads were turned toward Wall Street.
• Failed to see that satellite radio was not the competitor they feared. Satellite is in worse shape than radio. What was the radio industry thinking?

Now radio's brain trusts are at it again standing in the way of progress for the People Meter -- something it should have adopted a long time ago. The time to offer up alternatives to Arbitron was years ago not in the final seconds. That was when these seers of the future should have opened their wallets to back a competitor with they money not their mouths. You can't blame The Media Audit for trying. Audience ratings can be a very profitable business. But it's too little, too late.

Arbitron will be the industry standard -- like it or not -- with the People Meter. If I'm wrong I'll eat my...my... Mac. This delaying tactic of funding the Arbitron alternative in the last seconds of the game is worse than a "Hail Mary".

The big difference is that in football the fabled "Hail Mary" pass -- the desperate, risk-all, long bomb last chance to win it all -- was only thrown after a team did their best during the rest of the game and kept it close.

Radio's "Hail Mary" comes after most radio companies have done their best to stand in the way of progress -- in this case the Portable People Meter -- and the players (in this case radio execs) never got off the bench. Even if rival The Media Audit catches their pass, the time has expired. Radio loses.

Delay is your enemy. Getting it wrong again is an disincentive to the many hard-working people who run your stations and compete with other media daily. When will this group do something inspirational?

As always, it's all about the money.

How Google Is Like ... Clear Channel

If you've been following the battles that are cropping up over YouTube's dominance of Internet video clips, you may want to check out the back story.

Viacom made a very public gesture recently ordering YouTube to remove its considerable video content from the service. Even though sources say both sides were in negotiations over a content agreement, none was had. The number $100 million has been mentioned. Obviously, Viacom thinks its content is worth a lot more. And the issue may not just be doing a deal with Google but not wanting to have to feed the monster.

Then no sooner than Jeff Zucker took over as head of NBC Universal he slammed YouTube and its owner, Google, for not being aggressive enough in implementing a new automated system for reporting copyrighted material.

That's two major traditional media companies you wouldn't want to tick off.

And yesterday, IAC/InterActive Corp. CEO Barry Diller jumped into the all-too-public discussion and said media companies are looking to retain some control over the distribution channels. In fact, Diller reminded everyone that there are and will always be lots of points of distribution. In other words, the content companies are going to fight to keep control over their video future.

These events are significant because we may look back on this period as the end of the honeymoon for Google. Google, an outstanding company, appears ready to take over the world. In a way it reminds me of Clear Channel. I know I am not doing Google justice by mentioning it in the same sentence with Clear Channel because Google employees love their jobs and are being encouraged to grow. The same could not be said of radio's biggest consolidator back in the day. Nonetheless, they are too big companies with their eyes on the media world and are willing to get into everybody else's business.

In a world where the law allows consolidation and, in fact monopoly, it is interesting to observe Google, a company that has grown on its own into the giant that it is to look like it might monopolize everything. Google does have plans to be almost everywhere and now we're beginning to see the reaction of other companies -- not so fast.

Google will likely never see a full return on its $1.6 billion YouTube acquisition price. The kids that invented YouTube may even wind up being a case study at Harvard for businesses that wind up overpaying for something they wished they could have started. Google could never have invented YouTube. The legal problems (that's another story that won't go away) would have made it impossible to develop. Only a few college students working in a garage with nothing to lose would emerge victorious. Hey, don't let a little obstacle like replacing other companies distribution channels and building an online product without much regard to YouTube distribution rights get in the way. These young guys were also lucky. They didn't have any money for big sue-happy media companies to come after. The same is not true of Google.

Google has a lot to lose.

Now that companies are targeting Google in a fight to maintain distribution, repercussions could be great in other Google businesses as well.

Radio, newspapers and television -- a troubled media trio to say the least -- have been drinking Google's Kool-Aid ready to sell them their inventory, salivate over cost savings by cutting sales expenses and jeopardizing their one-on-one relationships with advertisers. These folks are desperate for revenue growth so forgive them. When they wake up out of their stupor they will find not even Google can be a viable replacement for solid selling -- relationships. This too will come to pass.

Google is beginning to see that traditional media companies can be stubborn, greedy and mean.

My friends, if I'm reading it right you are seeing the beginning of a new era for the colossus known as Google. Welcome to the jungle. See how traditional media companies clawed, bullied and beat their way to the top and enter the new era of "Old School Fights Back".

The War Between Steve Jobs And The Labels

This is starting to sound like the Democrats and Republicans on Iraq -- except the topic is digital rights management (DRM).

Apple CEO Steve Jobs takes the unusual step of using his clout and places a letter about the music industry on the Apple website. In it, he outlines a number of scenarios that are possible in the digital downloading era. One option, that he rejects, is to make Apple's security system called Fairplay available to other companies. No sooner than Jobs declares DRM dead, the mouthpiece of the record industry, the RIAA, decides to take him up on making Fairplay available to other manufacturers. Didn't he say Apple wasn't going to do that?

See what I mean about how Jobs and the Labels are like warring Democrats and Republicans? The RIAA reacted by sticking it to Jobs, their nemesis. Both factions have drawn a line in the sand now. Jobs claims that DRM has not been working and probably will not work. The labels argue that they need to protect their rights and the rights of their artists -- that they can't just give music away for free. To borrow another political term -- it seems like gridlock -- nothing can be decided.

It's interesting that Jobs decided to go public when Apple is under pressure in some European countries regarding DRM. Jobs didn't just post a letter because he had a light day Tuesday. He's obviously thought this thing out. There is risk, but most of the risk is on the shoulders of the labels. So far Jobs has bested the labels at their own game. He's a manufacturer who has become an entertainment industry kingpin. But Jobs never forgets where he makes his money -- from selling hardware. The labels are no match for him. They don't seem to know what their business is these days.

Jobs is right. DRM is failing. Label executives know this, but they are holding on to DRM nonetheless. That's what record labels do -- hang on to business models that no longer work. Jobs, of course, is a thorn in their sides, but another irritant is indie labels and they are embracing DRM-free music at -- should I say -- a record pace. The indies have been sticking it to the majors for a while now. The battle is between the labels and Apple and the indies.

Of course consumers don't want Fairplay, they want "FairUse". They don't want restrictions and they don't want limitations. Last time I checked the next generation wants what it wants when it wants it. The marketplace which is the ultimate decider wants DRM-free music.

These are tough times at the big four labels. They see CD sales declining. Album sales declining. Legal downloads declining. What's a label to do? As Dale Carnegie used to say, "cooperate with the inevitable". You don't have to take my word for it. DRM is on the way out. Some music industry people estimate one to three years and it's pretty much all over.

So, Jobs and the labels can parry with each other like the Democrats and Republicans do over political issues such as Iraq. The RIAA can take the news and spin it something like Fox News Channel does. And indie labels are indeed the coalition of the willing -- willing to remove DRM before the big four finally relents. There are so many analogies that are apt.

But the voters -- in this case the music consuming public -- get to vote and the polls show they think the music industry is headed in the wrong direction and they want change. Sound familiar?

Like the war in Iraq, the Labels will eventually have to withdraw and remove DRM. The public wants it -- no demands it. And we'll have to put up with the rhetoric and untruths between now and then. Maybe the labels recent defense of DRM is their one last surge to save the mission and turn things around.

Just as a presidential election is coming in 2008 and the Iraq war will be wound down, smart music execs are smart enough to cooperate with the inevitable and they're already thinking about the future without DRM.

The 2 S's -- Satisfy and Serve

It was only October of last year when NBC.com Rewind started running full episodes of NBC programming. It has already delivered 42 million full shows.

Now a new Mediaweek article reveals that many of the people going to the site are using Rewind as their personal TiVo. And there are some very impressive numbers according to NBC research:

• 78% of users who streamed full-length episodes watched shows from the series they usually watch but missed on broadcast television
• 81% of those surveyed said they recalled specific pre-roll ads -- this makes NBC very happy, indeed
• 26% said they viewed shows they had already watched on TV for a second time
  
• 34% said they used the site to preview shows they had never seen before

This is a model to watch. It is a traditional medium using interactive to satisfy and serve its audience -- The 2 S's -- Satisfy and Serve. I mention this because often traditional media companies such as radio, newspapers and record labels are caught up on protecting their interests first and delivering on the 2 S's second -- if at all.

Since readers of this space know that content is not only king it is practically the only thing that matters, making your content available to your audience in ways they can use it and please them at the same time is the mission. Not help you combat new technology or a new generation!

For example, if record labels applied the 2 S's to their broken model they would have to:

• Stop suing individuals through RIAA (18,000 and counting to this day)
• Encourage file sharing (that's right, that's what the marketplace wants and many believe sales will actually increase)
• Sell higher fidelity versions of songs and albums their audiences want and take off DRM
• Co-operate with the inevitable and encourage people to use even more music understanding that new models will crop up and old models will be bolstered

You can do the same thing for radio if the consolidators decided to Satisfy and Serve their audiences. Let's look:

• Cut commercial loads
• Make a 20 minute daily morning show available for MP3 downloading at Starbucks, McDonalds, et al in their marketplaces
  
• Add video to audio when they program beyond radio signals
• Add text and texting capabilities
• Convene a seminar, workshop and ongoing intervention on how to make radio advertising more effective. Listeners know (and production directors, too) that spot radio is not effective.
  
• Test all radio ads online before they make it to the airwaves
  

Shall we try newspapers?

• Create an online "only" publication
• Create new categories that would satisfy young readers. Craig's List does. When I owned Inside Radio I derived huge revenues from faxed want ads. Inside Radio is still the market leader in that category today under GM Gene McKay. Categories that mean something to your audience - that's what online publications should focus on.
  
• Embrace GPS, mobile delivery and texting
• Everyone has a cell phone with them during their waking hours -- what a market the digital news engine of the future could be.
• Don't call the newspapers -- call them anything but.
  

I'm getting myself excited. I've got to stop. At USC we develop such programs for clients through Thornton School's Music Media Solutions Lab and our association with the USC Stevens Institute for Innovation. (Interested parties can learn more at 213-740-2761). Our labs have already done projects for record labels and media companies. The underwriting expenses are very reasonable.

NBC Rewind is another small step in the right direction. The promise of new age interactive media is so compelling, in my mind it more than compensates for the loss of revenue from some traditional models.

Apple CEO Steve Jobs says "think differently" and I add "think" -- of the possibilities.

Jobs To Labels: Drop DRM

Open Letter on Apple's website from CEO Steve Jobs
February 6, 2007

With the stunning global success of Apple’s iPod music player and iTunes online music store, some have called for Apple to “open” the digital rights management (DRM) system that Apple uses to protect its music against theft, so that music purchased from iTunes can be played on digital devices purchased from other companies, and protected music purchased from other online music stores can play on iPods. Let’s examine the current situation and how we got here, then look at three possible alternatives for the future.

To begin, it is useful to remember that all iPods play music that is free of any DRM and encoded in “open” licensable formats such as MP3 and AAC. iPod users can and do acquire their music from many sources, including CDs they own. Music on CDs can be easily imported into the freely-downloadable iTunes jukebox software which runs on both Macs and Windows PCs, and is automatically encoded into the open AAC or MP3 formats without any DRM. This music can be played on iPods or any other music players that play these open formats.

The rub comes from the music Apple sells on its online iTunes Store. Since Apple does not own or control any music itself, it must license the rights to distribute music from others, primarily the “big four” music companies: Universal, Sony BMG, Warner and EMI. These four companies control the distribution of over 70% of the world’s music. When Apple approached these companies to license their music to distribute legally over the Internet, they were extremely cautious and required Apple to protect their music from being illegally copied. The solution was to create a DRM system, which envelopes each song purchased from the iTunes store in special and secret software so that it cannot be played on unauthorized devices.

Apple was able to negotiate landmark usage rights at the time, which include allowing users to play their DRM protected music on up to 5 computers and on an unlimited number of iPods. Obtaining such rights from the music companies was unprecedented at the time, and even today is unmatched by most other digital music services. However, a key provision of our agreements with the music companies is that if our DRM system is compromised and their music becomes playable on unauthorized devices, we have only a small number of weeks to fix the problem or they can withdraw their entire music catalog from our iTunes store.

To prevent illegal copies, DRM systems must allow only authorized devices to play the protected music. If a copy of a DRM protected song is posted on the Internet, it should not be able to play on a downloader’s computer or portable music device. To achieve this, a DRM system employs secrets. There is no theory of protecting content other than keeping secrets. In other words, even if one uses the most sophisticated cryptographic locks to protect the actual music, one must still “hide” the keys which unlock the music on the user’s computer or portable music player. No one has ever implemented a DRM system that does not depend on such secrets for its operation.

The problem, of course, is that there are many smart people in the world, some with a lot of time on their hands, who love to discover such secrets and publish a way for everyone to get free (and stolen) music. They are often successful in doing just that, so any company trying to protect content using a DRM must frequently update it with new and harder to discover secrets. It is a cat-and-mouse game. Apple’s DRM system is called FairPlay. While we have had a few breaches in FairPlay, we have been able to successfully repair them through updating the iTunes store software, the iTunes jukebox software and software in the iPods themselves. So far we have met our commitments to the music companies to protect their music, and we have given users the most liberal usage rights available in the industry for legally downloaded music.

With this background, let’s now explore three different alternatives for the future.

The first alternative is to continue on the current course, with each manufacturer competing freely with their own “top to bottom” proprietary systems for selling, playing and protecting music. It is a very competitive market, with major global companies making large investments to develop new music players and online music stores. Apple, Microsoft and Sony all compete with proprietary systems. Music purchased from Microsoft’s Zune store will only play on Zune players; music purchased from Sony’s Connect store will only play on Sony’s players; and music purchased from Apple’s iTunes store will only play on iPods. This is the current state of affairs in the industry, and customers are being well served with a continuing stream of innovative products and a wide variety of choices.

Some have argued that once a consumer purchases a body of music from one of the proprietary music stores, they are forever locked into only using music players from that one company. Or, if they buy a specific player, they are locked into buying music only from that company’s music store. Is this true? Let’s look at the data for iPods and the iTunes store – they are the industry’s most popular products and we have accurate data for them. Through the end of 2006, customers purchased a total of 90 million iPods and 2 billion songs from the iTunes store. On average, that’s 22 songs purchased from the iTunes store for each iPod ever sold.

Today’s most popular iPod holds 1000 songs, and research tells us that the average iPod is nearly full. This means that only 22 out of 1000 songs, or under 3% of the music on the average iPod, is purchased from the iTunes store and protected with a DRM. The remaining 97% of the music is unprotected and playable on any player that can play the open formats. Its hard to believe that just 3% of the music on the average iPod is enough to lock users into buying only iPods in the future. And since 97% of the music on the average iPod was not purchased from the iTunes store, iPod users are clearly not locked into the iTunes store to acquire their music.

The second alternative is for Apple to license its FairPlay DRM technology to current and future competitors with the goal of achieving interoperability between different company’s players and music stores. On the surface, this seems like a good idea since it might offer customers increased choice now and in the future. And Apple might benefit by charging a small licensing fee for its FairPlay DRM. However, when we look a bit deeper, problems begin to emerge. The most serious problem is that licensing a DRM involves disclosing some of its secrets to many people in many companies, and history tells us that inevitably these secrets will leak. The Internet has made such leaks far more damaging, since a single leak can be spread worldwide in less than a minute. Such leaks can rapidly result in software programs available as free downloads on the Internet which will disable the DRM protection so that formerly protected songs can be played on unauthorized players.

An equally serious problem is how to quickly repair the damage caused by such a leak. A successful repair will likely involve enhancing the music store software, the music jukebox software, and the software in the players with new secrets, then transferring this updated software into the tens (or hundreds) of millions of Macs, Windows PCs and players already in use. This must all be done quickly and in a very coordinated way. Such an undertaking is very difficult when just one company controls all of the pieces. It is near impossible if multiple companies control separate pieces of the puzzle, and all of them must quickly act in concert to repair the damage from a leak.

Apple has concluded that if it licenses FairPlay to others, it can no longer guarantee to protect the music it licenses from the big four music companies. Perhaps this same conclusion contributed to Microsoft’s recent decision to switch their emphasis from an “open” model of licensing their DRM to others to a “closed” model of offering a proprietary music store, proprietary jukebox software and proprietary players.

The third alternative is to abolish DRMs entirely. Imagine a world where every online store sells DRM-free music encoded in open licensable formats. In such a world, any player can play music purchased from any store, and any store can sell music which is playable on all players. This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store. Every iPod ever made will play this DRM-free music.

Why would the big four music companies agree to let Apple and others distribute their music without using DRM systems to protect it? The simplest answer is because DRMs haven’t worked, and may never work, to halt music piracy. Though the big four music companies require that all their music sold online be protected with DRMs, these same music companies continue to sell billions of CDs a year which contain completely unprotected music. That’s right! No DRM system was ever developed for the CD, so all the music distributed on CDs can be easily uploaded to the Internet, then (illegally) downloaded and played on any computer or player.

In 2006, under 2 billion DRM-protected songs were sold worldwide by online stores, while over 20 billion songs were sold completely DRM-free and unprotected on CDs by the music companies themselves. The music companies sell the vast majority of their music DRM-free, and show no signs of changing this behavior, since the overwhelming majority of their revenues depend on selling CDs which must play in CD players that support no DRM system.

So if the music companies are selling over 90 percent of their music DRM-free, what benefits do they get from selling the remaining small percentage of their music encumbered with a DRM system? There appear to be none. If anything, the technical expertise and overhead required to create, operate and update a DRM system has limited the number of participants selling DRM protected music. If such requirements were removed, the music industry might experience an influx of new companies willing to invest in innovative new stores and players. This can only be seen as a positive by the music companies.

Much of the concern over DRM systems has arisen in European countries. Perhaps those unhappy with the current situation should redirect their energies towards persuading the music companies to sell their music DRM-free. For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly.

65 Days in Front of the TV

The U.S. Census Bureau's new statistical abstract for 2007 forecasts how the "average" adult or teen will use media in the year ahead:

• 65 Days watching television
• 41 days listening to radio
• A week listening to recorded music
• In excess of a week on the Internet
• 7 days reading a daily newspaper
  

It's always dangerous to describe the "average" adult or teen, but be that as it may, you can adjust the numbers any way you like and they are still scary.

Because all adults are being factored in to the projections, Internet usage is lower than most of us using a computer right now might think. So it's not much of a stretch to imagine that number higher and, say, TV watching lower for heavy Internet users. I don't think a week of your time reading a newspaper each year would describe a college student who might get his or her news online. I'm fine with all this.

But is life so boring that the "average" American media consumer gives up 65 days a year watching television? We really do need to get a life.

Some 41 days listening to the radio is just the excuse consolidators need to continue with the status quo and not deal with an eroding younger audience. There is no doubt radio is a big part of some people's lives, but would you give up 41 days of it to have a radio in your ear? Apparently, according to the Census Bureau a lot of people do.

There's much to be said for multitasking in light of all this. To be able to watch TV, listen to radio and be on the Internet could get you a life again.

Not reported, but of interest, would be cellular telephone use (voice, texting and other services). Can you imagine what these numbers will be in the mobile future as America and the world embrace their mobile phones?

At the heart of our passion for media -- we can't seem to get enough -- is the need for content. It has been about content from the beginning and dating way back to Marconi. Only in the age of the Internet and media consolidation has technology distracted so many executives from concentrating on their real mission. I've said it in the past but Ill reiterate it now, media companies should embrace new technology not fight it. They should always look for ways to present more meaningful content and opportunities for marketing.

Winning the eyes and ears of all these "average" people will take above average content.

Viacom, The Decider

One can understand Viacom’s decision to order its content off of YouTube. After all it has the right to be paid for its content. Of course, now I’m talking like a traditional media company and you know what kind of pickle they have all gotten themselves into.

The record industry has been unsuccessfully fighting illegal peer-to-peer file sharing. The major labels have also been known to fight Apple CEO Steve Jobs on his iTunes pricing — probably angry they didn’t think of iTunes (and for that matter iPods) first. But they didn’t and the other technology companies who could have like Sony were too busy protecting its other businesses.

The radio industry — what can I say. They still don’t get it. They think consolidation can be overcome by dipping their toe into the icy waters of Internet and mobile content. Their executives suffer from arrogance so great that they would not be able to hear my students — the next generation — speak articulately about the future of radio. The students know the future is content. The consolidators don’t. For them the future is HD radio. For listeners, it’s about fresh programming -- the kind radio stations want to concoct with present formatics.

Newspapers are busy slimming down and scratching their heads over online business models. The Wall Street Journal has one of the few subscription models that makes money, but they are lost with the next generation. In other words, they’ve succeeded in putting together a pay-oneline service for their present readers. Newspapers should know better, but they think like traditional media companies.

This brings me to television — a troubled industry for sure that thinks it can put some video on YouTube and that everything will be okay. They are in denial. Sunday’s New York Times magazine in a story on Budweiser’s new online TV channel documents how network television will play a lesser role in their future. That’s from Bud — a big TV advertiser! And you know what goes with television’s decline? Advertisers cutting budgets. Budweiser has been doing it for years.

Now the news that Viacom has ordered its content off of YouTube.

No more Letterman. No more Late Late Show clips. Heck, no more Daily Show. What will YouTube be without the Daily Show? Or better put, what will Viacom’s Comedy Channel be without YouTube?

There is already evidence that CBS shows on YouTube are actually increasing the viewership on the old boob tube. Both CBS’ Letterman and Late Late Show have posted significant increases in audience traceable to their YouTube clips. So how can all those smart suits at Viacom make a decision to pull their clips from their new best friend — YouTube. Is it just envy? Or negotiating muscle?

YouTube and its parent Google have already agreed to pay Viacom for its content. The figure thrown around is $100 million. Obviously, Viacom doesn’t think that’s enough. Or Viacom execs are holding out for more. Or, maybe Viacom thinks it can do YouTube better.

The Viacom-YouTube fight is a classic battle of traditional media not getting it and new media not understanding the mindset of traditional media. Fact is that both parties need each other. If YouTube continues to grow in viewers, can Viacom afford not to be available on it? And does YouTube understand that dealing with traditional media companies is like negotiating with timid bullies that are used to dictating the course of relations.

It is hard to believe that Viacom is going to create the next YouTube when there is already one out there. Both YouTube and Viacom need each other.

Let’s hope that Viacom walking from negotiations is a ploy for more money and not another real life case study for students of tomorrow on how not to run a media company in the new age of interactive media.

Anywhere But USA Radio Is Booming

In The UK they're even calling it a "new golden age" of radio as digital use takes off. The number of radio listeners in Britain are at an all time high of 45 million every week.

It gets better.

Some 8% of people 15 or older listen to radio on their mobile phones. Try catching someone here in the U.S. doing that. Listening over the Internet in Britain rose ten percent. Brits also like podcasting even more than we do here with about 17% of all the MP3 owners listening.

Radio in other countries around the world is still revered.

But you don't have to leave the U.S. to see how consolidation has not just let down its listening public but wrecked an entire medium. The health of NPR and not-for-profit local stations are a little known secret in the world of heavy promotion and shock water drinking contests that kill listeners. In many markets NPR rivals the top commercial radio morning shows. And why not? When you offer interesting content and talk to your listeners with respect doesn't that sound like a formula for success. It's the formula that arrogant consolidators forgot about when our duly elected lawmakers decided to create legal monopolies that benefited no one other than a few owners and their investment bankers.

I've been complaining about consolidation from day one. I didn't like it then and don't like it now. I took my share of brickbats (and other more serious forms of retribution) for being an early naysayer. As I have said before, it all worked out well for me in the end but I was never alone. A lot of people paid the price for criticizing consolidation. Some are still paying it by working for companies that are only interested in themselves and not the greater good. That said, it's time to do something about it.

Now is the time to contact your elected officials and pressure them for a breakup of these legal monopolies. The unthinkable happened when the Telecommunications Act of 1996 was passed. It managed to kill off what could be a growth business -- there, I've said it -- a growth business. Even with iPods and the Internet and mobile phones. Hey, they listen to radio on mobile phones in the UK. And Steve Jobs didn't think his category-buster iPhone needed a radio feature. You figure it out. It's not hard.

Radio's big advantage is content. A lot of people used to think it was portability. That's nice, too, but you see how far portability gets radio with the next generation. Since we all seem to recognize now that we are not going to win the war in Iraq -- oh, I'm sorry -- that we're not going to make radio a vibrant growth industry doing what it is doing today then it's time to withdraw the troops. Bring out program directors, GMs and GSMs home to radio stations that will let them focus on local radio -- not radio Wall Street-style.

My friend John Rook, the legendary consultant and fine human being that he is has paid the price when his small stations came up against a consolidator. Rook could not be beaten. He persists today in retirement trying to wake up an industry that has lost its soul and in my opinion -- for some -- lost it's guts. It's not too late to speak up. Not to late to contact Senator Feingold, Senator Boxer or your local representative. Together this industry has a lot of damaging evidence on the shame of consolidation and its consolidators. Offer it. Testify.

There is but one mission now. To save radio -- to make it have the chance to do what radio is successfully doing in the UK, other countries and here on NPR stations that are not consolidated -- legislative action has to be sought to break up the monopolies and right the wrong.

This doesn't mean there aren't some good radio groups out there, but they are smaller. Smaller is good. More humane is good. More in touch with their listeners is good.

And while we're at it, let's ask the FCC to hold licensees to a new (old) standard upon which to judge license renewal -- that they serve the public interest, convenience and necessity. That was the mission during U.S. radio's golden age and if radio would like to survive to see "a new golden" age like the one in Great Britain right now it won't be digital technology, Wall Street and large radio companies that will deliver it.

Small companies that take their public trust seriously -- that will do it. As my friend Bill O'Shaughnessy puts it, radio station owners are "permitees" and the sooner we demand a return to radio as a public trust the sooner this once proud industry can get growing again.