Free Is The New Cash Flow

There is a great cover story in Wired magazine called Free! Why $0.00 Is the Future of Business. In short it serves up a reality check that in this world of the Internet, many businesses are not going to adequately support themselves from traditional revenue models. They will have to find ancillary ways to make money.

Sound familiar?

If you're in the records or radio business right now, you are no doubt consumed with trying to hang on to what you've got. Record labels want to prop up the CD even though increasingly its customers want digital music. But the online digital model pales by comparison. Radio stations want to invent some new format that is going to reclaim the next generation which was lost during consolidation. But the next generation doesn't want to listen to radio.

If it all seems like a losing battle, that's because it is.

What this inspires us to think about is how to make money in an era of free.

It got me to thinking that if I still owned Inside Radio today, how long could I expect to get $500 for a subscription if the same news was available for free on the Internet. Believe me, the folks running Inside Radio now do a great job dealing with these issues, but what would I have done if Clear Channel didn't send me on a four year teaching sabbatical?

What if I could no longer depend on advertising for revenue? What if all those neat jobs we published in the employment section dried up and appeared free online?

I'd have to invent some new ways to make money -- at least if you buy the premise of the Wired article. Maybe three conventions a year to make up for some of the shortfall. Maybe you become a broker for services and take a percentage of the business -- a middleman, if you will. Hell, if dealmakers get millions for just introducing a seller and a buyer (which in and of itself is absurd), then why not?

Applied to radio, imagine a station that has to rely less and less on spot revenue (don't hurt yourself imagining this now). How do you make up the difference? Well, radio wisdom says look to the Internet.


So much for radio wisdom.

The Internet is the biggest free ride out there. It's no place to look for easy money unless you're in the porn business -- but let's not go there.

Radio stations automatically think that eventually they'll have to get in on the Google ad revolution. But within the past week, we've seen reports that Google's advertising is down and Google is sounding like radio now blaming the -- you guessed it -- recession.

I've said all along that Google is just another word for spot radio. Ineffective in the long run even with sophisticated search technology. Word of mouth is the best sales tool -- why do you think everyone has become obsessed with viral marketing? So, if Google is just the latest love interest of advertisers and agencies, can radio look to the Internet to substitute on-air spot advertising for an online presence. I say do it at your own peril.

Some folks are looking forward to Internet radio once a royalty deal is in place, is fair and equitable and provides some stability. But Internet radio is about democracy. Everyone can have a "radio' station not just the Mays boys. Don't think for one minute that on-air commercials will make Internet radio any better off than terrestrial radio. These Internet pioneers know that they will have to come up with new, innovative ways to make a profit.

If free is the new cash flow, radio stations would have to start relying on skills most of them don't have. They would have to get in the exposition business and all that entails. And, the solutions business -- my God, what a scary thought. Using the free airwaves to jockey for a piece of revenue that never winds up on the air.

Welcome to the business of the Internet.

When I discussed this with my USC classes last week, one of my students said, "professors should work for free". He'll be failing the course. I replied, "we already are". He and most everyone else had a look of glee in their eyes. I said, "alright now, how can professors work for free?" and I got suggestions like the school should publish your books and you keep all the profit. Corporations should sponsor various classes and courses and then students wouldn't have to pay. Free. Free. Free. That's all they care about.

Odd, isn't it?

Because they buy expensive laptops and iPods and college educations (sometimes with the help of mom and dad). They're not all rich but they seem to be able to spend on the things they like.

Like grossly overpriced live concerts.

Cell phones, ring tones and monthly text messaging plans

They've found a way around the Sheriff of Nottingham (aka the record labels) by playing Robin Hood and robbing the rich to help the poor -- themselves. They steal music at a record pace.

But many seem to pay for trips to Cancun at spring break.

The point: this generation expects free. Even the poor. Even the well-off. Free is the new everything.

So when we get caught up in arguments about saving radio or fixing the record labels or helping network television find relevancy again, keep that in mind. Like...

... If the iPod has a radio built in, radio would still be a dying business. That's when free doesn't matter. When the customer doesn't want it.

... If the labels could convince ISPs to charge its customers $5 a month to have access to all music ever made, they'd want it for free -- if they wanted it at all.

... If network television could get their viewers to subscribe to a $5 a month service where they get all shows past and present, this generation would hack into the system and get it for -- now you're getting it -- free. Then, the networks would probably come up with a stupid work-around like giving the TV shows away for free only after they play a short commercial they're getting paid to run. And the next generation would probably click on their email while that short commercial ran. What am I saying? This happens now!

Steve Jobs makes chump change on his iTunes music store even though it is now second only to Wal-Mart for selling music. That's because his ancillary way of making money is to sell new iPods to consumers every two years, iPhones that need new batteries changed only at Apple stores every two years, and new Mac computers every few years.

Sounds like a great business to me.

So, if the record labels lose money on music -- that's fine. They need to become the concert company Live Nation. They need to own a piece of the merchandising, touring. And they're doing that -- which is good. They call it 360 deals. But they don't have the skill sets to do it. That's bad. Another issue for another time.

If radio stations can't be a growth industry on spot radio, I wouldn't turn business away but I would look elsewhere for new free cash flow -- say, podcasting. Every local radio station produces a thousand podcasts a week tied into some local marketing link. See what I mean? Use your core content and marketing skills to make money in an ancillary way.

Now, back to professors for a minute.

I don't like this not getting paid idea. I've created a monster.

Maybe I should start a blog, sponsor some executive teaching conferences and consult media companies that want to truly be enlightened on generational marketing.

Oh, I get it, then I can teach for free.

Like it or not, we're looking in the wrong places for our solutions. The Internet has opened up our monopolies and has stolen our protected, traditional delivery systems.

Now we must all innovate in search of ancillary ways to generate cash flow.

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