Satellite Radio Industry Analysis
✓ Paper Type: Free Assignment | ✓ Study Level: University / Undergraduate |
✓ Wordcount: 2451 words | ✓ Published: 26th Feb 2020 |
Abstract
Due to technological changes, the radio industry is rapidly changing. The listenership of FM/AM radio stations is somewhat decent, but millennials and younger listeners are influencing this change. Satellite, streaming and internet services are all large revenue generators for the radio industry. And, paid subscriptions drive the satellite radio market because users have the freedom to choose the music and content they want to listen to. With the use of an iPhone, laptop or tablet, users can stream live broadcasts, podcasts, and have access to an infinite library of music. For example, Spotify allows its users to have access to over 30 million music tracks, which can be customized to what the user wants to listen to. In addition, Spotify offers both a free version (with commercials) and a paid subscription without commercials and advertisements. Overall, the areas of customization and accessibility continues to drive growth and innovation in the radio industry. Keywords: satellite, radio, streaming, subscription, internet, FM/AM radio, innovationIntroduction
Today, millennials may find the definition of radio broadcasting to be dated. Radio broadcasting is defined as transmitting or using radio waves to send signals to a large group of listeners. Compared to AM, FM radio is more commonly used for music because it delivers better sound quality. Historically, the radio industry recovered in a strong way when challenged with new competitive technology. When television became a competitive force, radio adapted to this new technology and became portable. Luckily, the industry capitalized on the invention of the transistor and an increased their focus on local content. Moreover, most radio listeners are embracing digital formats at the cost of radio use. Consumers now prefer the interactivity and personalization of digital services like Pandora, I Heart Radio and Spotify. Thus, the structure of this company profile paper is outlined as follows: industry analysis, factors that influence demand, factors that influence cost structures, opportunities in the industry and threats in the industry. In industry analysis, a basic description of the industry is provided including the size of the industry, profit trends and geographic location. Next, the section on factors that influence demand discusses why customers are demanding this service as well as any social, demographic and technological trends that affect this demand. Subsequently, factors that influence cost structures observes the stage of the product life cycle, the competitive environment and cost drivers. Afterwards, the section on opportunities in the industry examines my critique of the radio industry along with the possible opportunities the overall industry can capitalize on. Finally, competitive rivalry and slow market growth are some topics discussed in the section threats in the industry.Industry Analysis
The radio industry is a catch-all term for any public service provider or company involved in the broadcast of radio stations and ancillary services. Radio stations are licensed through the Federal Communications Commission (FCC) as noncommercial (educational purposes) or commercial. Some of the genres or music services offered include Country, Top 40, Hip Hop, Rhythm & Blues and Sports. AM/FM radio has remained the leading force in U.S. music listening. However, streaming services like Spotify and podcasters are picking up steam by attracting younger listeners and advertisers’ attention. For example, 6 percent of people age 18-34 surveyed in 2008 reported not owning a home radio. However, that number went up to 50 percent in 2018 according to Edison Research's Infinite Dial survey (Pollack, 2018). Thus, the radio industry has struggled to maintain its core audience and relevance due to competition from digital media programs. The main companies holding the largest market share in the radio broadcasting industry are Sirius XM Radio Inc., iHeartMedia Inc., Entercom Communications Corp. and Cumulus Media Inc. Music stations include three-quarters of American commercial radio stations. As the music market rushes its transition from a sales model to a streaming-driven access model, radio’s influence on music business revenues has declined significantly with regards to driving record sales in all formats. According to PwC’s Global Entertainment and Media Outlook 2017-2021, the U.S. remains the world’s largest radio market, accounting for 49.6% of total global radio revenue. Furthermore, the U.S. commercial radio industry is based on two major revenue streams: advertising and paid subscriptions. Satellite radio advertising revenue derives from SiriusXM, but the company only makes up a small proportion (1%) of the sector. As a result, a projected Compound Annual Growth Rate of radio revenue (CAGR) is expected to increase to 0.4% to 2021. Thus, total radio advertising revenue is expected to reach $18.9 billion by 2021 (Radio Business Report, 2017). The geographic location of the radio industry includes locally owned and operated commercial radio stations, local affiliate stations and independent stations. In addition, internet radio covers no boundaries or geographic location. One of the advantages of internet radio is that are no limits as to how far you can transmit audio because the signals are not running on airwaves. Terrestrial (local and national) radio can only travel around 30-40 miles and satellite radio travels over 20,000 miles. Furthermore, satellite relies on the use of digital signals which can transmit to a much wider geographical area. Overall, internet radio provides the capability to stream audio over the web from anywhere in the world. So, the programming is not limited to a specific geographic location. In 2016, radio streaming dominated the single highest source of revenue at 51% of all U.S. music industry revenue. This number was up 68% from 2015 to $3.9 billion. In addition, 2016 accomplished the first double-digit revenue growth (11.4%) in the U.S. recorded music industry since 1998, driven primarily by a 114% increase in revenue from paid subscription streaming services to $2.5 billion. Moreover, radio streaming now accounts for 20-30% of the data that comprises the Hot 100, with sales at 35 – 45% and airplay at 30 – 40% (Miller, 2017). Additionally, the competition for audience and attention in the radio industry is strong. Edison Research’s Share of Ear report for 2017 (Q2) showed that AM/FM radio was responsible for over half (51%) of all time spent listening to music in the U.S. among listeners 18 and older. Radio streaming provides record labels most of their revenue, as well as directly impacting the Billboard Hot 100 chart.Radio now serves as the validator for the next big artist or song, which is often discovered on streaming music platforms. So, the radio industry is noticing that their younger audiences have chosen their broadcasts as a second option (not first) for music discovery (Miller, 2017).Demand Determinants
The demand for radio broadcasting services and products is determined by consumers’ individual preferences. In turn, consumers’ preferences also influence how much advertising companies choose to spend on their campaigns. Advertising expenditures is important when a firm is determining demand for their product. More so, the purpose of advertisement is to influence consumers to purchase their services and products. Therefore, successful advertisements will cause an increase in demand. Also, the demand changes for a commodity as a result of changes in price, with other factors being held constant. When consumers’ have a large preference for radio services, then the demand will be large. Income, another determinant, influences demand because a larger income means that the consumer has a greater purchasing power. Additionally, the price of substitutes will also influence the demand for radio broadcasting. For example, Apple music (iTunes) is one alternative to radio service. When the price of iTunes decreases, then the demand for radio will decrease. However, if the price of the substitute (iTunes) increases, then the demand for radio service will increase. Younger consumers value the convenience and personalization of streaming audio services over the use of traditional radio. Consequently, the option to customize and curate their music playlists decreases the demand for radio among younger listeners. Personalization is the newest social trend that’s influencing our society. Consumers love customized experiences and they are willing to pay a price to have that experience. Personalizing services allows a company to improve the customer experience, increase their revenues, and expand customer retention, and loyalty. For example, both Spotify and Pandora offer free music and radio streaming services. However, a paid subscription allows the consumer to customize their playlists, radio stations, skip songs and listen without paid advertisements. To younger consumers, paying a subscription price is money well spent to avoid annoying advertisements.Cost Structures
The product life cycle is separated into the following four stages: introduction, growth, maturity and decline. Based on current industry trends, the radio industry is most likely experiencing the maturity stage. Although listenership is low for Millennials and Generation Z, the industry is still thriving. Traditional radio sill has loyal listeners such as people who are older or less tech-savvy. These groups of listeners will choose traditional radio over more complicated online radio streaming and podcasting platforms. Additionally, data and streaming costs play a large role in the conservation of the radio industry. With radio there are no incremental charges involved; when an additional person tunes in, it doesn’t cost the station money. On the other hand, streaming services charge for additional users and profiles. Porter’s Five Forces of Industry Competition also influences cost. This model measures industry factors of rivalry, bargaining powers of suppliers, bargaining powers of buyers, barriers to entry, and the threat of substitutes. As mentioned earlier, Sirius XM Radio Inc., iHeartMedia Inc., Intercom Communications Corp. and Cumulus Media Inc. holds the largest market share in the industry. The threat of new entrants in the radio industry is low because of the large setup costs. Next, establishment costs and brand awareness costs are also large. Along with the license fee, a large capital investment is also needed to enter this industry. As a result, many new entrants choose to merge with existing companies in the industry. Because of intense competition, the bargaining power of buyers (consumers) is high. Now, consumers have a variety of alternatives to choose from. There is also competition for paid radio channels to offer the cheapest rates. And, the costs for consumers to switch to another source is low. Thus, radio proves to be a low-cost alternative to consumers for those who don’t want to receive their content via the internet or when their purchasing power decreases.Industry Opportunities
Despite the technological changes in how consumers receive their news content, there are still opportunities available in the radio industry. For example, podcasting has grown tremendously, and this trend will continue to grow through 2021. Interestingly, 67 million Americans listened to podcasts on a monthly basis in 2018 alone. Instead of being viewed as a threat, this opportunity should provide radio stations to connect with new audiences. Radio stations can now leverage their brands to get new listeners, while exposing them to their on-demand content. In addition, podcasts provide the opportunity for radio personnel to discuss topics that are normally discussed on radio air (Benninghoff, 2017). Radio stations should also capitalize on the mobile phone trend. Smartphone usage has surpassed that of laptops and desktop computers. In addition, mobile phone advertisement is projected to grow 17% annually until the end of 2021. Unfortunately, only 27% of broadcasters reported using mobile advertisements to generate revenue. Thus, this is a great opportunity for the radio industry to connect with their audiences and monetize this opportunity. To do this, radio stations should establish the need for consumers to use their apps because streaming alone is not enough. For example, radio stations can design push notifications that their listeners can subscribe to such as sports and news, and this will bring them back to the app (Benninghoff, 2017).Industry Threats
Some threats to the radio industry include syndicated programming, consolidation and the increase demand for substitutes such as Apple iTunes. For local and community stations, large syndicated programs may pose as a threat to replacing them. In addition, relying on syndication increases supplier power, while decreasing distinction. Also, the consolidation and merging of radio stations reduces jobs, and sometimes the expenditures spent on advertisements. The main threat to the radio industry is failing to engage Generation Z. Generation Z, which is projected to make up 40% of all consumers in the U.S. by 2020, shows little interest in traditional, radio content. In the past, radio could rely on new generations of listeners to replace and grow its audiences. Yet, the arrival of music and video streaming, connected devices, and an apps has challenged this reliance. Importantly, most younger audiences are bypassing radio altogether as many of these consumers have not listened to radio in over a year (Miller, 2017).References
- Benninghoff, E. (2017). Outside the Industry: Radio. Retrieved from https://www.newsmediaalliance.org/radio-industry/
- Miller, L. (2017). Paradigm Shift: Why Radio Must Adapt to The Rise of Digital. Retrieved from https://www.americanbar.org/groups/entertainment_sports/publications/entertainment-sports-lawyer/2017/fall2017/paradigm-shift/
- Pollack, J. (2018). Radio’s Health Is Better Than You Think, But What’s the Long-Term Prognosis? Retrieved from https://adage.com/article/media/mixed-signals-radio-s-health/313110/
- Radio Business Report. (2017). PwC’s U.S. Radio Outlook Points to Nearly 2% Growth. Retrieved from https://www.rbr.com/pwcs-u-s-radio-outlook-points-to-nearly-2-growth/
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