Digital Radio – Promises + Challenges

 3rd Horizon, Radio  No Responses »
Nov 262007
 

I was interviewed last month by Brad Howarth for an article discussing the likely future of radio advertising as the industry launches its digital broadcasting platform in 2009.

The exchange touched on a range of issues (and opportunities) for the Australian radio industry, and I thought I would summarise my thoughts here.

Key Challenges

The successful launch of digital radio services to Australian consumers has a number of challenges:

(a) Value proposition – The industry has been championing enabling technologies for the launch of digital radio services for over 20 years. Had the industry been allowed to launch a digital platform in the 80s or even early 90s, it would have been a radically new and compelling offering. Unfortunately, competing technologies and products have overtaken digital radio in the past 5 years.

There is nothing that can be offered via a digital radio device when the service is launched in 2009 that consumers cannot already do today via other mobile devices (in particular, mobile phones). The industry will have its work cut out for it in developing a persuasive case for consumers to embrace digital radio, and make the necessary investment in new receiver technology.

(b) Timelines – The average Australian replaces his or her car every 9-11 years. This is an important factoid because in-car radio listening is a major component of time spent listening (TSL) to radio. Consumers who have recently purchased, or who purchase a car before digital radio becomes a standard accessory (or a suitably attractive optional extra) may be locked out of the digital radio audience for quite some time (for at least that component of their in-car TSL).

Undoubtedly car-mountable digital receivers will be available around the time digital radio is launched, but both the value proposition and pricing structure for such devices will have to be right to ensure rapid uptake and installation – a tough ask, given the array of competing in-car entertainment options.

(c) Awareness – Digital Free-To-Air (FTA) TV services have been available in the major Australian capital cities since January 1, 2001. Both ‘digital native’ TVs and digital converter boxes have been around (and aggressively marketed) for just as long. Despite this, according to research conducted on behalf of the Australian Communications & Media Authority (ACMA), only ~30% of households are able to receive digital FTA TV broadcasts (the number of households able to receive digital FTA TV increases to 41% when you factor in those who can receive it via their pay-TV subscriptions).

Of the roughly 70% of non-adopters of digital FTA technologies, just over one third report that they live within an area covered by digital broadcasting, yet have chosen not to adopt. Two thirds report not knowing whether they live within an area with digital broadcasting coverage; that is, they are not interested enough to bother investigating their options. A full 14% of households indicated they had not heard of digital FTA TV.

Australia is renowned as a country that readily embraces new technologies. Yet after a full six years of availability (at the time the research was undertaken) and aggressive promotion by multiple players (including, of course, vendors of TV devices), Australian consumers are at best nonplussed by the digital TV offerings. Given the significant time consumers spend with TV (relative to radio), this does not auger well for a rapid uptake of digital radio technologies.

(d) Pricing Point – A further interesting point from the ACMA research into the adoption of digital FTA TV services is that 22% of those non-adopters (that is, consumers who had not adopted digital TV technologies) reported that a major concern for them was the price of the equipment needed to receive digital FTA TV broadcasts - despite digital converter boxes being available at the $50 pricing point.

This would suggest that a significant number of radio listeners will resist investing in digital radio devices until they have achieved a very low pricing point – particularly as many consumers will need to purchase multiple devices (to cover in-home, in-car and in-office etc. listening).

Opportunities

A range of potential opportunities are created by digital radio broadcasting, including the ability to augment traditional audio offerings with text- and image-based services. Most digital radio devices, for example, can receive a text-based ‘ticker’, which can be used to push out information such as the name of the current song, songs/segments that are coming up, news and weather updates and similar text/information services.

Some devices will also be able to display images, which allows broadcasts to finally add a visual element to what has long been regarded as “TV without the pictures”.

However, the major opportunities (both in terms of compelling consumer offerings and additional revenue sources) are predicated on one thing: integrating some form of back-channel.

Without a back-channel, digital radio receivers will remain, in essence, ‘dumb’ devices in a world of proliferating intelligence. With a back-channel, however, devices open the possibility for geo-targeting (of both advertising, content and services), e-commerce (at the press of a button you could buy the song currently being played, or request information about the product being advertised), and audience interaction (for instance, live polls, song requests/voting).

I strongly suspect that digital radio will not offer a dramatic increase in advertising spending. Advertisers are notoriously cautious and risk-averse. They will hold back until broadcasters can point to sizeable audience figures before directing significant expenditure to digital broadcast channels (in the same way that advertisers were slow to embrace Pay TV until audiences grew). Similarly, they will hold back on any major moves to embed interactive elements into their advertisements until data about consumer response rates is available from pilot trials.

Risks

The sleeper issue in all of this, of course, is how Internet radio (and related offerings) will impact terrestrial radio audiences as broadband and wireless networking continues its penetration into homes, offices and (eventually) cars and other forms of transportation.

Existing broadcasters face significant competition from these new, digitally-enabled content providers. Whereas previously radio broadcasters only had to contend with physically proximate competitors, and had the ‘benefit’ of spectrum scarcity and operational cost barriers, they will soon find themselves competing in a market environment with dramatically more content offerings competing for a share of audience attention.

The result will likely be that there is a larger number of major ‘broadcast’ players (terrestrial + IP-based), with a declining average audience per broadcast product.

OpenSocial – Taking social networking to the next level

 3rd Horizon, Strategy, Web 2.0  2 Responses »
Nov 062007
 

For those of you who have met me in person, you’d know that I have long been championing the need for a technology that would enable ‘profile portability’.

A key constraint with social networks is that they force you to choose. You must choose whether you will invest your time and efforts in Facebook, or MySpace, or LinkedIn, or Bebo or any of the myriad social networking services currently available.

Developing, maintaining and building your profile and social network can be a time intensive process (depending how committed you are). Social networking companies (and their investors) see this as a good thing, because it promotes (in their view) ‘stickiness’ and creates an artificial barrier to exit. The thinking is that the more time and effort consumers invest in creating their profile and building their network of friends and acquaintances, the less likely they are to abandon the site and move elsewhere, because they would be forced, in essence, to start from scratch.

What this thinking overlooks is that by creating a ‘walled garden’ around consumer’s social interactions, these companies actually introduce problems (pain) for the very consumers they were seeking to attract and retain.

For example, if all your friends are on Facebook, life is good. But if only some are on Facebook, while others are on Bebo, and others still on MySpace etc., then you have a very real problem – you need to maintain multiple profiles, and manage multiple ‘portfolios’ of social connections and interactions. The alternative is to elect to inhibit your interactions with those friends that use a different social networking service – not a particularly palatable choice.

Equally, if you maintain multiple profiles across different networks, then when you want to update your profile, you must repeat the process several times, or choose to actively maintain one or more profiles, while allowing the others to go ‘stale’. 

The social networking environment today is in much the same situation the mobile/cell phone industry was a decade ago – it forced consumers to make a choice.

Because there was no network interoperability, you had to choose a mobile network, and were forced to operate within that network. If your friends used the same mobile provider, life was good. But if your friends used other mobile network providers, you could not call or sms them. The end result was continuous churn, as consumers moved to the network that held that largest percentage of the people they needed to stay in contact with.

Equally, back in the bad days of ‘walled garden’ email services, consumers were forced to maintain multiple email accounts with multiple service providers (and thus multiple email contact databases in multiple email applications), to ensure that most (though usually not all) of their friends could communicate with them electronically. Having an MCI email address wasn’t enough. You also needed a Compuserve and AOL email address, as well as a UUCP email address to maintain a link to those who hadn’t migrated yet from BBS-based messaging services.

History tells us that consumers will not endure such forced choices for long. Just as phone, email and Internet service providers were forced to ‘open’ their networks, so too will social networking service providers.

Google, via OpenSocial, appears to be the first to offer a solution that will provide the level of openness consumers will surely demand.

With OpenSocial, consumers need only invest time and effort building a ‘master’ profile, and can use that profile to move between different social networks. Over time, we can expect a unified messaging and push communications process (in the same way that Instant Messaging services were forced to support interoperability).

The end result is that social networks will start competing at the edges – it will really become a ‘branding’ (social network affiliation as fashion accessory anyone???) and innovation play.

(If you accept this logic, it should come as no surprise that Kylie Minogue has launched a Kylie-branded social networking service – KylieKonnect.)

Consumers will choose as their primary social network that company whose brand elements they most identify with and, to a lesser (though still important) degree, that which continues to innovate to create services that they value.

Given the network-as-a-platform trend, most of this innovation will come in the form of 3rd party apps, so the real competition will be around which network secures the largest number of JVs/partnerships with apps developers, in the same way that games consoles developers are heavily reliant on securing a pipeline of blockbuster games from 3rd party developers to maintain the consumer appeal of their platforms.

Google has once again made a smart move. It isn’t too late for others to enter the play, though.

I doubt Google is really interested in ‘owning’ the social network platform. Social networking is an emotional experience, which is not something Google has been good at providing historically (search is a logical, task-oriented process).

Instead, providing the platform that enables profile migration and universal communications, as well as being able to capture a single view of each individuals’ “social graph” across multiple social service networks,  positions Google to extract yet another layer of data about people, their interests, needs and wants, which will serve to re-enforce Google’s dominance in search and targeted advertising.