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.
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).
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.
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.