Eric Rhoads, "Radio Ink" editor: Mr. Media Interview

Following months of rumors, the two satellite radio companies, Sirius, and XM, last week confirmed one of the industry’s worst-kept secrets: their only hope of ever making a buck may well be combining their businesses.

• Will Howard Stern and Martha Stewart soon be under the same K-Mart comforters as Opie and Anthony and Oprah Winfrey?

• Will Major League Baseball and the National Football League both be available to sports fans from the same radio provider?

• Will Sirius honcho Mel Karmazin be satisfied being number two to XM chairman Gary Parsons?

• Will Mr. Media ever have to listen to “Radar Love” on terrestrial radio again?

To address a few of these issues, I have invited Eric Rhoads, publisher of Radio Ink magazine, into the Mr. Media podcast and web site this week.

Published every other week since 1989, Radio Inkis perhaps best-known for its annual “40 Most Powerful People in Radio” issue. It’s the radio industry version of the Forbes 400.

I have known Eric for almost eighteen years, since I wrote for the predecessor to Radio Ink, the Pulse of Radio. Eric’s publications are devoted to the business of radio, so I thought he would be the perfect person to offer perspective on the proposed Sirius/XM merger.


ANDELMAN: Eric, thanks for coming on the show.

RHOADS: Thanks for having me, Bob. It’s nice to touch base again after all these years.

ANDELMAN: It has been a while. What was your initial reaction upon learning that Sirius and XM actually intend to merge?

RHOADS: I was not surprised, and, of course, I had a little bit of an insight from inside the industry. We’ve been rumoring this throughout the industry and in our daily newsletter, Radioink.com, for months, literally months, and having friends on the inside of both companies, there has been a lot of chatter and a lot of discussion, and it was believed really the moment that Mel Karmazin went on board that that was the master plan. As a matter of fact, I think a week or two weeks after Mel came on board at Sirius, we had a story about a rumor about a merger between the two companies, so it’s been going on now for a year, year and a half, two years, however long it’s been since Mel’s been in there. So it was not a huge surprise, but of course, you are never sure if these rumors are going to be true.

ANDELMAN: Now, were you surprised over that period of time how Karmazin brought Sirius around to be taken far more seriously than it was at the time he arrived?

RHOADS: Well, again, I wasn’t surprised, because Mel has incredible amounts of credibility. In spite of all the things that you might hear about him and his operating style, some of which are just legend and probably not true, Mel has an incredible ability to see things that others don’t see, to have a vision that others don’t have, and he has the ability to turn something that is sour into something that is sweet. He has done it time and time again. He did it with Infinity Broadcasting, and then he went public, and then he went private again, and then he went to CBS and so on, so he’s got this incredible ability. I don’t own stock in Sirius, but I seriously thought about it at the time Mel came on board, because I think Mel is good at turning these kinds of things into something that is very valuable. And it was expected. When Mel left the job at CBS, there was all kinds of speculation that he was going to go run Disney, that he was going to do something else at another major media company, and the fact that he didn’t do those things, which he probably could have had those opportunities, and

the fact that he went to Sirius sent a major signal. It was kind of like a missile across the bow of the radio industry that hey, radio’s top player is now working with the competition,

if you will, if you take that attitude about it. My attitude is a little different, and that is, my attitude is that I feel that it’s not really the competition, it’s just a different form of radio. From a consumer standpoint, it’s still radio. It may be approached differently, it may have different components, but it’s still radio, so I think that raises the tides of all ships. I don’t look at them as the competition as many people in radio do.

ANDELMAN: I want to come back to that in a couple of minutes, but what impact has satellite radio had on terrestrial radio, financially and creatively?

RHOADS: Probably very little. Financially, I would say it’s had no impact. The radio industry is in a little bit of a lull right now. It’s experiencing very low amounts of growth. We hold an annual forecasting summit in New York every year, and at the forecasting summit we did in December, all the analysts gathered, and we predicted that the 2007 year is going to be either flat or about 1% growth, and so the industry is not going through a huge growth spurt right now, but that’s not necessarily anything to do with the satellite radio, because those revenues are about advertising revenues, and, of course, Sirius and XM are not really advertising-based models … yet, and we will get into that at some point, too. So I don’t think that they have affected the revenue picture. On the creativity side, you know, I think that radio broadcasters have always had their own way of approaching things, and quite frankly, XM and Sirius are really doing the basics of radio, and they are doing what radio has always done really well. They have always done great creative. XM and Sirius have had the opportunity to not have the financial pressures right now, the financial pressures that mean that you have to run a lot of commercials, financial pressures that mean that you have to do certain things to get ratings. The reality is that XM and Sirius don’t have to get ratings right now because ratings are what drive advertising, and since they don’t have any advertising, there is no need for that. So when there is no pressure, then programming creativity is a lot more easily accomplished than when there is pressure, and, of course, that pressure has affected the creativity levels of a lot of radio stations in the United States but certainly not all of them. You do have companies and you do have individuals who are doing very good radio and very creative radio and not necessarily doing the things that drive some consumers nuts, but that’s here and there, and it’s not everywhere. You also have companies that are doing the opposite, that are just getting a little too commercialized. Although, if we have time, we should talk about a study that just came out about the impact of commercials, because it’s the opposite of what anybody thinks.

ANDELMAN: I am curious about something. On the financial side, it would seem to me that the defection of Howard Stern from terrestrial to satellite did have a big impact going back to the point when Clear Channel wiped him off of its stations and then up to the point when he left the CBS, I guess the CBS network, I mean, all of those stations that carried him lost a tremendous amount of revenue that I don’t think they have made up yet, have they?

RHOADS: No, and I would say that that is a very good point that I did fail to articulate. CBS, I believe, I don’t have the figures in front of me, but my memory tells me that Stern made up about $60 million of revenue for the CBS stations. Stern obviously made up a fair amount of revenue for the individual stations that were not CBS-owned that were carrying him, whether they were Clear Channel or otherwise, so taking $60 million out of $19 billion certainly hurts, but in the grand scheme of things, that’s not the reason that radio’s flat. It certainly has a piece of it, but I wouldn’t say that, I can’t say that satellite radio in general has been the reason that radio’s flat. That is a small piece. It’s a loss, certainly a loss, and Stern has been a master at bringing in revenue for radio.





ANDELMAN: Okay. Has there been any other positive for radio since the satellite radio companies have begun? Have they done anything good for terrestrial radio?

RHOADS: Oh, sure. You know, it’s interesting how publicity plays on the minds of things, on the minds of people. You know, we all love technology. I know you’re a tech buff, and I’m a tech buff, and I love everything that’s new, and every time there’s a new iPod, I want to go out and buy it, and every time there’s a new gadget, I’ve got to have it, and every chance I get to grab a new piece of software, I’m into it, but there’s this buzz that has been created somewhat by the satellite guys and also just by the fact that there is so much other buzz in other areas, with new iPods and new this and new that, that radio’s old and old-fashioned and old technology, and yet, the drop-off rates you would expect to be a lot larger than they really are. Now, there has been a very, very minuscule amount of drop-off in listening of radio, but it is literally minuscule. People are still spending I think 97%, either 97 or 98% of Americans are spending twenty hours plus a week with the radio, and that’s more than they’re spending with a lot of other media, and that hasn’t really changed, and so people are still listening to the radio in spite of the fact that a lot of people would like to say that it’s not cool any more. You know, radio still provides a great service, and, of course, there are a lot of different kinds of radio stations and formats that appeal to a lot of different people. There does seem to be some dwindling, minuscule, but some dwindling, in the youth markets, and I think a lot of that is driven by the fact that some of the radio companies have gotten a little greedy and run a little bit too high a commercial load. But in general, radio’s still got a lot going on. There are a lot of new programs, a lot of new formats, and actually, in the last five years, I think there have been more new formats launched than there had been in the last fifteen or twenty previously.

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© 2007 by Bob Andelman. All rights reserved.

Rock, Paper, Transponders

"The NAB didn't want there to be cell phones in the car because it competed with radio."

-- Sirius Satellite Radio CEO Mel Karmazin, discussing the National Association of Broadcasters' opposition to the merger of Sirius with XM, on Monday's "Howard Stern Show" on Sirius. (Yes, I used the word "Sirius" three times in that sentence.) For his part, Stern is all in favor of the merger: "I'll have a bigger audience." Take that, Talkers magazine.

Idolocracy

As big as Fox TV's "American Idol" is, and as many hours of programming as it has created over the past five seasons, why hasn't one of the satellite radio companies - Sirius or XM - launched an "American Idol" channel? Just wondering.