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 B. 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.
BOB ANDELMAN/Mr. MEDIA: 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.
ANDELMAN: You know, I am going to interrupt you for a second, Eric. It seems to me that there is going to be a huge generational gap in ten years, maybe less than that, of people who did not grow up taking their information and their entertainment from radio and have no expectation of doing so. I have a ten-year-old daughter who would never think of turning on the radio for music or information or to be entertained, and if I mention radio to her friends, they are like, “Why would we listen to that? We can listen on the Internet, we can listen to our iPods, we have 500 channels of cable television.” Or if their parents that have Sirius or XM, they tune to that. I mean, it just seems to me, and as an adult listening to terrestrial in the last two years, when I’m in a car that doesn’t have Sirius, which is what I subscribe to, I get very frustrated with the radio. Not just the commercials. Everything that the personalities say is pre-packaged, they are not spontaneous. I mean, the days of the old Q-Zoo from the ’70s and ’80s where things happened spontaneously, it seems a hundred years ago or wherever it may be. Scott Shannon in New York or, of course, Stern or any of those kinds of things. It seems like rather than re-fashioning their business plan or their creative plan that terrestrial broadcasters are just recycling the same old hash.
RHOADS: There’s about 30 questions in that, and I will try to address all 30 of them. The first part of that is that you are absolutely right. There is a huge generational gap that is taking place. I, too, have kids, and I also have nieces and nephews who are young adults now, college-age, and I’m experiencing these kids who are saying to me, you know, “Well, we just never do listen to the radio.” And yet I catch them listening to the radio, but it’s not a high priority, it’s not… When I grew up and perhaps when you grew up, it was kind of the soundtrack of our lives, and to a lot of kids, it’s not that any longer, and that is driven by two things. One is distractions in other areas. As you say, all the different things that they have. They have texting and IM, and they have all the different music sources from the satellites and from the Internet and from everything else, and they have video games and cell phones and just lots of distractions, and so all of those things probably cut into it. And the bigger issue is that, a lot of the reason this stuff has happened is because a lot of the companies stopped paying attention. You have companies like Clear Channel, for instance, and, of course, everybody likes to beat up on Clear Channel, and some of it’s undeserved, and some is well deserved, you have companies like that who said, “You know what, we can kind of homogenize this stuff across many markets and turn it into McDonald’s and make it formulaic and use one voice-over guy for multiple markets, and we’ll make sure that one music guy picks the music for multiple markets,” and as a result running a lot of radio stations on auto-pilot or other forms, satelliting them and so on, and as a result, those stations often times sounded a little bland. And the theory was that, let’s take what’s working in one place and multiply it into multiple places. And you know, it really was okay for a short period of time because it did sound good and it sounded different, but it seems to have staled out in some cases. So I think the responsibility is on all of the companies in radio to make sure that they are doing a good job, and, of course, I don’t want to sound like an old-timer, but when I cut my teeth in the radio industry, I was 14 years old, and I was on the air on a radio station. Well, I was pretty awful when I was on the air at 14, but that’s how you learned. And today, there aren’t very many places where a 14-year-old kid or an 18-year-old kid or a 25-year-old person can learn to cut their teeth on radio because the all-night show or the all-night weekend show where perhaps there weren’t very many people listening where you could put a kid on the air to learn the ropes and learn how to become talented, those shows are now automated or satellited, and so there’s not a farm team being developed, and so you have an industry where a lot of the talent was in the previous generation, which is now starting to either wind down or get pushed out, and then you do have a smattering of younger talent, but it’s much harder for them to learn and develop unless people are willing to take chances on them, there’s fewer places. So that all impacts these things.
ANDELMAN: Doesn’t it sort of seem like radio, which I love, I mean, and that’s where we started our conversation eighteen years ago, I love radio in whatever form it may be, but there are two other industries, media industries, from the 20th Century that I think are facing the same issues, and that’s book publishing and newspapers.
RHOADS: I think television is facing that, as well.
ANDELMAN: Television, as well, and television is finding other ways to… It seems like television is finding ways to adapt to the new reality, the new media expectations, but radio, newspapers, and book publishing, book publishing is still done the same way it was in the 19th Century. I mean, they have bigger problems, but…
RHOADS: I disagree with that. There are so many services where I can put my book online and within a day receive a hard copy of my book, and they will also set up distribution and put it on Amazon, and there are services like that which have revolutionized the book industry, but to your point and to confirm what you’re thinking, unfortunately, most of the companies who were in the book business have not realized that they need to get with the ’80s. Obviously, the ’80s are gone, but all industries face this. This isn’t something that happens… Every generation, there is a major shift.
This just happens to be a much faster and much bigger shift because of what’s happened in technology and the high speed at which it’s moving, and some of the newspapers have kept up, but most of them haven’t, and the newspapers are starting to drop like flies, readership is dropping like flies, and I sit down and read the newspaper every morning because it’s just a habit, and as I read through the stories, I thought, I saw this on Drudge yesterday, or I saw this on Google yesterday, and this is old news to me. There are things that it fulfills that I am not going to see on Drudge or Google because I don’t go to local websites as much and get things that are localized, and I like seeing that local stuff, but this is happening with newspapers, it’s happening with all media and even to television to the extent that the YouTubes will have their impact and how that’s all changing, the self-demand media and media that is going to be driven by the user. And of course, this whole revolution is about user content. And moving that back to radio, I think that the ultimate user content on radio has been talk radio. Talk radio has been a place where you and I, in theory, can pick up the phone and get on the “Sean Hannity Show” or the “Rush Limbaugh Show” or whomever and have a chat. Now, of course, the odds of us getting on that show because there are tens of millions of people listening, I think Limbaugh has 25 million listening every day, and Hannity is close to that, it’s not exactly an open forum, where, of course, the Internet, anybody can put a blog on, and if they’re good and they have something to say, the next thing you know, they’ve got hundreds of thousands of people reading them, or like you, you have all these people who are reading you and listening to your podcast, and I do that. I sit here in my home workshop where I am working on projects at night, and I listen to podcasts from people all over the world, and I learn things that I never knew anything about before that just wasn’t possible.
And it really empowers the people, but it all boils down to one thing, and that is, no matter how much you empower the people, if the people have nothing to say, or if they have nothing creative to exhibit, they still have no product. And that’s what radio has been lacking is that radio has not, and I don’t want to generalize, because there are people out there who are contradicting what I am saying by doing great, creative things and new, innovative things, but as a whole, it feels like the industry has gotten stale, and that staleness has been very much the result of — dare I say — bankers ruling the roost and saying, look, let’s cut expenses, let’s automate this, and who cares? I walked into at the very early stage of the consolidation, before Clear Channel had even bought all these radio stations, I walked into the office of a very prominent, very wealthy financier who later got involved in one of the big plays, and he was starting to buy up radio stations at the time, and they buy them up, and then they automate them and fire all the staff, and there’s no more localism, and he said to me, and he was dead serious, he said, “You know this automation thing we are doing it in the small markets East Los Angeles and Chicago, too,” and I was mortified. I thought, that’s the soul of radio. Radio’s not just about a distribution method, radio is really about one-on-one communication and entertainment, and if you take that soul away, the listeners are going to go away. I think that’s what’s been driving a generation away is that to some extent it’s financially motivated. For instance, in the advertising industry, there are cell groups, which would be different groups of eighteen to twenty-four, thirty-five to forty-four age groups and so on, and there are groups that are popular for advertisers, and then there are groups that are unpopular for advertisers.
One of the reasons that you don’t hear a lot of teens listening to the radio any more is because there are no teen radio stations anymore,
because teens are not a “desirable” demographic. They become desirable when they become 18 and they get credit cards. So the advertisers don’t want to support teen stations, and so the groups say, well, why should we have a station that gears to teens? Well, the answer is you should have one, because if you don’t get teens interested in radio, they are not going to become listeners when they turn twenty-five. And there is going to be a giant gap of no one listening to the radio when these teenagers who are not paying attention aren’t paying attention when they become what I call “money” demographics.
ANDELMAN: I have to interrupt you, because we are going to run out of time, and I want to take the conversation back to the XM/Sirius proposed merger. One of the ironies in this merger to me, at least it seems like, is that these two companies, whose content is largely unregulated, still have to get FCC permission to merge. Does that seem right?
RHOADS: Well, yeah, of course it seems right. The FCC controls the airwaves, and they control those air waves. When XM and Sirius were granted their license, keeping in mind that there were thousands of people who applied for those licenses and only two were granted, thousands of people wanted to build companies. Two people got them. Sirius was originally called CD Radio, or was that XM? I am confused. Anyway, when CD Radio, who was Mark Golus, got it, and then I think (Hugh) Panero got the XM, I’m not sure. Again, I don’t remember, but the bottom line was this, that the FCC said that, “Under no circumstances are you ever to merge, under no circumstances can you join. And we want to keep it, since we can only do two spectrums, we want to make sure that two different services exist, so that these services are not dominated by one company.” I spoke to a former FCC commissioner, Susan Ness, who approved the satellite radio at the time, she said, “Absolutely, legally speaking, they cannot do it. The law will have to be changed in order to do it.” And current FCC Commission Kevin Martin doesn’t want it to occur. I understand what Mel’s trying to do, but I don’t understand why they believe that they can get it through the FCC, and maybe they have some political connection that they feel is going to make it happen.
ANDELMAN: Do you think that the olive branch here might be, we’ll give it serious consideration, but you’ll have to bend to the same content rules that terrestrial…
RHOADS: No. No, I don’t think it’s going to be about content rules. The bottom line, and again, I spoke to the head of the NAB, David Greer, last week, and his position on this is this: just because you have not been able to financially make it doesn’t mean that the FCC should say, oh, well, you guys couldn’t make it, you can’t stand on your own, we’ll let you be together to make it. No. Let them go out of business. Somebody else will buy it and make it work. Every radio station, every newspaper, everybody else in the United States has to live that way, and so I think that the likelihood of it getting approved is probably very unlikely. I don’t think it’s going to happen. I think the FCC is vehemently opposed to it, and I would be shocked if they get it through, but you know, I’m wrong at least half of the time.
ANDELMAN: Do you think that Karmazin decided to go this route maybe fully expecting it would be turned down and that, in the meantime, he would build up Sirius and XM would continue to be kind of flat and that when all this was over, one would emerge, and XM would have to be sold or shelved or something?
RHOADS: Well, if I had an evil brain, and I am not suggesting he does, but if I had an evil brain, that would be a great way. I know someone who once tried to do a merger of two companies, and he never had any intention of doing it, but he learned everything he possibly could about every dime in the company and was able to make major inroads as a result of that. Again, I am not suggesting that that’s the case here.
I don’t think Mel would launch something like that as a ruse. He’s not that kind of a guy. He fully intends to get it done,
and he’s the kind of guy who says, you know what, I’m strong enough. I can figure out a way to get people to change the law. And maybe he can.
ANDELMAN: Is it in the interest of the National Association of Broadcasters, NAB, to oppose the merger?
RHOADS: Well, the NAB’s job is to support radio, and they feel as though it’s not good for the radio industry for the two to be together. I think they probably feel that if they both went out of business, it would be better for radio. I don’t feel that way. Again, back to the tide rising all ships, if satellite radio succeeds, then that’s good for all radio. Now, I suspect that what Karmazin will do is he’ll take 50% of the stations and commercialize them and turn them into selling commercials, money-making on the music stations, and then he’ll have some that are commercial-free.
ANDELMAN: If the two merge, if that is approved somehow, there’s a lot of redundant channels and business functions that will no doubt be eliminated. Will satellite employees be considered pariahs when they go job hunting on terrestrial radio?
ANDELMAN: No. If they have the talent and the skill, they’ll be ….
RHOADS: Everybody knows everybody, and they are not evil people. We all have friends who have gone over to the satellite side, and some have left and come back, and some work for both. I know people who do voice tracking… All the satellite channels, for the most part, are also automated, it’s just they do a pretty good job of it. Of course, you know, they are hiring a lot of the great talent that has been ignored by radio.
ANDELMAN: We need to wrap up time-wise, Eric, but let me ask you this: do you think that an Oprah Winfrey ride on Howard Stern’s Sybian is that far off in the future?
RHOADS: I don’t know.
ANDELMAN: Well, I mean, you have kind of indicated you don’t think the merger is going to happen, so we are probably not looking at that possibility at this point.
RHOADS: You know, I may be completely wrong, but I just think that they are in for a pretty big battle. I think there is going to be a lot of political intervention, and there will be a lot of political capital trying to be gained from this, but I don’t think it’s going to happen. I happen to like those guys. I like them both, and I think that satellite radio has been good for the radio industry, if nothing else to kick them in the butt and say, hey, get your act together. It’s been proven people still listen to commercials. There is new research that says 97% of people don’t tune out, and that is something you should look into at some point. So I think it’s good for radio, and I don’t think the merger is necessarily good. I think that we need two different companies creating two different products. It keeps it competitive.