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1/30/2023 "The Black Economy 50 Years After The March On Washington"

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Wall St. and Business Wednesdays: E-Letter To Rick Dearborn and RadioInk Re: "Question To Radio: What Business Are We Really In?" (October 5, 2005)

Your intriguing article, "Question To Radio: What Business Are We Really In?", got me to thinking about my very first meeting with Source Enterprises CEO, Mr. David Mays, in the Spring of 2004. As a result of that meeting, I was hired to serve as a strategic consultant to him and the "Hip-Hop Bible", The Source Magazine.

As the meeting began in Mr. Mays's office, I pulled out of a bag and placed on a table, several DVDs and magazines which represented a wide variety of media which was targeted at the Hip-Hop generation. And then I explained to David Mays, "You may think you are in the Hip-Hop publishing business but you are not. You are in the celebrity and reality business. There once was a time when you were in the Hip-Hop publishing business because you were the only authentic source of what was going on in the culture and industry, but now all of the components of Hip-Hop have been broken out and their dimensions are now being sold as niches to a variety to customers," I said.

I explained that instead of focusing on his apparent direct competitor, XXL magazine - as there will always be room in the marketplace to support two magazines in the rap industry and culture, I reasoned- I suggested that Mr. Mays would be better served by worrying about his competition, now making significant inroads as ‘substitutes’ for The Source magazine. I pointed to what I had placed on his table: Don Diva and F.E.D.S. magazines – two magazines that serve those interested in more of the street life that serves as content for Hip-Hop lyrics, and Smack, a DVD rap magazine which does the same. I suggested that he think less about traditional competitor Vibe magazine and more about King and Smooth magazines which appeal to those interested in looking at the female 'eye-candy' that BET has promoted in its video programming. And I showed him Scratch magazine, a new magazine that catered to those aspiring artists who produce Hip-Hop and R& B music. I concluded that all of these media and publications reflect dimensions of the Hip-Hop market place that once were inaccessible and not served by specialists. A generalist market leader like The Source magazine could serve the entire Hip-Hop market place fifteen and ten years ago, and take its readers where no one else could; but that was no longer possible as folks can now watch "Access Hollywood", and even listen to Hip-Hop morning and drive time radio programs like The Star and Buc Wild Morning Show and The Wendy Williams Experience to get inside the industry and culture, on a daily basis. Surely a monthly Hip-Hop magazine would find it hard to compete in the current environment.

For the next four months I advised Mr. Mays and his magazine, providing ideas and arguments reinforcing my thesis that his fundamental challenge or competition was not Eminem, Interscope Records, Hot 97, MTV or XXL – the combined "Axis Of Evil" as I would jokingly refer to them in my memos to him; but rather his top challenge, as CEO, I believed was recognizing that he was no longer in the "Hip-Hop publishing industry" but rather the "celebrity and reality" business. As a result he would have to launch new products and refine his magazine’s content to appeal to those who were moving from The Source to dimensionalized "substitutes", offered by specialists. Mr. Mays heard me, and generally agreed with the vast majority of what I recommended, but did not implement what was described, instead, focusing more on my editing suggestions on how to refine the magazine's content in order to make it more politically credible. We had a good relationship, and perhaps one day we will work together again. All of what I suggested to him could still work, I think.

I raise that experience because it absolutely reflects the value and importance of your 'thesis', that sometimes it is hard for an existing enterprise to have the knowedge of self, an understanding of its own context - what business it truly operates in.

Your insights dovetail with those of business economist, Mr. Reuven Brenner who, at the very beginning of his excellent book, Rivalry: In business, science, among nations, poses the question, What is a "market"? Mr. Brenner argues that traditional notions of "markets" aren’t useful or interesting writing, "The difficulty with the definition of markets arises because of innovations, innovations that change the number and quality of goods perceived as good substitutes, and because of different perceptions of demands for new products."

Every entrepreneur and existing business can potentially fall victim to the never-ending cycle of innovation, and the appearance, from anywhere, it seems, of "substitutes" that customers can purchase instead of the products and services it offers. Examples of this, provided in Rivalry: In business. Science, among nations are the dry-cleaning business and the movie industry. Mr. Brenner writes:

1. Dry cleaning was once a growth industry. In the age of wool garments the boom was on. Yet 30 years later the industry was in decline. The good substitutes did not come from better ways of cleaning, but from the invention of synthetic fibers and chemical additives that have cut the need for dry cleaning. If the dry-cleaning industry was in trouble, it may have been because the decision makers in the industry assumed themselves to be in the "dry-cleaning market" rather than in the "cleaning market."

2.The film companies in Hollywood were once a growth industry. All of them got into trouble and some disappeared with TV’s inroads. Again, the substitutes did not come from the movies produced elsewhere or better movies, but from the invention of TV. If the movie industry was in trouble, it may have been because the decision makers in this industry assumed themselves to be in the "movie business," when, in fact, they were in the entertainment business. Hollywood’s managers scorned and rejected TV instead of perceiving the opportunity.

You, Sir, I think have asked the fundamental question for any entrepreneur and businessperson to answer – "What Business Are We Really In?" And you have properly posed that question to the radio industry which I feel is in a time of great transition, which of course can bring both chaos, failure and opportunity. I was just recently having a conversation with a friend of mine discussing how the radio business’ problem is that many decision-makers within it do not understand the depth of the reality that its most serious threat is not coming from within - say, Satellite radio vs. FM radio vs. AM radio; but rather its misinterpretation of the 'threat' now coming from the masses who, through the Internet and iPod, are now both music distributor and radio program director.

At present, the music industry misinterprets this much more erroneously than does radio, and has decided to take the impossible route of prosecuting its competitors rather than co-opting and collaborating with them, and listening to what their presence and popularity reveals. This of course is with a few notable exceptions (like how BMG handled Napster). It (the music business) recognizes what is "substituting" for the CD properly, but it does not properly understand why (I say it is infrequency and tardiness in album releases and albums with too few quality tracks on them) there is demand for the 'substitutes' - MP3 and Internet Radio. Nor does it accept that, in that, 'why', lies a solution to the problem.

FM/AM radio, though definitely confused, is seeking to address the things about it that make it unattractive to those with Internet radio and MP3 players. And Clear Channel, in particular, by reducing commercial time, promoting FM talk-radio format stations, and hiring brilliant talent, (leveraging its scale through national syndication deals) edgy enough to compete with the near censorship-free satellite radio; shows signs of figuring out what is going on and how to navigate the new terrain. It is solving the problem by doing what iPod's and Internet Radio can't - sign and cultivate big name talent and increasingly move to talk or 'spoken word,' formats. As recorded music becomes more commoditized, real life, relevant, informative and entertaining personalities - in other words, people - are what will differentiate radio from technological platforms that program and distribute music as well as any station or label.

In, "Question To Radio: What Business Are You Really In?" you write:

Radio is getting close to the 100-year mark, having hit the airwaves in the 1920s. Coincidentally, it is facing a period of unprecedented technology-driven change. What has it learned over the past century? It seems this is a good time to get "back to basics."

There are two primary forms of human communication: interpersonal and mass communication. Interpersonal communication occurs when you communicate with someone one-on-one. There is not much between the two of you that can interfere with the process, and you get immediate feedback as to how the message is being received.

Mass communication, on the other hand, involves conveying an idea from one to many, most often by means of a complex technology and with little opportunity for immediate, meaningful feedback. Of course, the feedback part is changing, since technology is leading us to methods of dramatic improvement in that area.

But either interpersonal or mass, the core purpose of communication remains the same: to convey an intangible idea from a sender’s thinking to a receiver’s thinking, in a manner where the original idea is transferred as clearly as possible.

Radio people are the world’s greatest experts on conveying ideas to the masses using only one of the five senses: hearing. So, radio is in the aural mass communication business, and no one has more experience or is better at it than radio is.

The tools have changed in radio over the years, and all indications are that they are going to change a whole lot more, and at an increasingly faster pace. These changes will result in two fundamental and primary adjustments:

1. Radio has had the distinct advantage of being at the information "pinch point" for a single delivery technology. New delivery technologies will dramatically broaden the audience delivery options and thereby reduce the "gatekeeping" process that the industry has profited from for so long. Almost anyone will have access to a global audience.

2. New production technologies are already replacing rooms full of expensive equipment with the personal computer. In other words, it is a heck of a lot easier to produce programming. But, is it good programming?

Aural mass communication will always be popular and effective, as long as people will always have ears (at least as far as we know). And ears are a great way for people to take in ideas while they are doing something else. They are the ultimate input devices for the ‘multi-tasker.’

We spend a lot of time running around trying to predict the future, and indeed we should. Will the future of radio be in "high def," surround, podcasting, cell phones, WiMax, satellite, a combination of it all, or something that hasn’t even been invented yet? Will we even continue to call it ‘radio?’ Nobody knows. But there is one thing we do know: the fundamentals of aural mass communication will remain the same. That’s radio’s greatest asset, its core competency, and its expertise.

Radio will certainly survive in some form. Just like the transportation business, however, some of its players will not. Radio needs to stick with the basics, with what it is really good at, and capitalize on the opportunities that new technology will bring to the aural mass communication process.

I would disagree a bit with some of your description of "mass communication" and the inadequacy of the feedback process within it (you ignore and downplay the circular nature of the receiving and sending of information from an individual to a crowd and the feedback from the crowd back to the individual, which is what makes talk radio so popular - all with the use of the now arcane telephone), but you raise great points and ask good questions, in what you present.

I like your explanantion of what business radio really is in. By thinking in terms of that paradigm, it is easy to see that the the MP3 player (because it is only one-to-one communication, if that) and Internet radio (because it is not purely an audio communication medium and technological platform) are competitors of FM/AM only where music is concerned, but not necessarily when purely mass communication, as you define it, is the product.

I think the current competition between Satellite radio on one hand and FM-AM radio on the other is fascinating. On one hand you have the insurgents XM and Sirius radio who have a superior technological platform, emerging demand, friendlier political environment (but hardly a formidable political presence and network), and more specialized content; and on the other, you have the FM/AM establishment with greater customer loyalty, flat current demand, a hostile political environment (but with a well-connected and capable lobbying machine), regional content specialization and growing national syndication.

I like your insight and identification that all in the radio business are fundamentally in the "aural mass communication process", and as a result I think that the Satellite vs. FM/AM radio war will end up as a draw. Before either XM or Sirius go under individually, they will realize they are not truly competitors, and will merge, and I think that Clear Channel, along with a chief competitor, Infinity Broadcasting, will continue to grow in influence, dominating FM and AM. Although it is promising, I think that Internet radio has a long way to go before it irons out issues related to national portability, (already solved by Satellite and FM/AM radio- in cars, boom boxes, portable units and stereos), subscription pricing (a problem Satellite radio still has), and must-have content and talent, (an area where FM/AM have a tremendous lead on Satellite radio, and why Howard Stern’s defection from FM to Satellite, though only a drop in the ocean of FM talent, is such a big deal).

I also am not sure about the juxtaposition of Satellite radio and digital music (downloaded from the Internet,) as if they are mutually exclusive. I just read an R&R interview of Cumulus Media Chairman/CEO Lew Dickey who is very dismissive of Satellite radio saying:

"Satellite radio is already over. iPod technology and WiFi have already leapfrogged it. Its distribution system will be outmoded before it has a chance to prove its case.

I don't even consider those guys to be competitors. They're practically losing more money than all the broadcasters are making. They're burning through hundreds of millions of dollars a year, and, as we learned with the dot-coms, it's not a real business if it burns more money than it takes in.

And there is no end in sight. Their break-even dates keep getting pushed back because of the amount of money they're spending to acquire customers.

Here's another way to look at pay radio: If you look at the Internet, the company that's been the most challenged is AOL, and they have a subscription-based model. The companies that are flourishing are Google and Yahoo!, which are free, advertising-fed services.

The model that's working in new media isn't subscription-based. People won't pay for this stuff. These guys are swimming upstream, and it's a pretty strong current if they think they can charge to listen to the radio and reach a mass audience.

First, I don't know if the numbers support such a rosy picture about the superiority of digital music over satellite radio. According to an article, "Too Many Subscriptions?" in the Sept. 24 edition of Billboard magazine it is reported that Satellite radio subscription spending is expected to reach $2.88 billion by 2009. Jupiter Research estimates that digital music sales will surpass $1.7 billion by 2009. And aside from the fact that his final point ("These guys are swimming upstream, and it's a pretty strong current if they think they can charge to listen to the radio and reach a mass audience") was the exact same argument made against cable by the TV industry - Mr. Dickey, I think, does not understand that although Satellite Radio has a majority of music channels, it has a significant number of 'spoken word' or talk radio formats, and audio feeds of cable channels. Also, sports broadcasts are becoming a tremendous draw for purchasers of Satellite radio. In an USA Today interview, last week, XM CEO, Hugh Panero says, "Our service is identified with Major League Baseball. Between 16% and 20% of people who have subscribed, when asked what piece of content made them choose XM, said 'baseball.' And we're going to find the same attributes when we introduce hockey in October."

So it is more than just music that Satellite radio subscribers are paying for. Also, even in the area of music, not everyone wants total responsibility to serve as their own music distributor and program director, which is what you are when downloading digital music and using your iPod. Satellite radio allows individuals the efficiency of not having to find songs and compile and arrange them. And now, with the news that Satellite radios will be available as MP3 players (although the earliest models lack portability), one can see how the distribution platform argument against satellite radio may be on shaky legs.

As mentioned earlier, I believe that the Internet and iPod/MP3 player has turned the consumer who relied on record labels to compile music for him/her, and the radio station to introduce and prioritize that music for him/her, into both distributor and programmer. Radio can allow its cousin in the music business to iron out its problems with the little mass distributer, but it must be careful in how it interprets the little mass programmer. I read recently that Paragon Media Strategies conducted a survey which kept track of how much time MP3, Internet radio and Satellite radio listeners spent listening to broadcast (FM/AM) radio. They asked a question, "Since listening to Internet radio, MP3 players or satellite radio, would you say you are listening to broadcast radio more, less or about the same amount?" The answers revealed that Satellite radio listeners were 20% more likely to say they listened to broadcast radio less often. The data is being used to light a fire under the broadcast radio industry and further make the case that Satellite radio is stealing customers from broadcast radio. I think the data is saying that, but it is also saying that there is something about Satellite radio that is missing from broadcast radio. If one looks at Satellite and broadcast radio as competitors they miss an opportunity, but if one looks at Satellite and broadcast radio as part of the "aural mass communication business," as you describe, it becomes possible to see that Satellite radio and broadcast radio have more in common with each other than either does with Internet radio and MP3 players. The next logical step becomes finding profitable ways for Satellite radio and FM/AM radio to become one.

It is pretty obvious to me that the aural mass communication market can’t survive this current civil war and all signs point to the wisdom of an eventual merger of some kind between both sides, the major problem being politics and government regulation which, in many ways is part of the relatively unregulated Satellite radio’s comparative advantage over FM/AM. As a result, although it has not capitalized on it as it should, XM and Sirius have the clear advantage of being able to offer unedited music and uncensored talk. Unfortunately, the business model was a bit greedy on the latter front which is why XM radio’s effort to charge a small premium to subscribers for its Opie and Anthony program failed. Now, the two controversial radio hosts come along with the regular package. It will be interesting to see if Sirius makes the same mistake with the much more popular Howard Stern in January. XM says Sirius' securing of Howard Stern is a "half a billion dollar gamble." A report recently released by Bridge Ratings and Research predicted that because of Howard Stern alone, Sirius will add 1 million new subscribers by January 2006.

Another comparative advantage that Satellite has over FM/AM is that it essentially is cable radio. With the major cable channels simulcast on Satellite radio, I think there is a major demand for customers who want to be able to listen to MSNBC, CNN, and Fox while on the road.

The advantage that FM/AM has is its regional content. In New York, you get New York radio and in Seattle you get Seattle radio. A powerful offering for FM radio to consider making available will be regional packages that allow listeners, no matter where they are, to listen to their local area programming. I originally thought that is what Satellite radio was going to allow me to do – be in Atlanta listening to my favorite D.C., Philadelphia and New York radio shows. To a small degree FM/AM satisfies that with national syndication deals for certain programs – Star and Buc Wild, Wendy Williams, Rush Limbaugh and Sean Hannity. But this process can be slow, and these and all programs lose some regional appeal and ability to specialize when nationally syndicated.

So I think there is room for both – the nationally syndicated FM/AM radio program, and the regional FM/AM radio program which can be heard on a special technological platform, in a car or home, anywhere in the country. I don’t think that such an offering will cause the latter (regional programming) to lead to the former (national syndication). Folks in Miami, even if offered Los Angeles regional programming, will still want to hear Miami regional programming – especially news, sports and local-ethnic music. But I think it will take a merging of the Satellite and FM/AM business models to deliver this. And the politicians and lobbyists for individual stations will probably make this further on the horizon than it should be. But you can already see how FM/AM is making arguments against Satellite, complaining about its comparative disadvantage that will eventually make a merger politically palatable.

Earlier this week Clear Channel CEO Mark Mays said Congress should increase local ownership limits to 12 stations from eight in markets with 75 or more stations. In markets with 60 or more stations, he wants the station limit to increase to 10 from eight. Mr. Mays claims that Satellite radio (and Internet services) escapes regulations on content and capacity that give them an unfair advantage that only can be overcome by allowing FM/AM broadcasters to get bigger. It is peculiar to hear Clear Channel make an unfairness argument similar in tone to that frequently made against it by smaller FM/AM radio station owners, but as he continues to make this case I think you will see pressure to regulate Satellite radio grow (there already is progress being made in this area by those arguing that Satellite radios in rental cars should be regulated), that will eventually make mergers and partnerships across both industries possible. Although not exactly what I have in mind there already exists a content partnership between FM/AM’s Radio One and Satellite’s XM radio. Which brings me to a final point.

Mr. Dearborn, your clear identification of the real business that radio is in is perhaps an insight that will allow the Black community, its entrepreneurs and broadcasting owners and professionals, to arrive at the right political paradigm and business model(s) to fill a tremendous void in original content – across niche, region and format. One article, "Who Killed Black Radio News?" at does an excellent job of chronicling the demise of Black radio over the last 30-plus years. That fall continues today, with and without profits for those who exploit the platform provided by previously Black-formatted stations. For example, historically viable Black talk radio has been taken over increasingly by White progressive radio, to no great success. For example, Sunday night, I heard Internet media guru and AM radio talk show host, Matt Drudge, say that WLIB 1190-AM in New York City, a bastion of Black talk radio, recently taken over by Air America – the Left talk radio channel, is showing the same ratings today that it had before the switch in programming. In addition to this came the news last week that WHAT 1340-AM in Philadelphia was removing Air America programming off of its airwaves due to what The Philadelphia Inquirer called "abysmal" ratings. You can read the article, "Air America Grounded By WHAT-AM" for the details, but there was absolutely no positive buzz for Air America in Philadelphia among Blacks. Although many would like us to believe differently, the Inquirer nailed it when it wrote, "the juxtaposition of liberal talk and WHAT's African America-targeted talk programming seemed an odd fit from the start." There is a void for regional and national Black talk radio, and to some extent XM Channel 169, The Power is filling it.

There is also room, I believe for a broadening of the current ‘urban’ radio format that is bogged down in the monotony of unimaginative Hip-Hop and R&B music. There is an opportunity for even what has been called 'rock' music, over the years, to break successfully into the Black or "Urban" music format. I was just watching a video about the life of Jimmy Hendrix and was struck by the sound he was able to produce – a hybrid of Rock and Soul music when he was in his all-Black band, The Band of Gypsys. But what struck me the most was a portion of the video where Hendrix band members, Billy Cox and Buddy Miles, describe that the key to making that sound and band successful was getting Black radio stations to play their records and that the most important man at the time with the power to do so was the legendary program director and DJ, Frankie Crocker. If Black artists, able to build on what Jimmy Hendrix discovered can successfully develop and connect with a Frankie Crocker-like program director, or DJ, in a viable format and business model, there is great opportunity for profit, I think. I like Star of the Star and Buc Wild show as the return of Frankie Crocker, today.

The entire format of urban and talk radio, even all of aural mass communication, as you put it, is ready for a revolution.

But it takes fundamental insights that come from answering the question you pose – "What Business Are We Really In?"

Cedric Muhammad

Wednesday, February 21, 2007

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The views and opinions expressed herein by the author do not necessarily represent the opinions or position of or Black Electorate Communications.

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