Report: Paradigm Shift Is Forcing Radio To Face Change

Highly respected music industry expert, and head of the Steinhardt Music Business Program at New York University, Larry Miller, released a special report today, titled PARADIGM SHIFT: WHY RADIO MUST ADAPT TO THE RISE OF DIGITAL, which details the current state of terrestrial radio in the United States.

The report examines the significant business and social challenges faced by one of the country's oldest media sectors. The paper was published this morning on Mr. Miller's website, Musonomics.com, and provides an in-depth analysis of how and why audiences are abandoning radio as their primary source of music discovery and enjoyment and the resulting diminishing economic importance of radio to the music industry.

"Terrestrial radio is facing monumental challenges as streaming continues on its path to becoming the go-to place for current and future generations to enjoy and discover music," says Professor Miller. "The emergence of new platforms and the corresponding behaviors of Gen Z listeners have reduced radio's relevance to a very important and growing demographic. Advertisers are challenging radio's audience targeting and measurement methods as they seek ways of connecting directly with consumers via mobile telephones and other platforms. Radio is at a crossroads as an industry."

The report also reveals that the rise of digital music services like Apple Music, Spotify and Pandora are causing traditional radio listeners, particularly younger ones (12-24 years old), to flee terrestrial radio on a massive scale. This exodus is creating a dire situation for radio where the format's long-held monopoly as the only audio choice behind the wheel is overthrown by new technology. Additionally, radio's dominance as a promotional vehicle for popular music and as a taste-making platform for new recording artists is being contested like never before.

Among the report's conclusions:

• New research confirms that Generation Z, who are projected to account for 40% of all consumers in the U.S. by 2020, are showing little interest in traditional media, including radio, having grown up in an on-demand digital environment.
• AM/FM radio is in the midst of a massive drop off as a music discovery tool by younger generations.
• By 2020, 75% of new cars are expected to be "connected," breaking radio's monopoly on the car dashboard and relegating AM/FM to just one of a series of audio options behind the wheel.
• Year over year, radio advertising revenue dropped 4% while digital/mobile spend was up 11% according to Standard Media Index's Q2 2017 report, showing that even in local advertising, radio cannot sustain its dominance.

Notwithstanding the digital radio platform developed by iHeartRADIO, for which the payment of a performance royalty is required, broadcast radio does not pay a sound recording performance royalty to artists and rights owners. Economists have concluded that innovation has stalled out, because, in general, the business remains focused on driving EBITDA through reduced content cost (no sound recording royalty obligation) as a result of government price suppression (to $0) by current public policy.

As a result, radio's importance to music industry revenue is rapidly diminishing. In a business now driven by access to music versus ownership, record labels have shifted their focus to digital platforms to introduce new artists and monetize back catalog.