Dear Radio Executive:

As a fresh, new year begins it presents an opportunity for all of us in this wonderful business to stop and take a moment to put our world into perspective. With perspective comes clarity and hopefully clarity will give us a chance to catch our breath and build a stronger industry.

I’ve been curious as to how the radio industry compares to other industries in many ways, especially regarding the question of competitive flanking and guerilla strategies.

2004 was the year digital media began to gain some traction. Some say traditional radio is going through significant change due to new competitive threats, while others see recent soft times as part of the ‘cycle of life’ of industry in general and that radio is simply dealing with a lull right now.

I recently spent some time with a professor of Management in Boston and was interested in her recent published paper on something she refers to as the “Trajectories of Industry Change”. I was curious as to her analysis of industry change and what she thought of what the radio industry is currently going through.

According to Anita McGahan, who observes all types of industries and companies, traditional radio is at a crossroads but should not be distracted by new competitive media. She suggests we stand back and understand how the whole audio entertainment industry is changing and view our place in the larger landscape of all things audio. Broadcasters are misreading growth clues and may be arriving at false conclusions, says McGahan.

I asked Ms. McGahan what her message to the radio industry’s leaders would be. The most important thing to appreciate, she says, is that all business goes through lifecycles during which obsolescence becomes a consideration. New technologies shake up all industries and all companies at some time are faced with ‘defending their turf’.

Radio is caught in an evolution as a result of Two Types of Threats of Obsolescence from digital media:

 

• A threat to our core activities (those activities of attracting listeners with programming and delivering consumers for advertisers), and

• A threat to our core assets (our durable resources such as talent and programming and intangibles such as programming knowledge and brand capital, that have historically made radio effective at delivering audiences).

 

Based on the nature of these threats, our industry will find itself on a growth curve with the following identities:

Phase 1 – The Stable Trajectory when neither our core assets nor core activities are jeopardized. During this phase the industry is operating effectively and efficiently, it understands its strengths and weaknesses with no significant outside competitive threat(s). There is a balance between investing in product and sales. However, over time this phase tends to begin to weaken after an extended period of wealth and profit-taking. The traditional radio industry had been on a Stable Trajectory until around 2000-2001 when a “perfect storm” of weakening economies coupled with the rise of new technologies began to cause some concern.

Phase 2 - The Intermediary Trajectory – the period after successful times when the industry begins to experience new competition generally aided by new technology when either core activities or core assets are threatened – but not both. It is a time when a “tipping point” is approaching but there is still time to adjust and avoid significant damage to revenues, profits and consumers.

This phase is often characterized by short-term profit-taking as a reaction to this new threat while avoiding investment that could later prevent competitive inroads.

According to Dr. McGahan, the traditional radio industry is at the beginning of this cycle with competitive media making advances. Industries at this point of the trajectory curve should fend off attacks to either their core activities or core assets by reinvestment in those core strengths. Defensive strategies come from company marketing, product and sales innovations which refresh perceived obsolescence.

Phase 3 - A Radical Trajectory, the most serious, occurs when core assets and core activities are both threatened with impending obsolescence. Often considered too late in the lifecyle to recover from severe competitive and technological inroads, industries in the radical phase may never be able to infuse enough funding back into the business to fend off the momentum of on-coming competitors.

With radio sitting between the late stages of stability and the early stages of the Intermediacy phase, our business has great opportunity. This perspective should motivate the industry to bring its most creative and hard-working people together to find answers.

Historically, radio has found a way to reinvent itself to suit challenges of the times every decade or so. Whether it was movies in the 1930’s, television in the 1940’s or abrupt changes in music preference in the sixties, radio has always figured it out.

Therefore, when analyzing our industry's current state, it is imperative to appreciate all the change that is coming fast and furiously - not just one element of that change. What do these new technologies mean to an industry that has faced technological advancement before and reinvented itself time and time again? The answers will be found with:

 

• A new creative energy and permission to think more openly
• Reinvestment into those core activities and assets that will produce results
• Industry willingness to consider that which made it flexible and responsive to the needs of its audience.

The radio industry is poised to take great strides in 2005. We must realize that as a mature industry we share the “Trajectories of industry change” with other industries that continually face economic and technological change and that there are numerous lessons to be learned from companies like Circuit City, Gillette, Kimberly-Clark, Kroger, Pitney Bowes, Walgreen, and Wells Fargo. These companies saw the future advancing with new technologies, altered consumer behaviors and economic challenges, circled the wagons and remained competitive and are today, considered some of America's most resilient companies.

From this perspective, traditional radio can see more clearly that there are solutions. The question remains: is the industry prepared to take a lesson from our non-public companies who concentrate on reinvesting, thinking creatively and taking the long-term look at development?

Your feedback is vital to our company's on-going success. As always, I look forward to hearing from you.

Sincerely,

Dave Van Dyke - President