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Guest post by David Philp of Music Biz 101You must now click HERE and watch a video. It’s of this guy Gary Vaynerchuk (many of you have heard of him or seen clips of him speaking). Gary has gone from son of a liquor store owner in New Jersey to multi-millionaire social media/ad agency expert. He was an early investor in many tech companies, like Snapchat. He’s also one of those guys who has trained himself to not get complacent in today’s business. He’s always looking forward so that he doesn’t get his proverbial pants pulled down. What I’m saying is that Gary, while in love with F-bombs and attitude, is the real thing. (He’s the Bob Lefsetz of tech, only smarter and a better public speaker.)Again, watch THIS VIDEO by Gary.Gary talks about what Netflix and Amazon have done to giant companies that we all probably thought at one point would never fail. But…Netflix beat Blockbuster Video, which failed.Amazon beat Toys R Us, which failed.*We can also argue that Amazon beat Sears, which failed and declared Chpt. 11 bankruptcy last week.But wait a second. Did Netflix and Amazon really destroy these companies? Or did these companies simply lose their edge? Did they get complacent?Toys R Us was slow to embrace the internet. If you recall, they used to outsource their internet store to Amazon. So Amazon took care of the order taking, processing, packaging and shipping. In effect, Toys R Us paid Amazon to take over their customers.Blockbuster had, at one point, been very forward thinking, especially in the music industry. Some of the older folk reading this (not old, just older) might remember New Leaf Entertainment. (Watch the video below.)But Blockbuster, which had been forward thinking, lost its way. New Leaf failed (the licensing from all of the intellectual property owners, like the major labels, was a major factor in its demise, or failure to get past the development stage). Netflix ate into the Blockbuster model with its mail order distribution system. There were no late fees with Netflix, no rushing back to the store to get the video back before your rental started costing two or three times what you’d initially paid.I personally think the oil industry should be investing now (they should have 20 years ago) in solar and wind technologies. Why? Trump and his money-before-anything attitude won’t be in power forever (even if re-elected in two years, which is very possible). Embrace change. Don’t fight it.The world is moving toward alternative energy technologies. ExxonMobil, rather than just spending $100 billion for some wind conglomerate in eight years, should invest that $100 billion in their own R&D. They’d make more money, I’m betting, over the long term. And money is really the bottom line in this whole discussion.Here’s a connector between the paragraph above and Blockbuster Video:The company opened its first store in 1985 when its founder, David Cook, was looking to branch out of the oil and gas software business.* *Found HERE in an article from 2010, right after Blockbuster (like Sears last week) filed for Chpt. 11 bankruptcy.Radio people unfortunately keep drinking their own Kool Aid. They keep thinking that radio as we’ve known it for the past, say, 40 years, is forever. But where radio is mistaken is that their real clients are not advertisers. Their real clients are their listeners. And there are fewer radio listeners today than there were a year or three years or thirty years ago. Fewer listeners mean lower ad rates. Lower ad rates mean more bankruptcies.The three biggest radio companies in America are iHeart Media, Cumulus, and Entercom (235+ owned and operated radio stations).Did you know which radio (they call them “media”) companies are in bankruptcy proceedings right now?iHeart Media (855 owned and operated radio stations) is in bankruptcy.Cumulus Media (440 owned and operated radio stations) is in bankruptcy.That’s two of the Big Three. Imagine how the music industry would react if Universal and Sony were in bankruptcy.Your job now is to read this quote from THIS ARTICLE which is featured in the title and pic at the very top of this whole rant:“Radio has become obsolete. I mean no disrespect. I have this argument a lot with my mom. She plays the radio and I tell her we have streaming now, there’s no need for radio. If we ran out of the Internet, I would use the radio. I listen to music on Apple Music and YouTube.”Read this one too:“Nothing seems to cater to me and commercials are annoying… “And read this:“I use Spotify premium so I don’t have commercials.”Nobody really needs to listen to radio anymore. You don’t need it for traffic. Who can wait 10 minutes for traffic on the ones or the eights? I’ll use Waze or Google Maps on my phone.Weather? Got that on my phone too. I even have radar that can blow up where I am so I can see as local as the block I live on.News? Nationally and internationally, there’s the Apple News app, again on the phone. For local news, there’s Twitter and Facebook. You can subscribe to hyper-local Facebook groups to find out news about everything from a rummage sale at a local church to which band needs a bass player in any city or town in America.Music? Talk? Spotify has all the music one could ever dream of. And they opened up their world to everyone who runs a podcast just about two weeks ago. Podcasting gives the depth that terrestrial radio doesn’t provide (except for NPR).*Note – The rant here is about terrestrial radio. SiriusXM is doing fine, plus with its recent purchase of Pandora, has shown an ability to look forward rather than staying the course.What should radio do? For one thing, it CANNOT just focus on higher ad rates, something that David Field, big boss man at Entercom, thinks is one of the biggest problems. Read this excerpt from a Q&A between Field and Radio Ink, a radio trade publication that named him Radio Executive of the Year for 2018:Radio Ink: Are there things that can be done better in the markets so radio can get more of the revenue? Are we playing too many spots, fighting each other over the same pie? What would you like to see done better?Field: The fundamental point is that advertisers have overlooked and undervalued radio. Radio today reaches more people than other media and arguably has the number one ROI of any major media. Radio is also the least disrupted medium, and the best medium at activating audiences. Radio deserves a much higher share of the pie. We will be working across multiple channels to induce major advertisers to shift spending into Entercom and into radio.Did you notice that he didn’t answer the question? The question was, what can radio do better? His answer? Ask for more money from advertisers. “Radio is…the least disrupted medium…”Tell him to read the part above, where I explain that we really don’t need radio because it’s already been COMPLETELY disrupted by the web, by apps, by mobile phones, by an on-demand culture, by younger listeners who think your commercials stink.If your exec of the year, your biggest cheerleader, is stating that you’re just not asking for enough money from your advertisers, that’s akin to an alcoholic telling you that the only thing wrong with himself is that he’s just not drinking enough.Gary Vaynerchuk is right in his analysis about the death of Toys R Us. He also states that TV is dead, eclipsed by streaming. Read THIS from last week’s New York Times. It’s an article all about how Netflix has dominated what was once a physical video rental market. It’s the dominant movie streaming service.So if Netflix is now like Toys R Us or Sears or, yes, Blockbuster, we should assume that it’s got to take a fall soon, right? He who disrupts shall be disrupted eventually.Netflix has an incredible amount of competition coming down the line. Disney just purchased Fox, which means this combination of companies will own an incredible amount of filmed content (both movies and TV). Disney did it because it’s starting its own online streaming service to take on Netflix. In the near future, Netflix won’t have that Disney/Fox content for its customers anymore.Uh oh.From that same NY Times article about Netflix:Netflix is also part of the reason AT&T spent $85.4 billion for Time Warner — renamed WarnerMedia — which will unveil a streaming service built around HBO by the end of next year.And there’s also Hulu, which has been around for a while (some of you may have a free subscription to it from a Spotify subscription bundle from last year). Hulu’s biggest owner is now Disney.Netflix could very easily say, “Hey, we’re fine. We have a market cap of $156 billion. We have 130 million paying subscribers. We made $1.3 billion in profit over the past 12 months. Let’s have a company retreat for 6 months in Maui and enjoy ourselves.”They aren’t doing that. Netflix knows that, as big as they are, they could wither and die quickly. They’re not too big to fail. So rather than focus on box office films, they’ve turned inward.They’re going to spend over $18 billion on original content. This worked for HBO (The Sopranos and Game of Thrones were HBO originals). It’s worked for Amazon (which we always forget when it comes to music and movie streaming, even though they’ve won accolades and spent big on programming for shows like Transparent and Tom Clancy’s Jack Ryan). Hey, it was even reported last year that Apple was going to spend $1 billion on original content.Netflix knows it has an audience and it does NOT want to lose that audience. It’s betting that this strategy will provide enough hits that those hits will attract new subscribers and keep existing subscribers.So what can radio do? What is radio’s strategy?If you’re David Field, you charge more to advertisers who won’t be reach anyone** in college or younger.(**That’s a mass generalization; we can’t assume every single college student and younger doesn’t listen to radio. We can, however, assume that the numbers are way down from those of a generation ago.)We know that doesn’t make sense. Here’s what terrestrial radio, which is late to the podcasting game, has going for it:1. It does have incredible reach, anywhere from 93% to 95% of all households in America.2. It is free (paid for by those advertisers).3. They just scored a HUGE win with the Music Modernization Act in that they DO NOT have to pay performing artists when a song is aired through terrestrial airwaves (unlike SiriusXM or Pandora, which pay PROs (performance rights organizations, which in turn pay publishers and songwriters) and SoundExchange (which pays sound recording copyright owners – the labels, featured artists, and unions). Therefore, they have cost containment for a decade or more.
