It's More Than Just a Music Test... Consumers (not the products) change "A Grande, Non-Fat, Sugar Free, Vanilla Latte..." The "Starbucks-ing" of radio Radio can avoid a "Maxwell House" future

Consumers (not the products) change

I've been working in radio for over 30 years now (starting out on the WOKY/Milwaukee request lines when I was in high school), and during that period, at least, radio has always had tight playlists, has never had dramatically wider format diversity, has always had lots of DJs who were reading liner cards (and might just as well have been time-shifted for all the difference it would have made), and has almost never given airplay to local bands. The one thing that has changed in the post-consolidated US radio industry is a dramatic increase in spot loads, that has led to a decrease in product quality. Still, however, I don't believe that's the heart of radio's current problems. What's going on in the radio industry is this: "I don't think it's the product that's changed, I think its consumer values that are changing". Whereas 10 years ago consumers might have valued the attributes of a wacky morning show, a tight playlist, and good audio processing, today I believe they are increasingly looking for different attributes in their audio-based entertainment experience, including diversity, depth, and control -- attributes that broadcast radio is technically incapable of delivering. My perspective on this issue is strongly influenced by the book "Value Migration", by Adrian Slywotzky (Harvard Business School Press, 1996). In that book, Slywotzky cites numerous examples from product categories like airlines, coffee, pharmaceuticals, and computing in which consumers deserted established providers not because the providers' products changed, but rather because the consumers' tastes and priorities changed. In each industry, billions of dollars of shareholder value migrated (thus the book's title) from the established firms to the new entrants. "Value Migration" by Adrian Slywotzky »

"A Grande, Non-Fat, Sugar Free, Vanilla Latte..."

Let's take coffee as an example. Only 15 short years ago, it was an $8 billion business dominated by three major brands (Proctor & Gamble's Folgers, General Foods' Maxwell House, and Nestle's Nescafe) and had become, in Slywotzky's view, a commodity business based on price, offering inexpensive Robusta beans served up in tin cans. At the same time, commuters' needs were perfectly well satisfied by a 75-cent cup at the local coffee shop or train station. Those products have not changed. What happened in the industry, starting around 1990, is that coffee drinkers were offered the first major expansion in customer options in decades -- specifically, higher-quality Arabica beans delivered whole in supermarkets or in a comfortable, upscale environment in stores like Starbucks. Importantly, these new entrants used new business designs -- different business models that the decision-makers at Folgers and Maxwell House thought either (A) weren't their industry at all or (B) were too complex or too small or seemingly low-margin to deal with. (Starbucks' 1988 sales of $10 million weren't even imaginably significant in an $8 billion industry.) The result? While sales of Folgers and Maxwell House have of course not declined to zero, changing consumer values have created over a billion dollars of shareholder value for the gourmet coffee providers -- and probably a concomitant loss in the value of the coffee divisions of P&G and General Foods. And by defining their product category too tightly, they missed opportunities, in Slywotsky's opinion, to build three different types of national brands in different areas of the coffee space, each of which was a lost billion-dollar opportunity. Get answers to the questions that are keeping you up at night! »

The "Starbucks-ing" of radio

Circling back to radio now, I'd argue that the typical "Lite 93" or "Mix 96" or "Rock 101" is analogous to Maxwell House -- a product that has satisfied consumers for decades, but which might not satisfy the increasingly-sophisticated consumer demands of the future. For several years now, consumers have been getting exposed to Internet radio, XM and Sirius, iPods, Rhapsody, and more. As a result, their priorities may be changing. They are becoming aware that there are more than 20 possible music formats, and they may be growing to like and even expect some of them (e.g., blues, bluegrass, Broadway, and British rock). They are experiencing radio programming that is a more music-intensive experience than they had previously envisioned was possible. They are experiencing customization of the music they hear (e.g., Yahoo! LAUNCHcast). They are getting firsthand experience with Internet-delivered radio that offers a "pause" button for when they get a phone call and a "skip" button for songs they don't like. I may start calling this the "Starbucks-ing" of radio. As consumers get exposed to these new experiences, their priorities are changing -- and they'll probably never go back. The "Starbucks-ing" of Callout! »

Radio can avoid a "Maxwell House" future

This is not to say that radio operators' prospects are doomed. Of course it's now too late for any radio broadcaster to buy into the satellite radio game (although there were opportunities at some points). However, the Internet is still rich with opportunities! Some savvy radio broadcaster may yet take the plunge and establish a new, independent division that launches a new, national Internet radio brand. And as Wi-Fi becomes ubiquitous, such a brand may eventually be able to leapfrog past satellite radio -- into cars, onto home stereos, and onto mobile devices. It could be a huge, billion-dollar win. But most broadcasters won't take that plunge, for the same reasons the leading coffee brands didn't. They'll be Maxwell House -- still a profitable product line, but no longer where the action is. Because, I don't think it's the product that's changed, I think its consumer values that are changing. Kurt Hanson Radio And Internet Newsletter - http://www.kurthanson.com kurt@kurthanson.com Should a Starbucks "White Mocha" be a controlled substance? »