As the rest of the world gets smaller, nimbler, slicker, hipper and more progressive, terrestrial radio continues to market itself as something your paranoid 89-year old grandmother can be proud of. The industry also represents a good way for your elders to lose their life savings. Terrestrial radio continues to be little more than a misguided investment.
Each morning I receive an email from Radio-Info.com that highlights and not-so-implicitly promotes developments from across the radio industry, with a particular focus on terrestrial. Here's a screenshot from the one that hit my inbox Wednesday morning:
To be perfectly clear, I live in earthquake country. For that reason - and because I am human - I take very seriously and solemnly what people are going through as a result of a natural disaster. And I fully understand the value of terrestrial radio as a place people can turn to when they need vital and potentially life-saving information at a time when other forms of communication become tricky propositions.
Without a doubt, terrestrial radio plays a crucial role in keeping people safe and informed. Clear Channel's (CCMO.PK) (NYSE:CCO) debacle in North Dakota several years ago, referenced in the Radio-Info blurb, helps hammer that point home. At day's end, however, the notion that radio serves the public during an emergency should be little more than an expectation; industry officials and advocates should never use it as a marketing ploy. The fact that they do provides further proof that terrestrial radio continues to struggle as it attempts to compete with Sirius XM (NASDAQ:SIRI) satellite radio, Internet radio from sources such as Pandora (NYSE:P), and other new media offerings, particularly those from Apple (NASDAQ:AAPL).
This comes on the heels of the National Association of Broadcasters' (NAB) feeble ploy to make FM radio a free and default option on smart phones. What terrestrial radio is doing these days is akin to politicians evoking September 11th-related fear for partisan legislative purposes. Terrestrial radio wants to circumvent the need to compete by throwing its responsibility to serve the public in the face of anybody who will listen.
At its current pace, terrestrial radio will become tantamount to one of those clunky old emergency radios that we all should have as part of our earthquake and disaster preparedness kits. It's revealing to pull up one of those devices on Amazon.com (NASDAQ:AMZN) and see what people often buy as part of an emergency radio purchase.
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If you do the same with Apple's iPad, you get expectedly different - and more encouraging - results.
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It occurs to me that radio should be setting itself on a path that associates the medium with Lady Gaga (regardless of what you might think of her) and touchscreen protectors as opposed to fire starter kits and flares. Somewhat respectable efforts by Bob Pittman and others at Clear Channel to compete end up getting short shrift in favor of pushes to focus on traffic reports and emergencies. This lack of a real willingness to become relevant once again makes terrestrial radio little more than an embarrassment in the face of superior competition.
The terrestrial radio industry should be ashamed that people such as myself cannot, with a clear conscience, even hint at dabbling in pure radio plays as investments. Instead, if you want to expose yourself to radio, you should only do it via companies - CBS (NYSE:CBS) and Disney (NYSE:DIS), for example - with other revenue streams that effectively hedge against terrestrial radio's ineptitude.
I have said and continue to think nice things about CBS Radio division President Dan Mason, but his apparent comments, reported in the same Radio-Info blast, only further validate my reasons for concern:
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Somebody needs to send what Mason said to Howard Stern. And I want credit for it when he rips the poor guy. What Mason says could have fit perfectly into Stern's landmark movie, Private Parts. It's a classic case of Pig Virus-like micromanaging that does absolutely nothing to make terrestrial radio's content more compelling so people will choose it over Sirius XM, Pandora, an iPod, or one of the hundreds of other options. What Mason wants amounts to little more than a sell out to the music industry. The timing of Mason's edict is questionable.
When Stern and Sirius XM CEO Mel Karmazin left terrestrial radio, they took any will the medium ever had to compete with them. While I still recommend CBS as a long, comments like Mason's, passed off as a viable strategy, make it less likely that I will include radio as even partial support for going long.
A common theme connects many of the Seeking Alpha articles that I write. It's best summed up in this excerpt from a recent piece on Sirius XM:
Mason should meet less with music industry executives. Instead, he should pick the brains of people like Melinda Witmer, the chief programming officer at Time Warner Cable (TWC). He should take her refreshing and forward-looking mantra, adapt it to radio like I did, and memo that to his staff. That's the kind of leadership terrestrial radio needs if it ever wants to become an industry that investors can feel confident about putting their money into.
And it's not simply about content delivery. The visionary thinking Witmer offers is overarching. As I read it, it says that you have to be willing to let go of the old ways of doing things. By adhering to time and temperature, investing in traffic like Clear Channel did, and micromanaging your staff to mention song artist and title more often, you do absolutely nothing to bring terrestrial radio into the 20th century. (Yes, I said "the 20th century.")
As an investment strategy, it's clear. Stay away from terrestrial radio companies. And steer clear of the firms who resist change; the ones intent on remaining part of the old guard. Before I invest in a media/content company, I not only ask myself about current and potential synergies, I also ask if the company can adapt to an incredibly fast-changing new media landscape.
Based largely on the intentions, performances, and words of their leaders, I can confidently endorse long positions in Sirius XM, Liberty Media properties (LCAPA) (LINTA) (LSTZA), Amazon.com, Demand Media (DMD), and to a lesser extent, DISH Network (NASDAQ:DISH). If a company in this broad space of new media and content does not pass the synergy and innovation sniff test, I do not think it is worth looking any further. At this point, the smell from terrestrial radio continues to be as off-putting as its ever been.
Disclosure: I am long SIRI.
Additional disclosure: I may initiate a position, long or short, in AAPL, AMZN, DMD, LCAPA, LINTA, LSTZA, or CBS at any time.