Leading Terrestrial Radio Advocate Takes Aim at Sirius XM, Pandora

by: Rocco Pendola

After 13 years as the President of the Southern California Broadcasters Association, Mary Beth Garber recently left that post to become EVP of Radio Analysis/Insights at Katz Media Group, a subsidiary of Clear Channel (CCMO.PK).

At Katz, Garber is responsible for collecting, analyzing and generating research and other materials to educate a variety of constituencies – from major advertisers to media, sales forces and market analysts – on the continuing power and value of radio, as well as implementing partnerships that both provide accurate research and measurement metrics across a variety of platforms and enhance the industry’s ability to communicate those results.

Clearly, Garber's mission focuses squarely on advancing terrestrial radio, particularly in the eyes of media ad buyers. She's well-respected and known for being outspoken when discussing the changing radio landscape, particularly threats to terrestrial radio.

For instance, in a recent Radio Ink piece, Garber referred to Pandora (NYSE:P) and Sirius XM (NASDAQ:SIRI) investors as "suckers." Garber recently called me out in an article I published on Seeking Alpha.

I like her pluck and think, irrespective of any differences of opinion we might have, she presents compelling insights that can help inform investors looking at the now wide-ranging radio space.

Rocco Pendola (RP): First, to make things clear for readers, provide some context on your role with Katz. You are obviously a champion for terrestrial radio?

Mary Beth Garber (MBG): I analyze and evaluate, then disseminate information that gives an accurate perception of radio’s capacity to work for advertisers and helps them understand how and why radio will work for them.

RP: Seeking Alpha is, first and foremost, a site for investors. Make the case to investors for why they should invest in terrestrial radio companies.

MBG: The majority of radio stations have solid, strong business models: long life expectancies, great cash flow, good profit margins and unique qualities that benefit and attract advertisers.

RP: Specifically, which terrestrial radio companies, particularly publicly-traded ones, do you believe are best positioned to generate returns for long-term investors? Do you hold any positions in these or other companies?

MBG: Since virtually every radio company in the U.S. is a client of Katz Radio Group, I decline to answer. I have or have held positions in Clear Channel, Emmis (NASDAQ:EMMS), Disney (NYSE:DIS), CBS (NYSE:CBS) and Univision.
RP: What and who provides the stiffest competition to terrestrial radio? Please answer in the broad sense (what) and then narrow it down to specific names (who).

MBG: There is no direct competition to AM/FM radio for share of consumer media usage (nothing else has the ability to broadcast in geographically-specific areas with primarily locally-geared content and primarily live personalities, and, based on industry studies and Arbitron (NYSE:ARB) ratings, nothing has had much, if any, impact on that usage). The stiffest competition AM/FM radio faces for advertising dollars is the Internet. Google (NASDAQ:GOOG), Facebook, Yahoo (YHOO), MSN - anything that takes video and display ads. The internet (including mobile internet) is also AM/FM radio’s fastest growing revenue stream.
RP: Pandora likes to say that it "redefined radio." What do you make of this?

MBG: Desperation. Radio was well defined in a NY Times article on a DJ who spent 13 hours broadcasting during Hurricane Irene, talking to, connecting his listeners. His comment, "We are here, and right now that is what matters," is one of the main reasons people listen to radio.

Pandora doesn’t have any DJs or local programming, local news, gossip, weather, contests, events, personal Twitter and Facebook pages where listeners are answered on the spot. If Pandora has redefined radio, that is news to over 93% of the people in the U.S. whose time spent with radio hasn’t changed more than a couple of percentage points in three years.

Pandora is a nifty feature for listening to music. Yes, music is one of the forms of audio entertainment AM/FM radio provides, but it is only part of radio’s package. Music alone is not “what radio is”, and it certainly isn’t the sole element that makes radio work for advertisers. For ¼ of the stations, it isn’t even an element – they do talk or news.
RP: Time Warner Cable (TWC)'s Chief Programming Officer Melinda Witmer recently stated: "I don't know what a TV is anymore. It's kind of an anachronistic term." I love that quote. And I think it applies to radio as well. In other words, it's about content and delivering content to consumers in any way they want to access that content. How do you think terrestrial is performing in this regard?

MBG: With radio, as with any medium, it has always been and always will be about content. We are entertainers. Our content is local, personal and perishable – nearly all its usage is live, in real time.

We are dealing with a couple of things: Different delivery platforms (which we have adapted to quickly and keep looking for new ones), and using new communications forms to expand our connection to our listeners. Some -- most -- stations are outstanding at these. Some are behind the curve. They’ll catch on, catch up and go forward or they’ll fold and someone else will buy them and bring them in line with listener expectations.
RP: You likely have access to numbers and insights that many of us do not. How big of an impact, materially (revenue and ratings) and in the more abstract competitive sense, has Sirius XM had on terrestrial radio?

MBG: None. Honestly. It affected the stations in the 14 markets where Howard Stern had a big audience and revenue. But it hasn’t affected radio overall (I can give you four new studies that show that, as well as Arbitron ratings trends

At first, XM/Sirius was devastating to the perception of AM/FM Radio. They had fantastic PR and ad campaigns. They convinced people they would replace radio. That was a perception hit that hurt in the agencies and with clients. But here we are 10 years later and Scarborough ratings show that less than 10% of the country uses either XM or Sirius and that virtually no one is interested in getting it in the year to come. They are not serious competition for listening time or advertising dollars.
RP: I tend to think the reason why Sirius XM has not decided to run more commercials on its music stations or even use sponsored segments or something of the sort is because it cannot show advertising agencies ratings to support a meaningful buy. While it can boast 20 million-plus subscribers, do you think it can break things down by channel or groups of channels and show a critical mass of listeners and time spent listening?

MBG: Sirius/XM used to pay Arbitron for ratings. Not anymore. Gee, why? Perhaps they have little of value to show with ratings. I doubt that they could generate meaningful ratings for almost any one channel (although you’d think they’d want to know what was worth paying to program and what wasn’t).
RP: To that end, what do you make of Pandora's recent news release and the subsequent analysis showing its number for July translated into AQH? One blogger shows that these numbers beat out top stations in all of the major markets.

MBG: Pandora aggregated all its listeners, across all its zip codes, sex, personal data and musical tastes into age groups, developed “ratings” for and compared that aggregated group to individual, carefully targeted and formatted radio stations.

Pandora tell advertisers that their advantage over AM/FM radio is that it can target by zip, sex, age and musical interests. The minute one does that, those ratings no longer apply. To compete with a music radio station, Pandora would have to confine the ads to a genre of music. The ratings on that would not begin to compete with the individual radio stations that format that genre. Pandora is very good at propaganda and misperception.

The real question we have for Pandora is why the data they report to Triton Digital (the industry online streaming rating service) doesn’t match – doesn’t even remotely match – what they are declaring in their talks with investors and analysts.
RP: Over the last decade, what has terrestrial radio done horribly wrong? Try for your top two or three.

MBG: Let Sirius/XM out -PR radio. Consolidated hundreds of stations, went public and bowed to investor pressure by cutting spending on live personalities and local programming, thinking it would generate more profit. Reacted to PPM ratings by making DJs talk less (and thereby relate less to listeners). Not figure out how to make advertisers perceive radio as being as sexy as anything new that is on the internet.
RP: Over the last decade, what has terrestrial radio done incredibly well? Try for your top two or three.

MBG: Consolidated hundreds of radio stations, went public and gave radio a national presence. Used those deeper pockets and broader footprint to develop new formats, new delivery platforms, new talent. Adapted to the internet and mobile, expanding listening options and opening new revenue streams. Learned that not talking did not help PPM ratings – that people want to listen to people on the radio.
RP: I'm torn between supplying smaller markets with quality programming from the big leagues (e.g., Rush, Ryan Seacrest) and the further erosion of not only local talent being on the air, but the breeding ground that once existed to find and nurture local talent evaporating. When I hear stations in mid-size markets like Buffalo using Seacrest for middays, it concerns me. Plus, for every real nationally-syndicated deal like Rush, we get a dozen other offerings that cannot even come close to better-than-average, let alone, strong local talent. Thoughts?

MBG: There are very, very few personalities that actually have multi-market appeal. Part of it is how they build their content – on local happenings or on national happenings?

The only personalities who have been in the top 3 in their time period in all top 30 radio markets were Rush Limbaugh, Dr. Laura and, probably, Kasey Casem’s Saturday top 20 countdown. So no one’s going to replace all the local talent in every market with syndicated personalities.

There are some markets, some formats, some dayparts where it works fine. But not as a steady diet. All syndicated all the time with no localization is a fast track to the bottom of the ratings. Stations and companies are looking for new talent and finding places for them to break in. Not just on air, but in programming and music programming, too. If the talent is mediocre, the ratings usually are, too. As long as it pays to bring in and bring up new talent, stations and companies will do it. The trick is to do it profitably – the investors are watching and waiting. Radio needs to find that balance.

RP: Even Sirius/XM CEO Mel Karmazin acknowledged that terrestrial radio is still "the 800-lb. gorilla" in the room. In the face of the competition you mentioned from the Internet, how can terrestrial continue to grow at a clip that will attract investors?

MBG: By expanding our ability to connect advertisers with consumers through other platforms, still using the station brand’s halo effect.

Radio now has the ability to give retailers other opportunities to interact with listeners, using our relationship with them, through internet and mobile connections. By making advertisers aware that Radio is the medium that more people are exposed to closest to the point of purchase. During the work day, no single medium can compete with radio’s ability to reach people. Even TV and Cable TV understand that – they are one of the top 5 revenue categories for radio in virtually every major market. And on-air personality endorsements can drive awareness, intent to purchase and sales by exponential amounts.

Several online businesses (legalzoom.com, proflowers.com, stamps.com and many more) built and sustain their businesses through personality endorsement radio advertising. Even Walmart (NYSE:WMT) has discovered the power of radio and invested heavily in it in the past several years. As long as radio drives business profitably for advertisers, it will drive business profitably for itself.

Disclosure: I am long P.

Additional disclosure: I often hedge my long position in P stock using options. At the time of this writing, I own no positions in any of the stocks mentioned in this article, other than P, however, because I day- and swing-trade stocks, primarily using technical analysis, I may open and close positions in any of the stocks mentioned, often using options, at any time.