Radio Waves October 08

ISSUE #13, October 2008

A KRG Newsletter >> OUR MISSION: SEPARATE THE MEDIA INDUSTRY’S TRUTH FROM THE HYPE

From the Editor: Welcome to the October 2008 issue of RadioWaves. THIS IS OUR FIRST ALL RADIO ISSUE and the entire newsletter is devoted to Radio. During these challenging economic times, marketers are carefully evaluating both emerging and traditional media. RadioWaves is the optimum platform to put forth a menu of Radio’s attributes and advantages.

RADIO: A THRIVING 21st CENTURY MEDIUM Radio continues to thrive despite the challenges of the digital age. How has Radio managed to succeed in an increasingly competitive environment? For over 100 years Radio has met numerous challenges and always survived by reinventing itself. From the Great Depression to the invention of T.V. and the Walkman, Radio overcame new challenges. Today, 94% of Americans consume radio each week. Today’s many challenges from the digital frontier vary wildly, but Radio is again reinventing itself by exploring competing platforms and using them as another venue for the medium. Radio station websites are growing dramatically and the industry is exploring options in the cell phone audio field. Interest in HD Radio is also growing while Satellite Radio interest is declining. There is a considerable amount of consumer fatigue in the multiplatform digital world and consumers are begging for simplicity and familiarity to sort things out. Radio will always be available to help consumers multitask their way through the daunting digital world. As the economy continues to flounder, Radio provides three important “F’s” to consumers – familiarity, friendship and free. All factors are critical when people are struggling in difficult times.

RADIO IS GROWING The latest RADAR data released proves that Radio continues to grow its listener base with steady yearly gains. This year, Radio grew by 3 million listeners, its largest gain in five years. Over the last decade, Radio has averaged 2.5 million new listeners each year.

RADIO’s CUME is GROWING Radio’s # of weekly cume listeners (in millions) Persons 12+ to AM/FM Radio Source: RADAR 226

223

225

228

229

230

232

235

217 208

209

210

213

214

202

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Despite numerous digital alternatives, AM/FM Radio’s AQH remains steady and strong. Media usage isn’t a zero-sum game. New digital media like Internet Radio, MP3/iPods and Podcasts supplement listeners’ AM/FM Radio consumption, but do not to replace it. Radio’s AQH remains steady and stable despite the growth of digital media. In fact, Radio’s current AQH is the same as it was six years ago.

AQH is STEADY & STABLE Radio’s # of weekly AQH listeners (in millions) Persons 12+ to AM/FM Radio Source: Veronis Suhler Stevenson tabulation of RADAR

24.4

24.1

1992

1997

27.1

2002

27.8

27.6

2003 2004

27.5

27.2

27.1

27.1

2005

2006

2007

2008

RADIO’S FUTURE REMAINS STRONG THE YOUTH MARKET IS EMBRACING RADIO Many think the youth market is adapting to new digital alternatives at the expense of Radio. However, according to a study by Paragon Media Strategies, 14 to 24 year-olds have a renewed interest in AM/FM Radio. Paragon’s research found that two-thirds of this age group currently listen to Radio the same or more than they did in recent years. This figure has grown significantly in the last year. The number one reason 14 to 24 year-olds give for increasing their Radio listening is its music choices and variety. While young people are the same lifegroup that form a large part of the growing Internet Radio audience, the vast majority say web Radio options have not caused their broadcast Radio listening to shrink. Instead, their iPod/MP3 listening is shrinking. According to Paragon’s research, 14 to 24 year-olds increased their AM/FM Radio time-spent-listening by 11% this year, while their iPod listening declined 13%.

Youth market listening is changing AM/FM AM/FM Radio Radio time-spent time-spent UP UP 11% 11%

Annual Change in time-spent-listening by 14-24 year olds

iPod/MP3 iPod/MP3 time-spent time-spent DOWN DOWN13% 13% Paragon Media Strategies, 2008

iPod fatigue is already known to impact adults who have little time to maintain these personalized programmable entertainment devices. Apparently the youth market is also now shunning the money, time and effort it takes to keep these devices fresh. Since most 14 to 24 year-olds iPod owners have fewer than 400 songs on their iPod, it’s no surprise that after some time of iPod ownership, these listeners perceive Radio as being fresh with new music once again.

RADIO LISTENING HAS NOT BEEN IMPACTED BY DIGITAL PLATFORMS AM/FM Radio is thriving despite the growth of digital platforms: • 84% of all consumers expect to listen to the same or more Radio in the next five years. • Among those under 25 years old, Radio usage is stable. Deloitte recently surveyed America’s youth, the most tech-savvy and digital of all age groups and, even among this Millennial generation, Radio usage is stable and TV usage is up. Newspaper usage is the only form of “old” media that has declined among this younger demographic.

DIGITAL CONSUMERS’ LISTENING IS THE SAME FOR AM/FM RADIO The rapid growth of Internet Radio and other digital listening options has not significantly impacted AM/FM’s listening. Digital audio listeners listen to AM/FM radio the same as the rest of the population. The average American spends 2 hours and 48 minutes per week with AM/FM Radio, while heavy digital consumers (Internet, Podcasts, iPods) spend 2 hours 45 minutes per week with AM/FM Radio – a virtually identical amount of listening from the consumers who generally assumed to spend less time with “old” media.

Time-Spent-Listening to AM/FM Radio per DAY (in hours & minutes)

The total population listens to AM/FM Radio for 2 hours, 48 minutes per day Total Persons 12+

Digital audio consumers listen to AM/FM Radio for 2 hours, 45 minutes per day Digital Audio Listeners* * Podcast, Satellite or Online Radio

Sources: RADAR, RAB, Arbitron/Edison Research “The Infinite Dial” April 2008, JP Morgan April 2008, Deloitte & Touche, RAB/RADAR, Jacobs Media April 08, Sonoro Audio Study May 08, Paragon Media Strategies June 08

RADIO: PART OF THE FABRIC OF AMERICAN LIFE RADIO: AMERICA’S #2 LEISURE ACTIVITY Radio is a fixture of everyday American life. According to a recent AMS study, two-thirds of Americans listen to radio at least once a day (that’s up 5% from last year) and 80% say they usually listen in the car (up 10% from last year). The vast majority of Americans listen to the Radio as much as, if not more, than they did last year. The most recent Veronis Suhler Stevens annual Communications Industry Forecast confirmed these findings. The study noted that Americans spent over 60 leisure hours per week with personal entertainment that include media, music, reading and electronics. Radio occupies one-quarter of this leisure time, second only to Cable TV, exceeding Broadcast TV by nearly three hours a week. As one of the big three media and leisure activities, Radio occupies 60% more time than the combined total spent with newspapers, magazines and the Internet. Has American’s time-spent with Radio declined during this era of increasing digital offerings? The Veronis Suhler forecast says that, like all traditional media sources, Radio time-spent has declined. But it dropped by less than six percent in the last five years. Meanwhile, Broadcast TV and newspapers are dropping at double that rate, as each segment has declined by 12% since 2002. Hours per person per week

20

2002

18

Radio is

16

2003

2004

2005

2006

2007

2008

#2

14 Veronis Suhler Stevenson Communication Industry Forecast

America’s Leisure Time Spent trends 2002-2008 Hours per person per week

12 10 8 6 4 2 0

Cable TV

RADIO

Broadcast TV

Internet

Newspapers

Recorded Music*

Magazines

Books

Video Games

Home Video**

* Recorded Music, Newspaper and Magazine categories do not include those downloaded or viewed on the internet – those are included in “Internet” category ** Home Video includes VHS & DVD’s only. PPV & VOD are included in Cable; DVR viewing is included in appropriate TV category. Cable includes satellite.

Source: Veronis Suhler Stevens Communication Industry Forecast 2008, AMS Study August 2008

RADIO: THE #1 WAY TO REACH CONSUMERS AT WORK Americans spend 60% of their waking hours at work, more than ever before. For marketers, reaching potential consumers at work is more important than ever. More consumers are multitasking during the workday. The government’s recent “Time Use” study says that 1 in 5 American workers shop at lunchtime and 1 in 4 shop on their way home from work. More hours working, coupled with the increased price of gas, makes running errands during and after work more costly for the consumer, but more valuable to the marketer. Reaching consumers while at work, when they are close to the point-of-purchase, is critical. Radio provides a significant opportunity to deliver the American workforce to marketers. New Arbitron PPM data suggests that AQH listening to Radio is higher among working people than non-working persons. In some PPM markets, radio listening for working people is almost 84% higher. The legendary Erwin Ephron recently said, “Radio has the best attentiveness package of any medium.” In addition to conscious awareness (i.e., listening), radio also delivers low involvement awareness (i.e., hearing) that can’t be shut off. In other words, eyes can close but ears cannot. Clark Gable famously learned his movie roles by having them read to him while asleep. This worked because the human brain processes everything that the ears hear. This also means that people who hear the Radio while multitasking – like driving from work to the store; sitting a work making a list of lunchtime errands -- process the relevant messages they receive through their ears.

Big Research Oct’08, U.S. Bureau of Labor Statistics 2007, Ephron on Media Sep08

RADIO REMAINS THE #1 SOURCE OF MUSIC DISCOVERY Despite digital alternatives such as self-programmed online music sources, Internet radio, iPods/MP3s, cell phone radio and music download stores, Radio remains the number one source for Americans in discovering new music. Listeners still count on Radio to deliver new music choices regardless of their demographic, and Radio still dominates as a new music source. No fewer than five studies have been published recently, all serving to prove that, despite all the alternatives that exist today, Radio still dominates as the new music source.

FIVE 2008 STUDIES ON NEW MUSIC DISCOVERY Rasmussen

Jupiter/Ipsos

Pew

Arbitron/Edison

Nielsen/Pollstar

(August 2008)

(July 2008)

(May 2008)

(February 2008)

(for the NAB, June 2008)

Preferred medium for music listening

Sources of new music discovery for online music listeners.

Sources of new music discovery of online music downloader's

Sources of new music discovery (all persons)

Correlation between a song’s Radio airplay and its actual sales

42%

63%

83%

49%

64% 56%

25%

25%

26%

14% 9% 5%

11%

9%

2%

Radio

CDs

iPods

Satellite Internet Radio

CONCLUSION: People prefer their music on the Radio by more than 3 to 1 over digital alternatives

Radio

Friends (word of mouth)

Internet

CONCLUSION: Even digital consumers prefer “traditional” Radio, which is their #1 source of new music discovery

Radio

Friends (word of mouth)

Radio

Internet

CONCLUSION: Even digital music downloader's discover most of their new music on “traditional” Radio

Internet

TV

Newspapers

Findings: Radio airplay is responsible for between $1.5 and $2.4 Billion in new music sales.

CONCLUSION: Radio remains the main source of new music discovery

CONCLUSION: There is a direct correlation between the number spins and sales of albums or singles.

RADIO REMAINS A LEADING SOURCE OF NEWS & INFORMATION Radio remains one of the first sources of news for American consumers. On average, consumers use over two news sources per day. Radio accounts for more than one-third of total news consumption. The Radio & TV News Directors Association says the amount of news on TV and Radio has increased in the last year and consumers are responding to the news availability increase.

TV & Radio dominate the average news day Source: Pew Research Sept’08

57%

54 35%

41

39

34%

35

29%

TV

Radio News- Internet

TV

papers

% of Adult news consumption

Radio News- Internet papers

Average # of minutes/day

Credibility Scale (1-10) One of the critical issues for consumers when determining what news media to choose is convenience. Another factor is credibility and “old” media tends to dominate when it comes to credibility with American consumers. Credibility translates to influence over consumer’s choices.

Opinion Research Corp Sep08

Television Newspapers Radio Online Local Newspapers Magazines Shopper Publications

6.6 6.3 6.0 5.6 5.2 4.6 3.5

Source: RTNDA Oct08, Opinion Research Corp Sep’08; Pew Research Sep08

RADIO IS THRIVING IN SPITE OF DIGITAL ALTERNATIVES AM/FM Radio continues to grow; Internet Radio comes on strong; Satellite Radio is stagnant While AM/FM Radio continues to grow, the future of Satellite Radio remains questionable. Many hoped that the merger of XM and Sirius would save the medium, but this has not been the case. The company’s stock price tumbled quickly and is currently below one dollar. The merged company is in danger of being delisted from the stock exchange. Satellite Radio continues to lose over $1 million per day and its costs are mounting as the company struggles to pay back debt. Satellite Radio consumer sales are stagnant and future sales aren’t promising due to the drop in new car sales. The vast majority of Satellite Radio sales come from new car purchases. A bill pending on Capitol Hill would ensure that all future satellite Radios encompass all Radio bands including Satellite, AM, FM and HD. Should this bill pass, Satellite’s footprint will shrink even further. Furthermore, advertising and sales revenues on satellite Radio have not been positive. Sirius/XM President, Mel Karmazin, recently spoke at the Merrill Lynch Media Fall Preview and said that his advertisers were “leaving in droves.” Karmazin was also not positive about future subscriber growth, In fact, as a result of his remarks at this important Merrill Lynch conference, many Wall Street analysts revised their forecast on Sirius-XM downward, based on Karmazin’s warnings that the company’s subscriber growth would slow markedly in 2009. AM/FM vs. Internet vs. Satellite Radio Five-year growth trend (in millions of persons)

AM/FM Radio 229

228

225

Internet Radio

Satellite Radio 235

232

230

93

23 2 2003

45

32

2004

2005

2006

20

17

14

9

4

72

57

2007

2008

Note: AM/FM Radio and Internet Radio are # of listeners; satellite Radio data is for # of subscribers as listener data trends are unavailable

During the last five years, while Satellite Radio was in its growth phrase, AM/FM Radio added 10 million new listeners and Internet Radio added 70 million listeners. Despite its gains, Satellite Radio today remains less than one-tenth the size of AM/FM Radio and one-fifth the size of Internet Radio. Internet Radio’s phenomenal growth comes largely from the websites of AM/FM Radio stations. This growth does not occur at the expense of traditional broadcast AM/FM Radio. In 2008, traditional Radio reported its largest gain of listeners in the past five years. Internet Radio now dwarfs Satellite Radio and iPod sales. Meanwhile, AM/FM Radio stations’ websites have doubled their audiences in the last year. Streaming Internet listening to AM/FM Radio stations is growing at four times the rate of the pure play Internet Radio stations.

Source: RADAR (RAB), Edison “The Infinite Dial”, Sirius & XM, JP Morgan Internet Radio Scorecard, RAIN, Piper Jaffrey, Silicon Alley Insider, Reuters Sep08;