Online v FM
Last week a general email discussion has been going on talking about the costs of broadcasting online versus one-to-many broadcasting with FM or DAB.
JP Coakley, Director of Operations at RTÉ Radio made some very good points which I’m sharing with his permission. Please note these are JP’s personal thoughts and not necessarily those of RTÉ.
First things first. Let’s not demonise either side. This is neither a question of New Media refuseniks who are unable to see the tidal wave of the web coming toward them as they hold to a dying past, nor is it a question of New Media fanatics who are incapable of understanding the value of FM as a universally available and free to air platform. This is purely and simply a strategic dilemma that requires thought, discussion and critically, decisive positioning.
Costs of transmission.
Right now, we estimate the relative costs per listener per hour of the web versus FM is 2000 to 1. The web is 2,000 times more expensive per listener per hour than FM. Part of this is explained by the fact that the FM network is expensive to build but, once built, is very efficient at serving large audiences. The web is not. The unit cost to serve the millionth web user is exactly the same as the first. If we had a situation where 50% of our audience was on the web, we would be forced to reduce other activities to pay for it. Also, there would be a punitive charge to popularity, i.e. if a programme gained more listeners than it was expected to, the cost of transmitting that programme would rise.
We are in the very early days of internet traffic. What we can see is, in the UK, there are very real threats from ISPs to “throttle” the BBC iPlayer on the basis that it now constitutes nearly 10% of total online traffic. It is highly likely that the BBC will be obliged eventually to pay for the distribution of the iPlayer. Of course you will hear a lot about next generation networks but there is a real question over who will pay for them.
The problem with the web business model is that the people who make the networks are not the people profiting. There are five main businesses in net use, shopping, gaming, pornography, gambling and media. None of these returns money to the people who build networks, and of these, media (including social media) consumes most bandwidth yet delivers least return, both to the ISPs and, critically, to the businesses themselves. I really don’t see how this model will work in the future without businesses being charged by ISPs, according to use, or governments deciding to build the network. If the charge for the new networks is to be passed to the broadband subscriber we will see a very significant jump in tariffs.
Costs of content.
The web favours aggregators over originators. The most successful business model on the web, is Google. Ironically that’s our business model; charging advertisers for access to audiences rather than charging audiences for access to content (telco model). Google do this by aggregating content – they do not create anything – and bringing it to a single place where advertisers may also live. Where there are propositions that involve a mixture of aggregation and origination, such as YouTube and Twitter, money is not being made. Why? Because good stuff – veracity, reliability, creativity – costs money. So we see YouTube acknowledging that it will pay or share revenue to get the “good stuff” from established media. At the same time we see Rupert Murdoch, and many other papers, testing the idea of pay walls around their business. Why? Because as things stand they will have no business if they don’t. It is reasonable to suggest that they should adapt to this new reality but a “crowd in the cloud” remains an elusive way to ensure revenue.
The most successful media website in the country, RTÉ.ie makes approximately one twentieth of the total commercial revenue made by Radio (RTÉ Annual Report 2008). What all “traditional” media are facing is a situation where they cannot afford to be on the web on a free model and still, they cannot afford not to be there. Literally thousands of businesses have tried to find alternative methods to fund their activities online. Very few have survived without subscription models. Yet, as Liam O’Brien has pointed out, RTÉ is rightly obliged to avoid charging the domestic user on the basis that they pay a licence fee.
Rights – Intellectual Property.
Pandora, Last FM and Spotify are examples of organisations that started brightly but tripped badly on rights. All of them have had to confine and/or charge for their services in the past two years. Anyone who works in a web business that involves IP will tell you that this is the most troublesome and expensive element of their business. This is and was true also of “traditional” media, the difference being that they have learned to deal with it and have business models that incorporate these costs. Typically also, their rights are for limited territories, not the worldwide audience that the web offers. This time last year, Last FM were in negotiation with literally hundreds of separate rights organisations to try to secure rights for their service worldwide. They have not succeeded. Colleagues involved in internet only radio stations will tell you that the new cost models proposed by the record industry will simply close them down. However in tune or out of tune we are with the prevailing zeitgeist, if no one pays, then no one gets paid. Simple.
Overall
The theme is of money, investment and control re-asserting itself – to a certain extent. If the story of the web from 2004 to 2010 was real expansion post the dotcom bubble, it is likely that the next five years will see retrenchment as an unlikely combination of authors, artists, record labels, press companies, broadcasters and others try to make people pay for their content. For example, few musicians have the courage to publicly disapprove of file sharing but a Swedish 2008 poll of musicians (when Pirate Bay was at its height) found that 38% wanted to legalise file sharing – or to put it another way, 62% don’t. Ironically 59% admitted to using file sharing.
The good news is that RTÉ can provide the best of both. We are obliged, where possible, to avoid subscription and we can also provide quality content and access on the web. The warning is that, like many others, we don’t yet have a way to make this pay to the scale needed to sustain quality and diverse output.
In the meantime it’s about trial and error to a certain extent. Pre-rolls, mid rolls, dynamic ads (multiplatform) and yes, subscription for value add services, are things we should look at, try and learn from.
FM is still a strong proposition. However, it needs a face lift. This is why many broadcasters advocate digital radio. It is mobile, simple and free yet offers additional content and services more akin to the net. Of course there are huge obstacles and many problems associated with making digital radio as attractive, popular and ubiquitous as FM, but Dusty comments, and figures from other digital radio countries show, that if you get it right people like it – and not only that, they actually favour it over web radio.
One thing, unfortunately, we can say with certainty. If our audience is largely online in 5 years, based on current trends, we will be compelled to be a drastically smaller industry than we are today.
Key to our future (as we said in 2004) are digital radio and the internet. We will now live on two platforms, whether FM or digital radio is the first. We are actually not doing a bad job so far, but our next decisions on new web services must take into account that we are funded and paid to be RTÉ Radio, not RTÉ “Lost” FM.
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Hi JP
Very thoughtful article and should be required reading for all interested in the future of Radio in Ireland. The great difficulty as i see it is that the internet gives you all the radio in the world to one internet connection whereas FM gives you a limited amount of radio to every square centimetre of this green island. The evidence to date is that the vast majority prefer the latter for its simplicity and universality.
I have trialed a number of internet radios recently. While they perform well they require a real understand of web functionality to set up and are likely to deter purchasers until the interface is simplified.
Regards
Willie O Reilly
Hi Willie,
One extra word to add to “simplicity and universality” … “relevance”.
FM works because it’s local to the listeners city/country. A classic rock station coming from London or New York may be great but when one starts in Dublin it’ll be so much better because what’s between the songs will be so much more relevant.
This is why I love DAB. It brings some of the added choice and interaction/information that internet radio offers while keeping it as simple and universal as FM.
Cheers
Dusty
Willie,
Thanks for your kind comments. I think the issue of web radio as a “techie” proposition will change and we will see an acceleration of uptake. Brings us back to the question of whether we can successfully upgrade FM. The EBU approach is useful – 3 profiles, 1 a simple DAB/FM radio, 2 a DAB/FM radio with Internet and a colour screen and 3 a rich mobile/car standard that can include TV. Either way I agree strongly with the core strengths of simplicity and universality and these have to be replicated for DAB/DAB+, or we will have the worst of both FM and the Internet, rather than the best.
Regards
JP
Very succinctly put JP and Dusty.
I have wondered for some time whether the bandwidth issues can be solved if IP over internet is to become the main media delivery platform. I suspect that technically it may (just about) be solvable for audio, but as you point out, there are very real problems with the costs associated with providing all this bandwidth.
Possibly we will see a system where DAB+ or a variant of digital broadcast is the main carrier, backed up seamlessly as far as the listener and radio reciever is concerned with IP. This may go some way to alleviating the cost associated with delivery. Anyway, I do believe that despite protestations to the contrary, there is a future for DAB / DAB+.
We are currently working on some some of the technical implementation areas of DAB to attempt to cut the currently high cost associated with DAB DAB+, which should allow th ecommercial sector to get on the platform. Coupled with Car radios, the extra content available should help to move DAB forward as a viable platform in Ireland
Great piece JP
Although the statistic “the relative costs per listener per hour of the web versus FM is 2000 to 1″ scares the bejesus out of me the latest development of Total Broadcast’s digital stations is a positive step in the right direction. DAB needs commercial independent stations like this as well as the RTE services if its to be viable.Total Broadcast are reaching non RTE DAB areas so the general awareness about digital radio will spread further.
Having digital as standard in whatever Joe and Josephine Bloggs will buy is the key. If they buy a Hi-Fi it needs to be there. If they buy a car there’s no add on, if they buy a clock radio they can wake up to RTE Pulse or Gold if they so wish. But as standard, they dont want the hassle of add-ons.
The BAI need to take a serious look at their regulations if they want commercial radio to make money in this country. Be it Digital or otherwise. The 20% “news and speech” content rule is surplus to requirements when we have RTE Radio 1 and the quasi-national Newstalk
Its a bit of an aside but I recently read this in relation to deregulation by the FCC in the States and the effects it has on radio
Quoting; http://72.27.230.165/filing/radio-deregulation-has-it-served-citizens-and-musicians
Fewer Owners
First, industry analysts predicted that the number of individual radio station owners would decrease. Those in the industry with enough capital would begin to snatch up valuable but under-performing stations in many markets – big and small.
Greater Financial Benefits for Radio
Second, station owners – given the ability to purchase more stations both locally and nationally – would benefit from economies of scale. Radio runs on many fixed costs; equipment, operations and staffing costs are the same whether broadcasting to one person or 1 million. Owners knew that if they could control more than one station in a market, they could consolidate operations and reduce fixed expenses. Lower costs would mean increased profit potential. This would, in turn, make for more financially sound radio stations which would be able to compete more effectively against new media competitors: cable TV and the Internet.
More Diversity
Third, there was a prediction based on a theory posited by a 1950s economist named Peter Steiner that increased ownership consolidation on the local level would lead to a subsequent increase in the number of radio format choices available to the listening public. According to Steiner’s theory, a single owner with multiple stations in a local market wouldn’t want to compete against himself. Instead, he would program each station differently to meet the tastes of a variety of listeners.
People want more choice, take any American city with a similar population to Dublin and the selection they have is staggering by comparison, every genre and sub-genre is covered. People want to have the choice of an all dance format ala RTE Pulse, a Gold/Oldies format like RTE Gold, an R&B station, an 80′s station, a 90s station and so on. Whether or not its commercially viable in the current climate is another thing. But the main thing Digital has going for it is choice and variety. This is the strongest card it has to play I feel.
Re: The internet side of things. As the Irish public service broadcaster would RTE be allowed gear up the Google Ads/Ad Sense side of things? Thats an absolute goldmine potentially if so and would offset the “cost per listener/viewer” quandary the RTE Player might find itself in.
As Chris Cary said back in the early 80′s “the only reason no-one’s listening to FM is because there’s nothing on it”, he went on to put Nova on the band and the rest is history. Digital platforms will take off when the content, coverage and awareness are all there together.
Cheers
Jason
would it not be more cost effective to go straight to dab+ now rather than going to dab and later on having to upgrade to dab+? while dab+ equipment would be more expensive, surely moving to dab and then later on down the line moving to dab+ would be an even greater cost to both the radio stations and the general public?
Hi Mick,
Short answer to your post is, yes!
There appears to be agreement all round from RTE, existing commercial operators and new independents like ourselves, that when digital fully launches here, it will be DAB+.
Cheers
Dusty
Hi
I read with interest your comments on FM v Online or even DAB radio. As a general observer of radio developments in the UK and Ireland and former editor of the ukRadio.com website (now closed) I was an advocate for the development of DAB in the UK. Dab trials by the BBC started in the mid 90s and has taken some 15 years to get to a 40% penetration. The benefits of DAB by the industry in the early days was that Dab would provide better quality audio and more choice. The truth being is that most of the genre specific station struggled in the early years because of the lack of audience. Secondly multiplex owners struggled and choice to reduce bit rates to try to squeeze in as many channels as possible. However they still struggle and stations still come and go and a second national commercial multiplex failed to launch.
The point being with DAB in the UK and their economies of scale they are still finding it difficult to survive. On the other hand FM is continuing to grow with hundreds of Community licences and RSL being licenced over the last few years.
Even though Ireland was once the pioneers of great radio with stations such as Nova / Sunshine / Q102 / Kiss etc etc during the non licenced years – it seems to have been throttled since. I still don’t get eh speech content requirement in modern day and also the reluctance to expand the FM band to the extent the UK has. I also get the idea that broadcasters will still take years to embrace digital audio – I think that at that stage even DAB+ will be obsolete. However I believe the internet and IP Radio is able to evolve at a quicker pace.
Broadband and wireless connectivity will improve in years to come and even though a slow starter in Ireland – some areas have better bandwidth than our UK cousins. I am looking to launch community radio services – which will take advantage of this medium. My current biggest hurdle is to get bet rates for playing music with PPI. I do not believe they are treating internet radio stations fairly and possibly creating an FM monopoly – hopefully this will change as Wi-Fi / IP radio becomes the medium for the future.
As for DAB/DAB+ I hope that this technology progresses here in Ireland – however waiting for another 10 years for this to happen maybe too late. Who know how / where / what people will be listening too then? like who predicted in the early 80s that we would have CDs, MP3, satellite TV or mobile phones and computers that could do about everything 20 years on.
Liam
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