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Up Close with Joint Communications CEO John Parikhal

When John Parikhal speaks people listen. After all he consults and/or advises several radio broadcast companies, as well as a diversified list of clients spanning the spectrum of media and marketing firms. Parikhal and Joint Communications will be celebrating their 30-year anniversary next year, quite a feat in the overly consolidated environment weíve been living in for the past ten years. Parikhal remains a free and intricate thinker, one who constantly is looking forward, beyond trends and fads, in trying to shape the future way of transacting business and re-inventing business models. My discussion with Parikhal could fill a novel, and the man is virtually un-editable (he has that much great stuff to say). Therefore, FMQB will present an abridged version of our interview with John in this weekís eQB, and give you the full story in our May magazine issue publishing in two weeks.

Both the music and radio industries have been out of alignment with the younger consumer, an increasing trend over the past ten years. What are the inherent problems with the disconnection? 
Itís the perfect storm syndrome. Had the technology not come along, you would have radio sliding a little bit less and you would have had the old record business still hanging on. Part of the disconnection has always been there, but the technology wasnít available to rectify it (from the consumer side). If you track young people, their first taste for music comes around age eight. Between eight and twelve their music tastes are changing all the time, but theyíre very Pop and highly repetitive. In the research weíve done, we have regularly found that this age group will have favorite bands and invariably change their musical tastes every nine months. Top 40 was built to deal with the constant change in music taste and music orientation inherent with the younger demo. Around age 14 or so you start to become more exploratory; you want to hear more stuff. Until very recently that was quite expensive. Either you had to go out on and buy it, and it cost a lot of money, or you could risk hearing it on the radio. With digitization it suddenly became possible to hear a whole bunch of music you didnít have easy access to in the past and you didnít have to rely on radio. Radio was the gatekeeper. Prior to consolidation, there was always enough competition where somebody was willing to take a chance and there was a lot more music being exposed, if it worked, everybody would pick it up. So you had more of a variety of new music being played.

What were the affects of consolidation on this phenomenon?
After consolidation, radio basically became like barons. They started to carve up their territory: You do AC; you do Classic Rock; you do this and, by the way, the same person will program all three. It became pretty impossible for anybody to take a chance do something exciting. Young people picked up on that kind of deadening of radio at exactly the same moment that digitization hit, particularly with the Apple product. Ipods really made the difference with its digitization, ease of operation and the simplicity of using itunes. This, along with the continuance of P2P file sharing, kicked the doors open allowing for the perfect storm. Consolidation also led to a period when radio was getting increasingly out of touch with its listeners. I donít think I heard a radio executive in the past five years care for one-minute about what their listeners wanted. What they only care about (at least they say it at every meeting Iím in) is how the stockís doing? How can we make more money? 

Both industries are traditional models that have experienced a great deal of success over the past twenty-five years. Did both industries get a little caught up in their traditional ways and success in their late adaptation to a new and vastly different consumer group?
Peter Drucker
(the management genius who passed away recently) said that most businesses never last more than 30 years. If you look at the history of American business, hardly any lasted more than 30 years. The granddaddies are few and far between. You look at the music business and the way itís made so much money over the last 30 years by re-purposing the same music on new platforms. Most consumers took music they loved on another format and used what was more convenient and paid for it. When the CD came out, one of the exciting things about the CD was not just that it was digital and it didnít skip, but you got more songs on a CD. In the beginning there was a bonus where you got 14Ė18 songs, and suddenly people didnít mind paying $15 when they were used to getting 10-12 songs on vinyl or cassette. So, in the short run, the labels were living large. Then a more convenient technology came along that changed the economic model. The new platform of digitization was even more convenient, and people will always gravitate towards things that are easier. At that exact moment, the music industry had a chance to move quickly into the digital space and say ĎWe are going to change our model.í But they failed to seize the moment.

How did radio consolidation influence the music industry model?
The traditional relationship between radio and labels eroded during the course of the nineties with the big, (utterly) stupid deals that were being made with independent third parties, coinciding with consolidation. Once youíve changed that economic model, while the radio model was changing under consolidation, you have a double whammy. Then everybody did the deal with the devil at exactly the moment where you had a lot of large radio companies making one-off deals with indie promoters, where the PD wouldnít talk to anyone about new music, theyíd only talk to a certain representative and that person would pay up to $500,000 for access. What kind of deal is that? You know youíre not going to hear all the best stuff. That contributed to the economic demise of the record industry at the turn of the century, and created further rebellion from younger consumers.

Letís focus on radio for a moment. Given the lag time in getting involved with new technologies over the past ten years, has radio leadership given up on targeting the younger demo?
As recently as three or four years ago I was talking to some of the more senior people at radio companies. Literally their words were, ďWe donít care about teenagers. We canít make enough money from them. We donít care.Ē Notice: ďWe canít make enough money from them.Ē So thus, radio became basically like the slaughterhouse, a pork belly or commodities business, where it was all about moving numbers. They didnít care about planting new ground. I kept asking people, ĎIf you have five stations in a cluster, why donít you program one just for teens?í None of them wanted to do it. It was astonishing. The idea of appealing to teens was completely uninteresting because they were simply interested in making as much money as possible in the next ninety days. Now of course the consequences are being felt. 

Where is the next generation of radio consumers going to come from? What does this do to radioís intermediate to long-term future?
They are there, but they donít care about the medium other than as a utility. As my 14-year-old daughter and all of her friends said when I did a little focus group with them: ďRadio just sucks.Ē I said, ďWell, I see you listening to it from time to time.Ē They responded, ďYeah, when thereís nothing I want to hear on the iPod. Iíll hit the buttons on the stations, but usually thereís nothing there, and then we just turn it off and go to the computer.Ē Thatís what weíre seeing with a lot of younger teens. Radio has a real perceptual problem with todayís youth and it will present a problem down the road if it is not aggressively attacked today.

What other demo issues should radio be concerned about?
On the other end radio has to really keep its eye on 55+. In the last four years, 16-million Americans have turned 55. In the next ten years, 40-million will turn 55. Radio doesnít give a damn. I talked to the same executives and their words are: ďI just donít care. I canít make any money off of them.Ē Thereís a real failure of leadership on radioís part. Iíve tried for several years to get senior executives to adopt a 30-59 demo, which is much more realistic than 25-54. It fits much better with lifestyle changes, home ownership and marriage. They laughed. They canít even be bothered by it. ďWe canít change advertisersí minds.Ē Well then who can? If all these big muckity-mucks making a million dollars a year canít change advertisersí minds, then maybe somebody else should get the job. 30-59 is a much better demo model than 25-54. Plus, 18-29 is way more realistic as a category than 18-34.

If youíre argument that radio leadership is too set in their ways to change prevails, there are even deeper consequences ahead. 
You show me an industry set in its ways and Iíll show you a tidal wave thatíll wipe that industry out. Isnít that what happened to the record industry to a large degree? Hereís the thing. Anybody above what I call the firing line canít get hurt, none of the big dogs in any of these companies. Theyíre all so rich itís staggering. Theyíve got tons and tons of money so they really arenít working for the money anymore. Theyíre just working to squeeze the margins. Everybody else below the firing line has to pay mortgages, and get the kids to college, and everything else. And, there isnít a heck of a lot of jobs out there. Iím not being cynical or anything; Iím just stating a simple fact. Itís why the smartest and the best of the industry are migrating elsewhere, many of them to the Internet and satellite radio. 

Do you feel, like many programmers do, that radioís entry into the new technology game came way too late, where the investment should have been made several years ago when the margins where so healthy and the technology was available?
You show me an industry where people are making 40, 50, and even 60-percent margins over time, and Iíll show you an industry thatís ripe for competition. Radio is a regulated oligopoly. Itís like the toothpaste business. There arenít a lot of different players and all they do is fight for shelf space. They really thought they were never going to get any competition. What they didnít expect was competition from an entirely different source, which is what inevitably happens when you donít reinvest in your product. Anybody making huge margins and not reinvesting in their product is asking for big trouble. You know the old saying: Pigs get fat and hogs get slaughtered. 
     Fact is, though, radioís not going to die overnight. There are hundreds of millions of radios in cars, homes and work places, and people are still going to listen to them. What radio is really doing is a worse and worse job for advertisers, because of the fact that you have like eight units all jammed togetherÖeven with less is more. Iíve counted 15 units in some markets theyíre just shorter. If youíre number four or five in that cluster, youíre pretty screwed, and radio is not doing a good enough job for that client. At the end of the day, and itís going to be a very long day, advertisers are going to demand more accountability from radio. Radio is going to change, but itís going to be very slow. Anybody who is already above the firing line right now is going to retire in about a year, and play golf for the rest of his or her life, without really a problem. So, radioís going to go very, very slow. 

What is your take on HD radio and the high-profile publicity campaign mounted by the HD Radio Alliance?
Think about HD for a minute. What is HD? HD is a technology for which there is no real clear demand. In other words, the public isnít saying, I wish radio had CD sound. The two biggest things we find in our research on radio is: I wish it had fewer commercials, and I wish the jocks werenít so rude and stupid. Followed by the perennial cry, I wish it played more music I wanted. Thereís hardly anybody out there saying: What I really want is better sounding radio. What they really want is fewer commercials, fewer interruptions, and more music, or more Talk on the Talk side. These variables are more relevant to the listener. I really donít see HD as such a promising initiative for the medium.

How will radio protect its core revenue-generating asset with side channels that are more music intensive?
They are going to sell more spots! Okay, youíre going to put out how many new channels, with how much inventory, programmed how? When right now youíve got the leaders in the industry cutting rates because thereís so much inventory out there. We donít have rate integrity in this industry. The leaders in the industry arenít really setting a rate and sticking to it. What in the world are you going to do if you have tons of extra inventory? You tell me how youíre going to sell that? How are you going to package it? How are you going to afford to pay for programmers? At the end of the day, if HD does make it and get out there in a really big way, all that itíll do is replace the existing frequency.

As radio puts itself in the fast lane with HD, where does it place the medium along the technology curve, and is HD indeed a credible replacement technology for the traditional product?
If you look at what I call the technology adoption curve, replacement technologies generally take somewhere between ten and fifteen years to fully work their way through the system. What I call add-on technologies, something I can plug into an exiting product, generally take seven to ten. For example, VCR and DVD players are add-on technologies. You simply plug them into your TV and they work; you donít have to do anything else. So, the adoption of the DVD player (weíre into the seventh year) is pretty well finished because it was just a plug-in.
     On the other hand, HD television, a replacement technology, has taken a heck of a lot longer to find its way through the system, and still isnít fully through the system. HD radio is really a replacement technology. Itís not that easy to add on, and so in that situation youíre going to have to get them into cars. I worked with XM on all the research they did before they launched the product. I remember, before XM actually started, about seven-years ago, their obsession was making deals with car manufacturers. That is just bearing fruit now in the year 2006, where the manufacturers have put XM and Sirius into various models. Even thatís going to change. I believe itís not going to be that long until XM and Sirius merge, maybe in the next two-to-four years. The player will be the same, but theyíre going to have to offer a chip for either XM or Sirius. 
     But, you look at that (replacement) technology and youíre dealing with the adoption curve. Itís hard to add it on; it sticks on your dashboard and looks ugly. So, if HD is going to take seven years minimally, probably more, in a business where people count everything on 90-day cycles and where no one is compensated for thinking long term, the risk outweighs the benefit in this case. Itís too little too late. I just donít see how the economic model works, and I donít see customer demand. I donít see people saying: ďWow! This is what I really want!Ē People want a lot of channel choices in the beginning, but they really only want a lot of choices so they can pick their five favorites.

Are there any technology improvements radio is not addressing that can instantly upgrade the product?
The most basic thing of all is song identification in the dashboard. Thatís probably the biggest thing radio can do a better job of. It's still pretty crappy in a lot of places. Where the new radios will pick up the song ID and get half the name of the song. On satellite radio itís all clear and easy. The number one thing people want to know is the name of songs. In a study we did for Arbitron, What Women Want, a few years ago (probably the most downloaded study ever at Arbitron, and still downloading heavily today) the number one thing people want to know is the name of the song. Thatís radioís biggest opportunity: a simple, low-tech solution to make sure that everybody knows the names of songs. If you donít put them on the dashboard, then say them on the radio.

Can radio do a better job of front and back selling music?
Itís tragic. You have so many program directors out there who demand that their jocks say ďPhoenixís #1 most listened to station at work,Ē every time they open their mouths, because all theyíre doing is literally jacking themselves off. Instead of giving the customers what they want. Theyíre talking about themselves all the time. Itís pathetic, and theyíll tell you, ďWell, our research shows blah-blah-blah.Ē It doesnít. The customer will remember you. Hereís another really low-tech solution: Every radio station should have an audio logo. Every radio station should have a sound that identifies it. It takes a while to figure it out, but if you do that, and people get accustomed to that sound, like the old NBC chimes, it becomes an indelible brand. We do a lot of logo development work for clients, and the average time to develop a real good audio logo is three to six months. Itís not something you just sit around and say, ďOh thatís what Iím going to do.Ē But, you get the right audio logo, thought through the right way, and it becomes another low-tech solution thatís extremely valuable. Then the Arbitron issue of ďWhat did I listen to at the end of the day?Ē becomes, ďOh yeah, I know what I heard, it was this.Ē The solutions for radio are not high-tech. They are low-tech.

In radioís post Telecom business model itís hard to dispute the notion that Clear Channel did it right. After all, they played by the rules and acquired broadcast companies at a high rate, and also set up ancillary assets to protect its core radio assets. Since they are the biggest, comment on the CC method over the past ten years.
Iím not sure they did do it the right way. I canít see the evidence of doing it right when you look at what the write-downs have been so far. I donít know exactly, six billion, seven billion. I know that Infinity wrote down at least eleven-and-a-half billion. So what that says is: Where did the money go? Well, it came out of some kidsí college fund where it was invested. Somebody invested in them and lost that much money. I think, with their stock now in the 30s, when it was in the 70s, and at one point the 90s, is telling. You canít tell me itís right: buying too many radio stations so that you gave away time on a station you didnít know what to do with. Iím not sure stock thatís lost fifty-percent of its value is right (depending on where you bought on the curve). Iím not sure that making someone program five radio stations in the same market is right.

You sound like you have major issues with the consolidation model in general.
If you look at the consolidation model from day one, no one was listening. Our argument was that you probably should never own more than four radio stations in a market for a couple of reasons. One of them was you could never accomplish your fundamental goals across the board. Nearly everyone wants to be top five. Thatís basically the goal: top five 25-54, or top five 18-34. Thatís kind of the holy grail of making buckets of money. If you own more than four or five stations, you can no longer do that, which means youíre playing not to lose instead of playing to win. Playing not to lose is eventually a failure strategy. It might take a really long time, but you will eventually fail if you play not to lose. You have to play to win. There are no exceptions. Itís what motivates the best competitors. 
     If you were buying all these stations and you had more than four in a market, well, what were they there for? The idea was to eliminate competition. Iíll be so big I can have more inventory and cut rates. None of that has proven to be true. They didnít package up these big deals they all thought they were going to package. The evidence is pretty strong that radioís model is basically the same as it was pre-consolidation. All thatís happened is the signals cost more. So, I believe that anybody who gets really, really big and believes thatís the solution in radio, is missing the boat. I heard somewhere recently that Clear Channel wanted to go to 2,000 stations, and my point was why? Is it just so you can control all the competition? I think that was the original idea. If I buy it all then nobody can compete.

As mentioned in the intro of this article, John Parikhal has much to say and is very opinionated. In our May magazine issue (coming soon), my discussion with John will continue. Parikhal speaks freely on a variety of other hot topics like: the Howard Stern lawsuit and CBSí treatment of such; air talent issues in general, both terrestrial and satellite; working through the bureaucracy of corporate radio; music industry concerns and where the record business is headed.

**QB Content By Fred Deane


FMQB NOW

Nicki Farag,
SVP of Promotion,
Def Jam Recordings

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