Katz Media Group

From the Editor:
Welcome to the April 2008 edition of RadioWaves. We continue on our mission of separating the truth from the hype in the media industry. This month, in addition to our regular columns on Radio, Traditional Media and Digital Media, we added a column called "Show Me the Money", which introduces a new concept we call "flat is the new up." Also provided is a FAQ section for Satellite Radio. The Department of Justice's approval of the Sirius/XM merger has brought this dialog to the forefront again. Rounding out this issue is the definition of the concept of "Engagement", the "Truth or Hype" column and the "Factoids You Can Use" column. As always, your feedback is welcomed.

Radio

AM/FM Radio today is huge
There are more AM/FM stations on the air today than ever before. There are now over 12,000 terrestrial AM and FM Radio stations operating in the U.S. These stations are received by more than 1 billion traditional Radio sets and reach 235 million listeners, which is over 95% of the U.S. population. How many other media reach more than 9 out of every 10 people? April08-trends

AM/FM Radio today is growing
Despite the incredible growth in new digital technologies, traditional AM/FM Radio's reach has grown by 16% since 1994 and by 8% since 2000.

Internet Radio is reaching critical mass
Nearly half the population has listened to Internet Radio and one in five people listened in the last month. Arbitron/Edison Research's new study "The Infinite Dial" tells us that 54 million people listened to internet Radio last month. Some research says this audience is even larger -- JP Morgan's Internet Radio Scorecard says Internet Radio had 63 million listeners last month.

AM/FM stations' share of Internet Radio hits a record high
Traffic to AM/FM Radio stations' websites is rapidly growing - it's up 37% in the last year. In fact, AM/FM Radio websites' share of total Internet Radio listening has hit a record high of 43%.

Digital audio consumers have the same listening to AM/FM Radio
The rapid growth of Internet Radio and other digital listening opportunities have not significantly impacted AM/FM's listening. In fact, digital audio listeners listen to AM/FM radio to the same degree as the rest of the population.

April08-time-spend-listening

Source: RADAR, RAB, Arbitron/Edison Research "The Infinite Dial" April 2008, JP Morgan April 2008

Show Me the Money!
This new column will feature topics on ad spending and revenue forecasting

Flat is the new up
Let's repeat that - FLAT IS THE NEW UP! Advertising spending on all measured media was only up 0.2% from last year. If you can remain stable in this challenging economic and media environment, only changing by less than one-half a percentage point, then you are ahead of the game. Today, forecasting is not an exact science so there are many disparate forecasts for media spending and for the advertising marketplace. However, one thing forecasters agree on when examining the impact of new media, is that Radio is one of the traditional mediums that's least impacted by new media, both in audience erosion and advertiser commitment. The chart below shows the trend of the share of advertising dollars by media since 2004, demonstrating that Radio is flat, with only a half share point decline. Most people would consider this stable considering the current environment.

April08-sharemedia

Satellite Radio Top Five FAQ's

With the announcement of the Department of Justice's approval of the Sirius and XM merger, we thought it would be a good time to review where Satellite Radio really stands as a medium. It still has one more hurdle for their deal to become a reality - the FCC has to approve it. Satellite Radio continues to be a large part of the media industry dialog even though consumers continue to have only minor interest in the new medium, which is actually 10 years old. Let's take this opportunity to review the five Satellite Radio FAQ's we hear the most:

1. Is Satellite Radio growing? Combined, XM and Sirius had 17.3 million subscribers at the end of 2007, up from 12 million in 2006. However, it's important to differentiate between subscribers and ratings. In the satellite world, subscriber counts are heavily inflated for two reasons:

a) Both satellite companies continue to count cancelled subscribers for up to 18 months after their cancellation. It's estimated that nearly half of those who receive a promotional subscription with their new car cancel the subscription when the free trial is over, never becoming a paying customer. This figure has grown from a cancellation rate of only 20% in two years.

b) Satellite companies' count "installed" cars as subscribers. This includes unsold cars sitting on car dealer lots or importer"s docks. It's estimated that unsold cars account for one million of the Satellite Radio subscribers. In the world of Satellite Radio, subscribers do not equal listeners.

2. What are Satellite Radio's actual Arbitron ratings? Arbitron recently did a special ratings study of Satellite Radio. Some think that Satellite Radio is a vibrant and large growth medium, but nothing could be further from the truth. Actual Arbitron ratings for Satellite Radio channels are so small that nearly every single Satellite Radio channel would not have a large enough audience to make Arbitron's rating book. Only two of Satellite Radio's 300+ channels have over 1 million cume listeners nationwide -- Sirius' Howard Stern channel and XM's Top 20 at 20. On the other hand, there are dozens of local market AM/FM stations with over a million listeners in their home market.

3. Is Satellite Radio hurting AM/FM Radio? This is a subject of much debate, but we say no. AM/FM Radio had 235 million listeners in 2007, an increase of two million listeners from the prior year. While time spent with AM/FM Radio has seen some declines over the last five years, losses aren't coming at the hands of Satellite Radio. A new study from Arbitron & Edison notes that AM/FM Radio listeners who were also digital audio consumers (which included Satellite Radio, Internet Radio, Podcast and MP3s/iPods) listened to AM/FM Radio to the same degree as all other listeners. Furthermore, AM/FM Radio's time-spent-listening erosion is coming from younger demographics, the iPod/online/texting lifegroup. This demographic isn't likely to pay $12.95 per month to receive pay Radio in their car. This is the demographic that already knows how to crack the code of getting everything, including downloadable music, for free.

4. Are XM and Sirius in trouble financially? Satellite Radio started a decade ago and still loses money. Combined, the current annual deficit of XM and Sirius is $8.6 Billion. Huge costs, combined with disappointing subscriber growth and minimal advertiser commitment, have caused the companies to be unable to make any progress toward a positive bottom line. It's estimated that it costs Sirius and XM up to $150 to acquire each subscriber, most of which is payment to the car companies to install the Radios. Add in the salaries of their marquee talent plus the cost of the technology and the result is a recipe for astounding losses. Satellite Radio loses over $20 million per day. It's no wonder the two satellite companies want to merge. Both companies' stock prices have lost about one-third of their value in the past year and over 90% since 2000.

5. Will Sirius and XM suceed as a merged entity? Many experts say that technology may have already passed Satellite Radio by.It's already light years ahead of satellite's subscriber model and it?s estimated that it will take a year after the merger is approved for the two services to have a single compatible receiver. Until then, the companies will lose precious momentum while other technologies grow.

Sources: Arbitron/Edison, MediaPost, Mediaweek, Silicon Alley Insider, Goldman Sachs, Fortune Magazine

Traditional Media

Newspaper circulation and revenue decline in both the printed and online editions
The newspaper industry continues its circulation freefall. A recent report shows that, on average, in the last four years, the top 20 newspapers have lost about 10% of their circulation. Many other influential newspapers have shown larger losses:

The San Francisco Chronicle is down 29%
The Boston Globe is down 20%
The Los Angeles Times is down 20%
The Atlanta Journal Constitution is down 17%
The Washington Post is down 13%
The Arizona Republican is down 11%

The decline in circulation has hurt revenue at virtually all newspaper chains. Many newspapers are undergoing staff cuts. In February 2008, when the Radio industry's revenue was down 2%, Gannett's newspaper revenue was down 8%, McClatchy papers were down 12% and the New York Times was down 3%. From 2006 to 2007, newspaper revenue dropped nearly 6%, which is a $13 billion loss.

Newspaper websites are also losing revenue
The Internet is the newspaper industry's light at the end of a long dark tunnel. Newspaper websites are experiencing audience growth. To some extent, growth is coming from the younger demographics, the lifegroup which have been leaving printed editions behind for years. However, despite gains by attractive demos, newspapers have been unable to monetize their website opportunities. As a result, newspaper's online audience growth has not produced significant revenue growth. Further, online newspapers are losing revenue to online-only competitors. Local online services like CitySearch.com, YellowPages.com and local Radio station websites are showing gains over online newspapers. In fact, newspaper online revenue losses are greater than their printed edition revenue losses. A year ago, local newspaper websites accounted for 44% of local online advertising dollars, but this dropped to 33% this year, a 24% decline.

Source: Editor & Publisher Mar'08, Borrell Dec'07, MediaPost Mar'08

Digital Media

Is online video viewing causing TV ratings to drop?
The rapidly growing online video segment is approaching critical mass ... or is it? A recent study revealed that nearly one-third of web users view online video at least once a week (Note: Like many internet metrics, this one-third figure represents a share, not a rating). The bulk of that viewing comes from those under 35. In fact, 42% of 18-34s are online viewers, growing 50% in the last year. Meanwhile, only 15% of the over 35 group are online viewers, barely up from last year's 13%.

Many believe online video viewing is impacting TV ratings, especially now that the networks are streaming many of their shows online. These streams are usually commercial free and no cost to the viewer. However, the metrics do not point to any significant impact on TV viewing:

Fewer than 10% of online video viewers agree that they watch TV less often
Only 9% of online video viewers actually watched an episode of a TV program
Dayparts for online video viewing varied widely by website. For example, Yahoo's heaviest video viewing daypart is in the morning, while YouTube's is during TV's primetime, at night.
Perhaps the most important metric relates to consumer engagement - the majority of online video viewers only spend a few minutes per day watching online videos. The average time spent per day watching online videos is only 6.5 minutes.

The head of the research firm who conducted this study noted that online video is emerging as a medium unto itself and not necessarily an alternative to traditional TV viewing.

Simultaneous use of the Internet and TV has also become more common. Over three-fourths of web users have gone onto the Internet at the same time that they were watching TV. The majority of viewers, 62%, looked at content unrelated to what they are viewing. Of those who did look at content related to the TV show, most were looking for information on the show, not for information related to advertiser's products. Those looking for product information were in the minority.

Sources: Leichtman Research Group, March 2008
Blinkx and Harris Interactive, March 2008
comScore Video Metrix December 2007

This Issue's Definition

What is "engagement"?
Engagement is a very important concept that's receiving a lot of attention lately. The Advertising Research Foundation defines engagement as: "turning a prospect onto a brand" because of the surrounding context. It's a measure of the involvement a customer has with the product as a direct result of the environment in which it is showcased. This concept of engagement has become more important as we enter the fragmented digital world. In the era of "old" media, the two dimensions of measurement that were used primarily were reach and frequency. A third dimension, that was often ignored, was called a number of things including loyalty, exclusivity, time-spent-listening/viewing, pages read, P1 score, ad noted score, editorial environment and credibility. All of these in some way reflected on the depth of consumer involvement. With the wealth of digital opportunities available to fragment consumers' attention, the term engagement takes on a new level of importance. Because digital consumers are diverted into so many paths, having a way to measure their engagement in any one of those paths becomes critical. For example, is an Internet user merely surfing the web, randomly clicking around or is he involved or engaged? If a consumer is not engaged, does the advertising on the websites that internet user views have any impact?

One of the major issues about engagement has come from marketers' inability apply metrics to this intangible concept. Subscription, duration, loyalty and interactivity all point to engagement. In the online world, web surfing is the opposite of engagement while a paid subscriber is considered to be engaged. Meanwhile, in the broadcast world, exclusive listeners or viewers are the very definition of the word engaged, while the button pusher or remote zapper is not engaged. However, these are loose concepts, not metrics.

The most critical fact is that an engaged audience can be influenced to purchase. A recent study confirmed the intuitive notions that marketers who engage their consumers sell more than marketers who don't and that different media engage/influence at different rates. Another recent study, featured below, is more specific, showing engagement/influence by medium. This study demonstrated the influence of various media on purchases of electronics, including annual growth. This appears to be the true measure of engagement: did a consumer purchase a product because he saw or heard the message on a specific medium? Note that there is a strong showing for both traditional and online Radio in this study.

April08-Mediainfluence

Source: Big Research Feb'08; MediaPost, March'08

Truth or Hype?

Apple plans an HD Radio push. TRUE.
Apple recently announced that its iTunes store, where customers can download songs for their iPods for a dollar apiece, was the number two music retailer in the U.S. behind Wal-Mart. Apple also claims to have the world's largest music catalog with over six billion songs, with sales of over four million of them. With numbers this large, looking for growth opportunities is daunting. Apple is looking for more channels to plumb and what better opportunity than AM/FM Radio, that big free songbook that everyone still listens to? However, there were two things standing in the way. First, since Radio is free, Apple had to find a way to monetize Radio's music. Second, iTunes formats its downloadable music to run only on iPods, which happen to be the only major brand-name MP3 player that doesn't come with a built-in FM Radio.

Ultimately Radio has the content Apple seeks, but it doesn't have compatible hardware. In fact, when the iPod first came to the market, Apple's founder, Steven Jobs, was quoted as saying he wouldn't put a Radio into the iPod because Radio was its competition. He was not selling iPods as hardware, but as a vehicle for the music content he was selling on iTunes. Jobs appears now to have changed his mind. At this year's MacWorld Expo, Apple announced a new "HD Radio initiative" by unveiling HD Radios that come with iPod docks plus the ability to tag Radio's songs so the listener can download them later from the iTunes store (for $1 each, split with the Radio station). This is a long way from building Radios into iPods, but at least Apple is now looking at Radio as a source of revenue rather than as a competitor.

Source: NPD Group, Feb 07, MacWorld, Silicon Alley Insider

Factoids You Can Use

Who buys the most music? You might be surprised to learn that it's Baby Boomers. More than 70% of Boomers bought music in the last year, making it the most important demographic for CD's and an increasingly important market for digital downloads. While the recording industry struggles with piracy and sharing among younger consumers, Baby Boomers have the income and the tendency to actually pay for the music they want. Bottom Line: Baby Boomers single handedly account for one-third of all music sales.

Source: NPD Group, Sept 07