Cumulus CEO Lew Dickey has sent the following letter to Cumulus employees and press to explain the rationale for Cumulus’ deal to acquire a stake in Rdio.
Digital technology has impacted virtually every aspect of our lives and perhaps nowhere as significantly as in the way we consume media. In today’s digital world, Radio, Television and Newspapers have become Audio, Video and Text. Many barriers to entry have been erased for both producers and distributors of content, and the result has been fragmentation. New companies have spawned to disrupt the status quo and now command eye-popping market valuations ranging from: Netflix on the video side at $18 billion to Pandora’s $4.25 billion and Spotify’s $5 billion on the audio side.
Audio like Video are both spaces that are widening. More products are being consumed by more people on more devices across more platforms than ever before. Total consumption of both audio and video are both growing and showing no signs of abating. Netflix doesn’t replace network television, it simply co-exists and competes for share of mind and share of time. Like digital video, the same is true for digital audio with dozens of competitors vying for consumer attention. Products like Pandora, Rdio, Spotify, Rhapsody, Deezer, Google All Access, Slacker, iTunes Radio, iHeartRadio, TuneIn and Radio.com all compete with a product strategy centered on one of the key components of digital audio outlined below.
As radio broadcasters, we are really in the audio content business, distributing our local and national content to more than 90% of people in the United States for free on an ad-supported basis. This is a terrific model with high barriers to entry because you can’t start a radio station – you must buy an existing one. We believe our model is healthy and growing and we plan to continue to invest in broadcast assets. We also recognize that digital audio consumption is growing rapidly as more options for both content and distribution make their way to the marketplace.
As the consumer’s options and behavior continue to evolve, it’s imperative that we be in a position to serve our listeners a premium quality audio experience wherever, whenever and however they want it. In other words, we want to expand our capabilities to grow with the widening audio space – both in content and distribution. A key reason why we purchased Westwood One was to fortify our position in audio content. Our next logical step is to find the best in class digital distribution platform that will enable us to address the full range of audio needs for our listeners today and in the future.
Broadcast Radio is our company’s DNA, and it enables us to create some of the best audio content in the world. As technology evolves, we want to be able to distribute our content to consumers whenever, wherever and however they want to consume it. Positioning our company to participate across the broadening audio ecosystem will be a key competitive advantage for us going forward.
On Monday, we announced a landmark partnership with Rdio, in which we are taking a significant financial stake. Cumulus will be Rdio’s exclusive broadcast partner in the US (they operate in over 30 countries) and be responsible for both content and sales. We will closely integrate them into our on-air and promotional strategies and will look to them as our worldwide digital distributor for our network content, including our recently announced acquisition of Westwood One-Dial Global.
Partnering with Rdio, we are now able to meet the full range of audio needs for listeners nationwide and begin to export our content and brands worldwide. This strategic alignment uniquely positions us to compete aggressively against all digital audio services for the benefit of our entire platform.
To fully understand the importance, impact and scope of this partnership, it’s important to consider the digital audio landscape and how it complements our core business of local broadcast radio. Today, people consume audio in many ways with local radio accounting for about two-thirds of all audio consumption. Other forms of audio include: Local Radio Streaming (station sites & apps, iHeart), On Demand (iTunes, Rdio, Spotify), Custom Playlists (Pandora, Rdio), National Radio Channels (Sirius and coming to Rdio). Our strategy of owning premium and exclusive content that we distribute across broadcast and digital platforms is designed to enable us to be relevant across the entire audio ecosystem.
Digital Audio Consists of 4 Key Components:
1) On Demand: People have purchased music for as long as radio has been around. With the emergence of digital music, Apple is now the largest “e-tailer” of music in the world. On-demand simply means that people can buy and listen to songs or albums whenever they want. Technology now lets consumers rent rather than purchase their music and do so with unlimited access across multiple devices. This is a key behavioral shift for consumers with respect to audio and video.
Consumers’ preferences for both audio and video content are rapidly shifting from “ownership” to “access”. In other words, people realize that it’s a better to rent an unlimited library of content than it is to acquire limited pieces of content — be it music or movies. Rdio is positioned on the leading edge of this important media trend, enabling consumers to listen and discover virtually unlimited amounts of music on any device with a high degree of social engagement across the Rdio platform.
Think of Rdio for audio as the equivalent of Netflix, Hulu and Amazon all combined for video. A free or paid subscription to Rdio gives you access to 20 million songs as well as nearly every new song that is released instantly. Your iTunes library now becomes obsolete.
2) Custom Playlist: This is a feature that builds a playlist based upon an artist, genre or mood. It is the new version of a party tape or mix CD. But quite clearly, this is not radio. It’s Pandora’s primary product and contrary to what they are trying to sell, it’s just a feature – a playlist, not a radio experience. Rdio currently has this custom playlist feature and our programmers will be playing an instrumental role in refining the technology that selects songs to help improve flow, rotations, etc. We will help add an experienced professional programming element to curation that will further differentiate Rdio from what is Pandora’s singular business. In addition, Rdio draws from a vast library of 20 million songs – 20x that of Pandora.
3) Internet Radio / Non-local Radio: Between the hundreds of stations we own and the thousands of stations we serve through our networks, we help make local radio an important part of more than 250 million Americans’ daily lives. The Rdio partnership will allow us convert this valuable programming into new digital audio products. After all, there is currently no compelling non-local radio offering available on-line. The closest product in this non-local category is Sirius XM, but distribution is very limited to automobiles and is expensive. Satellite accounts for less than 5% of radio listening and less than 3% of total audio consumption. In addition to Rdio’s product array of On Demand and Custom Playlists, Cumulus will draw upon our stable of iconic brands, content and talent to produce new, exclusive channels and short-form programs that give listeners an unparalleled listening experience on a single digital platform. Rdio will combine the best of iTunes, Pandora and Sirius in one app that can be accessed on virtually any desktop or mobile device.
4) Local Radio Streaming: We will continue to rely on our station websites, station apps and iHeartRadio to distribute our local broadcast streams. Rdio currently does not offer this feature. Over time, Rdio may offer this feature as a complement to our current relationships, which are working very well for us.
We are excited to announce this groundbreaking deal with Rdio – the world’s most compelling digital audio platform. This partnership enables Cumulus to leverage our key assets and expertise in content, promotion and sales — making an immediate impact in the evolution of digital audio. Our new relationship with Rdio builds on the recently announced acquisition of Westwood One-Dial Global to ensure that our listeners and advertisers will enjoy broad access to our exclusive content. Our core mission is to provide consumers with the finest audio experience available regardless of device or platform.
The future is extremely bright for both broadcast radio and digital audio, and Cumulus is now uniquely positioned to continue to build a leading media company that successfully integrates the full range of audio content and distribution.