RALEIGH – Competition drives change and creates surprises.
It’s true in basketball (go Pack!) It’s true in politics (at least in theory, where incumbents have a good chance of being defeated). And it’s obviously true in business.
I should hasten to add that the sometime-textbook definition of competition is inaccurate. Competition doesn’t exist only when there are a large number of rival companies, none with much market share and all pushing and jostling for position. It can also be present when there is only a single dominant firm selling a particular good or service. That firm can still face competition, and thus have strong incentives to offer good service at low prices, if the barriers to entry are low to other firms entering the market. It’s the threat of competition that spurs innovation, the threat that if a firm doesn’t deliver the goods it might face an effective challenger.
The concept applies not just to single companies but also to entire industries. Broadcast radio, for example, used to be thought of as lacking competition from other media for listeners. That is, it was thought that while consumers had many media choices — as did advertisers seeking to reach them — there was little recourse but to listen to the radio while driving, working, or recreating. That supposedly gave radio a leg up.
Tape players installed in automobiles presented the first challenge to commercial radio’s claim on our ears. But tapes were hard to search and didn’t deliver high-quality sound.
CD players came along in the 1980s, followed shortly thereafter by CD changers allowing drivers to “program” their own listening experience for hours at a time. Facing an effective challenge from without – competition within the sector had also been fierce, of course – commercial radio stations began to emphasize the services they offered that prerecorded music could not, such as increasing the frequency of traffic and weather reports. Some adopted the rejuvenated news/talk format during the 1990s. Stations also went through rounds of cost-cutting. Thanks to deregulation, the industry began to consolidate, thus spreading sales, programming, and administrative expenses over larger inventories of advertising. Stations began to accept more syndicated fare, especially morning shows, and out-of-area programming.
As both The Wall Street Journal and Business Week have reported recently, the next technological blow to commercial radio’s barriers to entry has arrived in the form of satellite radio. Subscription services XM and Sirius offer dozens of programming choices, virtually all of it commercial-free and catering to narrow tastes impossible to serve by traditional broadcasting.
How is commercial radio responding? One interesting direction is to reduce the ad clutter that has so obviously devalued the listening experience on many stations. The ad breaks are becoming fewer, sometimes with ads shortened from 60 seconds to 30 seconds. Presumably, stations are raising rates accordingly. This makes perfect sense, and is in fact long overdue. Having just written a book in praise of the economics and aesthetics of advertising (due out from Praeger later this year), I’m a big fan. But advertising policies that chase listeners away are pointless.
Other responses include the technological (digital radio), the managerial (reorganizing media conglomerates to achieve real synergy rather than the faux kind), and the programmatical (dropping the B- and C-list syndicated shows, which will likely migrate to satellite, in favor of local programming that can’t be duplicated). Ought to be fun to watch – or, I should say, to listen to.
Hood is president of the John Locke Foundation.