Is NPR The Next Radiohead?

With a digital strategy, Radiohead successfully ditched the middleman. NPR has the potential to do the same. Could it all backfire? You betcha…

In late 2007, British rock group Radiohead released their album In Rainbows directly to fans.  Upset with changes at their record label, EMI, the band leveraged the power they held as a content creator in the digital world.

Instead of a traditional release, the band went direct-to-consumer with digital downloads to fans who were allowed to set their own price.

Radiohead was not the first to go this route, but they might have been the biggest, and the move rattled the record industry into finally realizing that the business model was severely broken. Radiohead, benefitting from years of investment from the label and retailers, eliminated those very middlemen that helped it build a worldwide brand.

Now all media feels like the Wild West, with content creators, copyright holders, distributors and affiliates sitting at one big poker table.

NPR could be the next player to go “all-in” with a digital strategy.

All the pieces are in place for NPR – rabid fans, terrific brand, strong content, multiple revenue streams, and a digital strategy that is firing on all pistons.

All indications, from the release of their iPhone app to the increasing use of Associated Press content on it (not local affiliate content) suggest that NPR may pull a Radiohead.

NPR CEO Vivian Schiller, in speeches at recent public radio conferences, promised to work with affiliates to create a business model.

Affiliates are frustrated. Like the record labels and record stores that helped build Radiohead, they’ve spent years building the NPR brand, and every year they pour more money into supporting content that is increasingly available on platforms that compete with them.

Affiliates should be wary. I’m not doubting NPR’s intentions, I’m just measuring my own behavior.

Recently, I’ve started splitting my week between New York and D.C., with the commute turning into a circus of planes, trains, and automobiles. Old listening patterns out, new patterns in.

Actually, it’s radio out, iPhone in. In the D.C. metro, instead of WAMU, I hit the “newscast” podcast on the iPhone App, and cherry-pick All Things Considered stories. Instead of WNYC on weekends, it’s This American Life (from Public Radio International) podcasts on the commute. Yes, even in the car, it’s the iPhone in the auxiliary jack. You get the idea.

Perhaps exacerbating the situation is my realization that most NPR and Public Radio content is not exactly time sensitive. NPR is not strong in the breaking news category, instead built more for reaction and analysis. That’s fine – unless you’re an affiliate, and consumers have the Tivo of radio—allowing them to time shift at will.

In a time when Arbitron’s Personal People Meter measures listening, certainly affiliates will take a ratings hit, leading to lower underwriting revenue. And without those pesky fund drives reminding me to send cash, that revenue stream looks troubled as well.

For years, affiliates listened to a tiny group of researchers and consultants who preached the dumping of local content in favor of the better produced national shows. It was an effective, but myopic strategy, now leaving affiliates with little home-grown content and a potential Radiohead as their main product.

Where this leaves the vast majority of affiliates is yet to be determined.

The current idea being pushed appears to be one of NPR covering national and international news, while strong local affiliates fill in the gaps with equivalent local coverage. That may be a content strategy, but it is not a business model.

What needs attention are ugly things like who owns what and who pays for what.

If you game this out, it gets interesting.

The scenario where the affiliates take a hit is obvious. The scenario where NPR turns short-term gain into long-term pain is less obvious.

In the current business model, affiliates pay fees for NPR programming. NPR would have to be thinking these fees would continue, or a direct-to-consumer strategy could make up for that lost income. Or both.

But if Radiohead represented the power of the content creator, the reverse power play is currently being carried out in the cable television and retail worlds.

When The Food Network and HGTV (Scripps) demanded higher affiliate fees from Cablevision, the cable company called their bluff and simply dropped the networks altogether. Fox similarly went to war with Time Warner but a settlement was reached in that dispute.

We’re likely in the very early stages of an unraveling of the cable television business model. Similar to problems in the record industry, where consumers were forced to buy overpriced albums with few “good” songs, cable subscribers pay more and more for a bundle of channels, few of which they watch. It’s a perfect recipe for consumer revolt.

In the retail world, “distributors” have been flexing their muscles. Drug store chain CVS dropped Energizer batteries in favor of its own brand and Duracell. Costco recently pulled Coke products off the shelves in a pricing dispute, and Walmart has many major brands sweating as they plan to pull more of them in favor of private label products.

In the public radio world, affiliates could leverage their significant power not by dropping NPR programming, but by trimming it back to the newscasts and the major magazine shows.

In reality, it’s unlikely that NPR’s flagship programs would ever get hurt. But the also-rans and especially future launches would be stymied.

With “shelf space” newly available, the market would fill the void. Competitors such as Public Radio International, American Public Media, major market stations, and even independent producers could make headway – provided they came with affiliate-friendly business models.

It all depends on NPR’s vision for the new business model.

And here’s one worth a try: dump the affiliate fee model for the barter model. The standard in the commercial world, affiliates get content for free in exchange for inventory.

Paying less, affiliates are much less likely to be irritable about competing with their supplier.

-Paul Marszalek

Update: Comments and clarifications from affiliates, who asked not to be identified by name or call letters…

* The barter thing. It already exists in…public radio style. Not only do we pay for the programs, but there are national avails and local avails built into the programs that NPR produces (ME ATC ETC) … It gets a little more complicated on national shows that NPR distributes that are produced by other stations. There, NPR has an avail set, the producing station has an avails set and there are local avails. Editor: So unlike commercial radio barter, the producers are already double-dipping.

* I think there is one thing missing from this astute analysis.  About 80 percent of NPR’s revenue is dependent on affiliates (stations) — from corporate underwriting that airs on stations and station dues for programming.  Radiohead could sell direct and make all the money.  But stations aren’t labels…the money goes in the reverse direction here. There is nothing in the digital space that can make up for that kind of cash. No amount of banner ads or video rich displays can make up for 15 second underwriting spots on major market stations.

Editor: Correct on Radiohead, they can eliminate the middlemen without backlash. Not so with NPR. The better analogy here is probably the cable television or retail examples. It’s a great question: Who has the power in this relationship? I’d argue that there is incredible power at the affiliate level, but based on my years in the generally risk-averse community very few are willing to use it. NPR may be betting on the status quo.