The Enthusiastic Skeptic: Disruptive Innovation and Public Radio

Disruptive Technologies Roadkill Menu: AM Stereo, FMX, RBDS, Betamax, 8-tracks, 5¼” Diskettes, MS-DOS, Local phone operators, mom & pop ownership

Disruptive Technologies [Technology here means the processes by which an organization transforms labor, capital, materials and information into products and services of greater value.] [Technology here means the processes by which an organization transforms labor, capital, materials and information into products and services of greater value.] Innovations that result in worse product performance, at least in the near term. Innovations that result in worse product performance, at least in the near term. Bring to market a very different value proposition (typically cheaper, simpler, smaller and frequently more convenient) Bring to market a very different value proposition (typically cheaper, simpler, smaller and frequently more convenient) Usually are the cause when leading firms fail – not sustaining innovations Usually are the cause when leading firms fail – not sustaining innovations From Clayton M. Christensen, The Innovator’s Dilemma

Established Vs Disruptive Technologies ESTABLISHED Photographic film Photographic film Wireline telephony Wireline telephony Full-service brokerage Full-service brokerage Campus-based instr’n Campus-based instr’n Medical doctors Medical doctors MRI/CT scanning MRI/CT scanning Offset printing Offset printing Cardiac bypass surgery Cardiac bypass surgeryDISRUPTIVE Digital photography Digital photography Mobile telephony Mobile telephony Online brokerage Online brokerage Distance education Distance education Nurse practitioners Nurse practitioners Ultrasound Ultrasound Digital printing Digital printing Angioplasty Angioplasty From Clayton M. Christensen, The Innovator’s Dilemma

Disruptive Technologies in Radio

Disruptive Innovation “The pace of technological progress generated by established players inevitably outstrips customer’s ability to absorb it, creating opportunity for start-ups to displace incumbents.” “There are times at which it is right not to listen to customers, right to invest in developing lower-performance product that promise lower margins, and right to aggressively pursue small, rather than substantial, markets.” From Clayton M. Christensen, The Innovator’s Dilemma

Environmental Scan

Electronic Media Today Conglomerates dominate ownership and control diverse distribution outlets, with both “horizontal” and “vertical” operations and pricing advantages Conglomerates dominate ownership and control diverse distribution outlets, with both “horizontal” and “vertical” operations and pricing advantages Users are beginning to take control of when they access programming Users are beginning to take control of when they access programming Subscriber-based economic models (e.g., HBO) are competing with ad-supported ones Subscriber-based economic models (e.g., HBO) are competing with ad-supported ones

Radio Today Terrestrial radio remains strong, but landscape is littered with failed radio technology enhancements Ownership consolidation widespread since ‘96; public radio competing with stations with better cost profiles and centralized best practices operations Satellite radio and real-time web streaming are emerging as players Asynchronous distribution (on demand, peer-to-peer sharing) of audio also gaining foothold; first radio “TiVo’s” appear Because of group ownership and general availability of 7x24 program services, national voices are increasingly replacing local ones

Pubcasting’s Diverging Fortunes Terrestrial digital transition is market-driven for radio; mandatory and market-driven for TV Terrestrial digital transition is market-driven for radio; mandatory and market-driven for TV National content producers in public radio is strong mix of licensees, independents and NPR; licensees or licensee gatekeepers dominate in public television National content producers in public radio is strong mix of licensees, independents and NPR; licensees or licensee gatekeepers dominate in public television Public radio listening and members have increased, while PTV viewing and members are steadily declining; revenues generally following the same vectors Public radio listening and members have increased, while PTV viewing and members are steadily declining; revenues generally following the same vectors Public radio players have explored alternative distribution platforms to a greater degree than have PTV’s Public radio players have explored alternative distribution platforms to a greater degree than have PTV’s

Public Broadcasting Today “Everyone is baking their own cookies” “Everyone is baking their own cookies” “Hail Mary” method of funding depreciation “Hail Mary” method of funding depreciation Usage strong compared to other public service providers (11.8B person contact hours annually for public radio, 5.8B hh contact hours for PTV) Usage strong compared to other public service providers (11.8B person contact hours annually for public radio, 5.8B hh contact hours for PTV) Policy support of public broadcasting less assured Policy support of public broadcasting less assured

Radio In Five Years Local ownership of commercial stations will have all but disappeared AM/FM digital broadcasting established, but acceptance uncertain Lack of spectrum for public radio even more acute Use of other platforms and new forms of distribution will grow, but are unlikely in this time frame to displace much listening to terrestrial stations

Our Urgencies “To be or not to be” for public television “To be all we can be” for public radio

Strategic Investment Scenarios Investments may be individual or collective

Collective Investment Modalities Toolkits – activities or tools stations can use to achieve best practices without need for collaboration Service Clouds – stations outsource significant activities created for specialized purposes Colonizers – efforts to operate public broadcasting mission elements independently with or without station involvement

Scenario 1 – Sustaining Make strategic investments in initiatives that sustain the legacy (broadcasting) business Tends to maintain operational independence Preserves as much “gross tonnage” of public service as possible, at least in the near term High investments in “Toolkits,” somewhat lower investments in “Service Clouds,” little in “Colonizers”

Scenario 2 – Repositioning Make strategic investments in initiatives that reposition a station in new directions consistent with historic mission Capacity and scale created at collective level Emphasis on editorial (programming) rather than operational independence Increased investments in “Service Clouds” and “Colonizers”

Diverging Investment Possibilities Public radio should be able to make strategic investments in both the sustaining and repositioning directions. Public television, because of greater investment costs and a declining economic vector, will likely have to choose between these directions.

Consultant’s Provocations 1 Form “virtual broadcast groups,” digital distribution companies that operate key functions of current stations within and across markets (include NPR or PRSS as eligible service provider) Create public service “digital condominium association” with other state, national and international advanced networks (e.g., Internet2) Task a system economics panel with devising strategies to redeploy [insert ambitious amount here] of existing system revenue from “cookies” to capitalization and audience-sensitive priorities

Consultant’s Provocations 2 (IMA) Most broadcasters treat the Internet as a sustaining, rather than disruptive, technology innovation. Most indicators, however, point to it being the latter. How do we design services differently in each world? If we consider the Internet as a disruptive technology for broadcasters, what investment and service strategies should we follow in delivering IP services? How do we exploit the emerging Wi-Fi and other wireless data capacities?

Contact Information Dennis L. Haarsager, DDII Consultant 1019 Border Lane, Moscow, ID e-fax Associate Vice President, Educational Telecommunications & Technology, Washington State University Box , Pullman WA, e-fax