Finding A Seat In The Connected Car
By: Carter Friesen & Akil Fernando
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
There is an existential fear in the world of traditional radio, but is it warranted? Bell recently acquired 84 radio stations as part of a controversial $3.4B acquisition of Astral Media, but many question this move. If someone wants to listen to music or talk, will they continue to turn to radio? Services like Spotify or Pandora can provide continual streamed music in the car, while iTunes or Google Play can be used to load drivers’ phones with songs and podcasts. Satellite radio, on the other hand, can provide both music and curated discussions. With the development of the connected car, these may all replace traditional radio in its last stronghold, the daily commute. This could jeopardize a significant portion of Bell’s return on the Astral deal and shake the confidence of shareholders, already weary of the move. Bell can avoid, and even capitalize, on this change, but only if it learns from the recent success of media players in the UK. UK players collectively introduced an internet streaming app for traditional radio called Radioplayer. Bell should not wait for a collaboration, since it has the largest stake in Canadian radio, and should lead the market’s transition of traditional radio to the era of the connected car.
An Astra-nomical Acquisition
Radio is still relevant in Canada. Following the Astral Media acquisition, Bell is now the largest radio operator in the country with 107 of the country’s 685 commercial radio stations, accounting for 38% of Canadian radio-listening hours. Bell Radio generates annual revenues of roughly $474 M, with an estimated $126.6M in earnings before interest and taxes (EBIT). Ensuring an appropriate return on their significant Astral investment is contingent on Bell’s ability to grow this threatened segment of the business. Bell’s growth opportunity is time sensitive, as other streaming services continue to grow and saturate a sticky business-to-business market of connected car manufacturers.
Changing Frequency
For decades, radio has remained a free community-based medium offering local information, a human touch, and curated music. To this point, the average Canadian continues to listen to radio for over 19 hours per week. However, major changes in listening habits are beginning to emerge. One in five Canadians are now streaming traditional radio stations online through their computer or mobile devices. Similarly, the percentage of Canadians using online music streaming services like Google Play Music is steadily increasing.
Radio has historically experienced consistent listening hours, revenues, and EBIT, but changing consumer preferences are set to disrupt the radio industry. The interconnected nature of smart devices and a mobile connection has begun to extend to the driving experiences of consumers, where 42% of radio listening happens. The connected car will include a fully functioning operating system and become a wireless hotspot that allows drivers to stream music and other content on the road, encroaching on radio’s most consistent source of listenership. While Bell may see benefits from increased data revenues in connected cars, they have a lot more than a decreased return on the Astral acquisition at stake if they lose control of this strategic content channel.
Big Things in Small Packages
Radio continues to generate slow growth, but Bell would not be wise to reduce investment or, as some have suggested, to divest its radio holdings. Despite its minor position on the company’s financials, Bell’s strong radio presence means a strategic hand in all major media channels. Radio allows Bell to leverage multi-platform contracts with media personalities working across television, print, and radio. More importantly, the ability to offer a multichannel platform has become paramount to negotiating power in the telecommunications industry. Scale and scope both matter. Rogers’ 12-year, $5.2 billion crosschannel deal with the NHL is a recent example highlighting the importance of possessing multi-channel content distribution. Additionally, Bell needs to use radio to promote other segments of its business and avoid further fragmentation of the country’s media mindshare. If a consumer has Google in their car, then why not have Chromecast or Google TV in their living room? If Bell is not everywhere, they could end up nowhere.
Just as Bell and other media players have been slowly transitioning TV networks to on-demand streaming and developing broader competitive on-demand services like Shomi and Crave, a similar transition strategy is necessary for their radio presence to remain relevant.
Taking a Front-Seat
While auto manufacturers are unlikely to remove the standard analog radio receiver in the near future, consumers are demanding digital radio products in a more digitized dashboard. Bell has two alternatives to find a seat in this new connected car: adopting a previously developed solution, or developing a proprietary platform.
In the US, media player iHeartMedia developed iHeartRadio; a digital, internet-radio platform that aggregates all of their radio stations across the US into one tool. In an attempt to move into vehicle platforms in the US, iHeartRadio has forged a partnership with Apple. Bell already has a twostation partnership with iHeartRadio and could pursue increased involvement in an attempt to bring the radio solution to Canada. However, the Canadian Radio-television and Telecommunication Commission’s regulatory control of traditional radio would likely delay or even block Americanowned players, such as iHeartRadio, from replacing traditional Canadian channels under its jurisdiction. The risk grows if the platform broadcasts primarily international content.
The alternative solution is a strategy being enacted in the UK, where fragmented radio groups have combined their technology to increase bargaining power with carmakers and give consumers a streamlined medium to access their favourite stations digitally. A number of radio companies created the not-forprofit Radioplayer – a cross-platform, digital radio application – and agreed to collaborate on the platform technology while only competing on content. Instead of having a different interface for every radio station’s internet and app streams, Radioplayer makes the main controls and general layout of every radio station appear the same digitally with station-specific content laid within. The UK Radioplayer has formed partnerships with vehicle manufacturers, where every radio station will have a spot within a single user-friendly application, instead of different applications. Having all competitors on one platform is status quo for radio, and collaboration is certainly better than obsolesence. Replicating Radioplayer will provide Bell the best advantage to compete in the industry’s next age.
Dual Benefits
Adoption of Radioplayer’s platform will do more than secure and grow Bell’s radio portfolio. Control of content channels provides an opportunity to move more vehicle wireless data share onto its network, providing Bell Radio a competitive cost advantage. Bell has the opportunity to integrate Radioplayer usage into consumer phone and connected car data plans, offering hours of Radioplayer streaming service at a lower cost than on a per MB data plan. Rogers has found similar success incentivising customers to use their mobile TV service by selling 10 hour increments of video streaming at a heavy discount to typical data rates on their network. This ends up saving the consumer significant data costs, while simultaneously pushing them onto Rogers’ content and ads, making the discount mutually beneficial. For Bell, these cross-benefits will also incentivize car manufacturers to integrate the Radioplayer, as lower costs to consumers removes the friction of adopting connected car services, solidifying the manufacturers’ own value propositions.
Bell will be able to actively promote the data and cost advantage of digital radio over other streaming services like Google Play Music. Currently, the average Canadian is spending $60 per month on mobile plans. A typical Bell plan for $60 includes 500 MB of data per month. Making use of this data and listening to Google Play, which requires more mobile data than Radioplayer streaming, would only comprise 5% of the average 100 vehicle radio listening hours per month. Consumers will quickly be paying overage fees, an additional device fee, and subscription costs for a streaming service like Google Play. Unless data prices decline or music providers find a way to drastically decrease data usage in subscription-based music services, Bell’s digital radio option will have a significant cost advantage against other streaming alternatives.
Synching Up
With a solution scaling across regions, competitors, and platforms, the threat of the connected car becomes an opportunity for Bell. Radioplayer has been very successful in the UK, increasing listening hours by 37% across the country with 7 million users, and hosting almost every UK radio station in its first year. Following the validation of this strategy in the UK, the idea of a non-profit platform similar to Radioplayer in Canada is slowly gaining traction amongst Canadian broadcasters. Now it requires the support of a major player like Bell to be successfully implemented.
For Bell, this collaboration would reduce the risk associated with building a proprietary platform in which they would bear all of the costs. In fact, Radioplayer’s non-profit format suggests its licensing and operating costs will be allocated proportionally to broadcasters. The more broadcasters involved, the less it will cost each station.
Turning Up the Bass Line
Assuming Bell is able to increase radio revenues at the same rate UK companies did the year Radioplayer was introduced, Bell will generate an additional $4.3 million in EBIT. This does not include new data charges, the additional app display advertising revenues, or any gains from the powerful ability to better track listenership, providing a more valuable product to advertisers. Lack of this data is a deterrent for advertisers who forego radio for more measurable channels to provide more transparent returns on advertising budgets.
The ongoing service fees for Radioplayer are relatively low, estimated by the industry at only $1,700 per station annually at a scale of 300 Canadian stations. Even if Bell’s 106 stations were the only ones to sign-up, the cost would be less than $5,000 per station per year, while Bell can sustain an annual total cost of $40,600 per station with no decrease in profitability. The technology and model have been developed and minimal upfront costs are split in the collaborative structure.
How Bell Can Make (Radio) Waves
Bell needs to show its support for the Canadian Radioplayer immediately and partner with other radio broadcasters to retain control of radio’s technology. Securing their place in the changing radio space by partnering with an all-in-one digital solution will be a quick and necessary win for the company. Radioplayer is a proven technology that consumers immediately adopted in the UK, and comes with both low risk and research and development costs. It will also benefit Bell Mobility if more Canadians stream digital radio through the mobile network and secondary revenues are generated. As a market leader with a major investment in Canadian radio, Bell’s adoption of a consolidated Radioplayer could ensure the industry’s position going forward and forever change the way Canadians listen to radio.
