>Last month I was interviewed by Rocco Pendola for Seeking Alpha. Today I’d like to expand on some of my comments.
For a guy who has never been an exec in the media industry, Rocco asked some insightful and well researched questions. I could also see by some of the comments after the blog that some of his followers didn’t always agree with me. His followers are investors and I am an operator/consultant. Even though the common goal is increased shareholder value, we all have different points of view.
The radio industry is not dead yet, although their stock prices may cause some doubt. If some operators continue on the same path there will be fewer players at the end of the decade (and I don’t mean just through further consolidation). Radio cannot stay the same when listeners and technology have radically changed.
The operators who embrace new ways of delivering unique, compelling, and addictive content to their users will succeed. I am talking over the air, on mobile, and online. Those operators who create social networks for their like minded users will succeed. Those operators who, like Google and Facebook, learn as much as they can about their users will succeed.
Radio has to move from a “push” medium to one that is interactive. We MUST let the consumer lead our strategic decisions. Consumers want value, not “radio.” They want music and information content on their terms, not ours. It is the wise broadcaster who understands the difference.
A few of the most innovative media companies have already launched lifestyle websites that aren’t even branded with their stations’ call letters. BUT, they are promoted heavily on and sold by their local stations. Due to the existing strong relationships their local advertising sellers have in the marketplace, they are generating new advertising revenue streams.
I stand firm on my comments about most of the media companies discussed in Rocco’s interview. If I had it to write it over again, I would have focused more on Clear Channel’s tremendous debt and less on operations. They do have an understanding of the digital space, but due to their heavy debt load, are not focusing on developing their terrestrial assets (local radio stations) to serve as launching pad, or large megaphone to the Internet. The best way to do that is to serve their local communities with more local, entertaining and compelling content.
Most of the comments generated by the interview were directed at statements I made about Sirius/XM. To set the record straight, my wife and I have 3 subscriptions to the service and are both frequent users. My concern regarding their long term success isn’t about content as much as cost to the consumer. There is no barrier to entry for content providers on the Internet, and how much and if they charge for their service could affect the Company’s growth.
Here is a link to the interview. http://seekingalpha.com/article/267923-thoughts-on-terrestrial-satellite-and-internet-radio-from-jim-meltzer?source=from_friend_client
Jim Meltzer is the Owner of Meltzer Media Management, a broadcast management, sales, internet and organizational firm founded in August 2008. Mr. Meltzer was previously a Vice President and General Manager at CBS Radio. Prior to that, he was a Regional Vice President at Clear Channel Communications. He has over 30 years of experience as an executive in the radio broadcasting industry, mostly for publicly traded companies. Jim will be participating in our June 9th Social Vs. Legacy Media Roundtable at 10 AM in New York City with former Yahoo Executive Larry Cornett.
>Roulston Research’s Technology Consultant Craig Mathias recently wrote an article on how the wireless-LAN industry continues to see remarkable innovation despite being around for over twenty years. He points to the introduction of new products from Motorola and Meru Networks as perfect examples of how the industry continues to reinvent itself. Motorola introduced a new high-end controller called the NX 9000 which has the potential to evolve from simply a controller to a platform of applications. Craig states, “As controllers are basically single-board computers running specialized software, why not host that software on a platform capable of much more? And, indeed, Motorola is going to move in that direction over time.”
Meru Networks announced the new AP400 series which allows users to have up to four radios at capacity levels that were once thought to be unheard of. Craig expects the level of innovation in this space to slow over the next three to five years based on his belief in the life-cycle of high technology products. He explains, “Products and services are essentially good enough to address almost any common application with very favorable price/performance, and that further innovations from that point would more likely be in pursuit of incremental enhancements in revenues and profits (via product-line extensions), not the application of new basic technologies.” This will eventually allow people to focus on applications instead worrying about constantly upgrading rapidly changing technology. You can read Craig’s full blog post at
http://www.networkworld.com/community/blog/wi-fi-no-slowdown-innovation-yet
Craig J. Mathias is a Principal with Farpoint Group, an advisory and systems-integration firm based in Ashland, MA, specializing in wireless networking, mobile computing, and related technologies, products, and services. He will be participating in the Wireless and Mobile Device Roundtable event on Wednesday June 8th at 2 PM in New York City.
>Roulston’s Retail Consultant on Rising Raw-Material and Labor Costs at Specialty Retailers
May 23, 2011
Roulston Research’s Retail Consultant John Kyees gives his take on how retailers have been dealing with higher raw-material and labor costs. Gap reported last week that raw-material costs are rising faster than expected and faster than they will be able to raise prices. This will reduce profit margins at the company for the year and it is feared that other specialty retailers will face similiar problems. John explains, “Actually I think cotton price increases have slowed a bit. Gap is in that tier of retailers that can’t raise prices easily without incurring a competitive disadvantage. Those retailers who are highly differentiated will be able to add 5-10% to their retail prices and preserve their profitability. Gap sales basics for the most part which are identifiable and very price competitive. Gap is also probably heavily concentrated with China sourcing which means they’re experiencing labor cost increases as well as cotton cost increases. Retailers such as Urban Outfitters have maintained a diverse sourcing structure with China only accounting for about 20-25% of their sourcing. This gives URBN leverage with the Chinese factories in that URBN can move production to a lower cost country in which they’ve already established a reliable factory base.”
John Kyees retired from Urban Outfitters on June 30, 2010. He joined the company in November 2003 as the CFO and served in that capacity until February 2010. John is a 33-year veteran in the retail industry with CFO roles at several retailers.
>Roulston Research’s Social Media Consultant Rob Enderle has an interesting perspective on LinkedIn’s initial public offering. The company sold 7.84 million shares at $45 last Thursday and shares soared 109% on the first day of trading. Rob states, “The feeding frenzy surrounding LinkedIn is largely the result of an imbalance between the number of investors and the amount of equity available for them to invest in. In short we have a supply/demand imbalance which is driving the stock higher than the company performance can sustain. This has likely created a bubble and a problem for the companies coming after because LinkedIn’s prospectus anticipates slowing revenue growth and uncertain profits going forward which could cause this bubble to break prematurely and before the other IPOs can come to market.
The big problem for the category is that the sustaining revenue that supported a similar trend surrounding Google’s IPO has largely been consumed by Google and Microsoft leaving it unavailable to the Social Networking vendors. Granted through Microsoft Facebook has some extra leverage but Microsoft isn’t Google and the uplift they can provide, as a result, is much more limited. Large IPOs also drive venture investment into competitors and social networking is still in its infancy and the combination of privacy concerns and legislation could cause any one of these companies to fail if the right, and increasingly likely, set of scenarios were to take place. Given we are, in the US entering an election period and the topic has already become an issue, these risks appear to be increasing at the moment. In short the over valuation of the social networking companies is the result of a feeding frenzy on a limited resource and while I believe we have some headroom through the Facebook IPO, there is increasing risk it will collapse prematurely. That should be factored into related investment decisions.”
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward looking emerging technology advisory firm. He specializes in providing rapid perspectives and suggested tactics and strategies to a large number of clients dealing with rapidly changing global events.
>Roulston Research’s Retail Consultant Craig Johnson of Customer Growth Partners recently appeared on Bloomberg discussing some of the major challenges Wal-Mart is facing moving forward. The company’s first quarter results beat Street expectations by 3 cents coming in at 98 cents per share. However, sales of stores based in the United States fell for the eighth straight quarter. Their core consumers have been hit hard by the economy and they have been losing sales to bottom-end food retailers like Aldi and Save-A-Lot. Wal-Mart’s super-center stores were created for the retail wars of the past but now consumers like convenience in addition to low prices so they have been shopping at other retailers. The company is rolling out smaller retail stores domestically to better compete with these stores but Craig feels they are 2-3 years late with this concept.
The other major problem the company has been having is that they have been losing sales to online retailers as consumers seek more convenience in their shopping habits. Consumer electronics has been a major growth driver for Wal-Mart over the past decade but the company has been losing sales to online retailers like Amazon.com. This is a major concern for them long-term and they have recently purchased online Chinese grocery store Yihaodian and social media start-up Kosmix, which is focused on e-commerce, to broaden their exposure in this area. However, in this space they don’t have a major footprint and it will be one of their big challenges moving forward. You can view his whole interview at http://www.washingtonpost.com/business/johnson-says-wal-mart-losing-sales-to-online-retailers/2011/05/17/AFMZzo5G_video.html
>Roulston’s Retail Consultant on Wal-Mart’s Entry into Home Delivery and Handgun Businesses
May 18, 2011
>Walmart has recently decided to test out a home delivery system in parts of the country for consumers to purchase food, health-and-beauty products, medicine, and other basic household items online and have them delivered to their house with fees starting at $5 in an attempt to fight off Amazon.com and other online retailers. In addition, they have decided to sell shotguns, rifles and ammunition in half of their domestic stores to try and increase sales on a firm-wide basis. Roulston Research’s Retail Consultant Maggie Gilliam gives her thoughts on Walmart’s new strategy. She states, “Walmart pulled handguns out of all stores and cut back on other firearms when there was a lot of public outcry concerning them. They clearly don’t belong in all stores in any event and require a lot of supervision.
However, guns have become a growth business in the last several years, and the company has been missing out to a considerable extent. In going from one-third to one-half of its stores though, the company is only going to be adding them into 17% of the stores incrementally. The addition is not going to move the needle of overall sales.
Walmart has a very successful home delivery business in the UK through its ASDA subsidary. It also conducts home delivery in Japan, somthing Seiyu started ten years ago and before Walmart acquired the company. However, home delivery hasn’t been high priority at Walmart Japan, until this year, but the company is going to develop it. San Jose is a test in a less densely populated area and a state where powerful unions are hampering the development of Walmart’s grocery business. Walmart’s aim is to satisfy consumers however they want to shop.”
Maggie Gilliam is founder and principal of Gilliam & Co. and publishes a monthly publication called the Gilliam Viewpoint which covers the events taking place in the retail and related industries.
>Roulston’s Technology Consultant on Microsoft’s 8.5 Billion Dollar Aquisition of Skype
May 16, 2011
>Roulston Research’s technology consultant Robert Rose gives his take on the Microsoft 8.5 billion dollar acquisition of Skype last week. He states “The Monday morning quarterbacking has begun and all the pundits are debating whether Ballmer’s deal makes any sense. So, nearly a week later – and I (like the rest of the market) have run through an entire range of Kubler-Rossesque emotions about the deal. First I had disbelief that they paid so much (and I still believe they did). Then, there was the outright incredulity at what an idiotic move it was. And, then, after I’d thought about it a bit more – and read a bit more I shifted my opinion. Here are the things that I believe about the deal.
1. They had to do it. Almost certainly the high price was because Ballmer felt like he had no choice. It was going to be Google – and that was just too much for Microsoft to stomach. They needed to make a move. I mean certainly nothing has changed (technologically) since the eBay sale. And, one might even argue that Skype 5 is getting really horrible reviews. But, in the end – Microsoft needs to start making bold moves and this was one of many I suspect are coming.
2. This has everything to do with Nokia. Putting Skype (and Windows Phone 7) on Nokia phones will make Microsoft instantly credible in the market for smartphones. And, it could theoretically keep Skype away from Google, Apple and Android devices. Although….
3. Licensing will be huge. Microsoft will have to monetize Skype and monetize it quickly – so I see them doing deals with (at least) Facebook – and possibly Google and Apple to put Skype applications on their platforms. This will be tricky since in some cases it’s there – and of course free… So – what that deal will look like is anybody’s guess.
And then… my way out there thought…
4. This tees up Microsoft to buy RIMM. Certainly this has been brought up before – and with RIMM really struggling right now and if the price gets low enough in the next 18-24 months (guessing in the $15/$20B range)… I could definitely see Microsoft pulling that out…. That would instantly make Microsoft the #1 mobile platform in the world – and certainly the leader in the business enterprise… Bing is now the “official” search engine for Blackberries – and I’d look for more deals like that coming soon.
Basically, if MSFT is going to have any hope for major growth – they MUST become the number 1 or 2 player in the mobile market. They HAD to buy Skype. They HAVE to be successful with Nokia – and at some point – unless Windows Mobile Phone OS takes off virally (which I’m not convinced it will) then they will need to buy their way in.”
Robert Rose is founder of Big Blue Moose and innovates creative and technical marketing strategies for his clients. You can view his website at http://www.bigbluemoose.net
>Imperial Holdings: Large Upside Potential
May 13, 2011
>A New York presenter recommends Imperial Holdings (NYSE: IFT, $9.74). The company has carved out a leading position in a very niche market of life insurance premium financing. IFT IPO’d back in February and now has sufficient capital to finance on its own, as opposed to borrowing from third parties at prohibitive cost. The company’s structured settlements business is now breaking even and growing briskly with repeat business becoming more and more prevalent. The CEO has solid background in the space and has taken another company public, which was later sold at a favorable valuation. The stock is trading at book at the moment. The presenter believes the book value should grow at a mid-teen rate in the next few years and the stock then could trade up to 3x book.
>Roulston’s Energy Consultant on Alaskan Pipeline
May 13, 2011
>Roulston Research’s energy consultant Kevin Lindemer shares his thoughts on Wednesday’s Wall Street Journal article titled “Shrinking Oil Supplies Put Alaskan Pipeline at Risk.” Kevin states “Based on the article’s reference to E&P activity in the Arctic, it is reasonable to assume the producers feel there is sufficient resource available to keep the pipeline flowing above minimum for decades. Note that some interviewed said it could take up to 15 years just to bring on new fields. We don’t know what, if any, new fields are coming on stream in the near to mid-term that might help maintain flow. However, the pipeline company says 2013 is that date they may not be able to maintain operations.
If we assume a 6% decline rate as stated in the article, then in 2013 the flow rate will be +/- 500,000 bpd assuming no new fields coming on line. This is equal to about 9% of the US crude oil production in 2010. Therefore, if the pipeline shut down there would be an immediate drop of 500,000 bpd or about 9% +/- for US crude oil supplies.
Will this happen?
o It looks like it can be delayed with some technical fixes. But without more volume, these technical fixes may lose their effectiveness.
If the pipeline shut down would it impact prices?
o World oil prices would probably not exhibit a shock behavior if the line shuts down. Something like this would be known to be happening sometime in advance. Therefore the markets would ‘discount’ the event. It would have a long-term impact. Since world oil spare capacity is now only about 4.5 mbd, the loss of 500,000 from the US would reduce spare capacity by 11%. This would make markets tighter and could lead to a long-term increase in prices.
o USWC markets are the primary delivery point for Alaska crude oil. A shutdown of the pipeline would not have much of an impact on gasoline prices. Currently, the USWC markets receive/buy a lot of crude oil from the Middle East and locations further away than Alaska. Therefore, the delivered price to the west coast reflects its net import position. If the west coast was a net exporter of crude oil and the pipeline shutdown, then crude oil prices would increase by the incremental cost of transportation to replace the lost Alaska crude oil.
At some point, the continuing delay of new production on the North Slope will make this a moot point. If it is delayed long enough, physics take over and the line will be shut – it can’t remain open based on promises and plans. If the line shuts down, it not only causes the loss of an immediate 9% of US production, it would essentially end oil and gas production in Alaska, regardless of the estimated size of the resource base.”
>Roulston’s Media Consultant on Pandora Radio
May 11, 2011
>One of the primary questions being asked today in the media industry is whether Pandora is real radio. Pandora is an automated music recommendation service that allows individuals to enter a song or artist that they enjoy and will make recommendations based off their initial input. From there users can provide feedback about whether or not they like the songs selected and Pandora will take that into account for future selections. Many broadcasters and people in the industry have dismissed Pandora as a radio service for several reasons that include:
1. “Pandora isn’t radio because it isn’t local.”
2. “Pandora can’t save your life in a crisis.”
3. “Pandora is a feature not a brand.”
4. “Internet radio reception is spotty and drops a lot.”
5. “Pandora is non-social.”
Roulston Research’s media consultant Mark Ramsey challenges these typical arguments in his recent blog posting. Follow the link below to view his recent post.
http://www.markramseymedia.com/2011/05/yes-pandora-is-radio/
The Collaborator 