Internet car radio poses bigger threat for local AM-FM

Twenty-five years ago, carmakers decorated their auto exteriors with eye-catching wood trim. Today, the wood is on the inside, complementing flashy center consoles with seven-inch, digital touch screens.

The car dashboard is being transformed and it's taking AM-FM radio with it.

Just as it did newspapers and broadcast television, the Internet revolution is roiling the local broadcast landscape that has long held a monopoly on the car radio.

With center console infotainment systems, the in-car landscape has undergone a seismic shift started by satellite radio two decades ago and accelerated by Internet players like Pandora, Spotify, and iHeartRadio.

Now, AM-FM stations face a tipping point as Apple CarPlay, Google's Android Auto, and in-car Wi-Fi hot spots fundamentally change the user interface in vehicles from radio to Internet.

"The center stack has changed from two dials and three buttons to very complex systems that contain so many different options," says Paul Jacobs, vice president of Jacobs Media, a radio consulting firm in Bingham Farms. "The radio industry needs to work very hard to make sure radio remains vital in the car of the future."

Jacobs Media hosted the Second Annual DASH conference in Detroit last week, bringing together radio executives, automakers, and auto suppliers from all over the country.

"It's a much more competitive landscape," says Steve Chessare, who manages three Detroit stations — WRIF-101.1 FM, WCSX-94.7 FM, and Sports Radio 105.1 — for Greater Media. "It's more important than ever to create content that people want to engage in."

It's a new landscape. Beginning with this year's Chevy Malibu, every new generation GM vehicle will come with a Wi-Fi hot spot that will allow up to seven devices to connect directly to the Internet.

In December, the Hyundai Sonata promises to be the first car compatible with Apple CarPlay and Android Audio so that drivers can plug in their iPhones and mimic their interface on a vehicle's screen.

That means customers can more easily bypass the AM-FM dial and go straight to their favorite Internet radio service. By allowing consumers greater control over their music choices, services like Spotify have proven popular with users — especially young listeners.

"It's like the introduction of central door lock mechanisms," says radio consultant Larry Rosin, president of Edison Research in New Jersey. "Once you don't have to reach across the car to lock the doors, you never want to go back. It's the same with the choice Internet radio offers."

Advertisers are following the users.

While local media ad revenue in the U.S. is expected to increase 2.8 percent (to $151 billion) by 2017, that growth is expected to come almost entirely online. According to BIA/Kelsey, online advertising will rise 13.8 percent per year, while traditional advertising — TV, print, radio and yellow pages — is expected to remain flat (at $107 billion).

According to an estimate by Statista, there are some 160 million digital radio listeners — a number expected to hit 183 million by 2018.

That trend is driving once-big radio players like Walt Disney Co., which has radio stations that cover 42 percent of the country, out of the industry. Disney is selling 23 stations and going digital with Radio Disney kids programming.

Unlike newspapers which have seen customers move away from home delivery, the Internet radio revolution is not driving listeners out of the car. Just the opposite.

According to Jacobs Media, half of radio listening is in the car, with that percentage increasing with each new generation. For example, 45 percent of baby boomers get their radio fix in the car compared to nearly 60 percent of Generation Y. One-fifth of cars on the road are "connected" via Bluetooth or Wi-Fi. With 90 percent of Gen Y drivers carrying a smartphone — versus 65 percent of baby boomers — in-car connectivity for new cars is a must.

While AM-FM radio remains the leading infotainment priority of new car buyers in Jacobs' survey (89 percent), 66 percent of respondents say an iPod connector is important, 51 percent say Bluetooth, and 25 percent satellite radio.

"The mainstay of local broadcast radio is news and traffic," says John Wordock, executive editor of the Wall Street Journal Radio Networks. "But I think apps may eventually cut into radio's monopoly on traffic reports in the car."

Edison's Rosin points to growing Internet traffic sites like Waze, which calculates real-time traffic based on driver inputs to determine the fastest way to reach your destination.

"No one cares about traffic reports but their own," says Rosin, who told the DASH conference that radio traffic reports may go the way of the dinosaurs.

How will local radio compete? Rosin and Jacobs agree that stations must stay current with digital apps. They also agree that content is king and AM — long second sister to FM — may have the secret sauce given the strength of talk radio.

"The way to compete is to continue to invest in local talent and great local content," says Jacobs. "People don't listen to stations, they listen to personalities."

Greater Media's Chessare says his stations are pushing online apps as well as their own Internet sites. Their online advertising is up 43 percent this year.

Jacobs was encouraged by what he saw at the DASH conference as radio owners and car dealers agreed to collaborate on making radio operation — programming presets, finding radio bands — part of the car-owning regimen.

"I just bought a brand new Jeep Wrangler and the salesman had me in the car for 45 minutes showing me all the different things the car could do," says Greater Media's Chessare. "Cars are so complex these days. We need to be pushing dealers — and incentivizing dealers — to walk customers through the cars' features in their showrooms."

"The car is the No. 1 listening location," adds Jacobs. "It is also the No. 1 revenue category. So it is imperative that the radio industry get to know the auto industry better. Radio needs to get a seat at the table making sure they are delivering their content in a way automakers want in order to ensure they have a place in the center stack of the future."