The recent double-barreled announcements by iHeartMedia and the Katz Media Group that they would begin to accept programmatic advertising certainly put the entire radio industry on notice that the programmatic era in radio has officially begun.
In collaboration with Jelli, a programmatic ad platform for radio advertising, iHeart will make all the inventory on its 850 radio stations available to advertisers and agencies, while Katz will launch Expressway, which is being touted as the first radio ad exchange at scale.
Despite the fact that both announcements were treated as breaking news by Inside Radio, iHeart's decision to sell inventory programmatically was made long before CEO Bob Pittman was even a glimmer in Clear Channel's eye.
Clear Channel's Impressive Metamorphosis into iHeartMedia
If we look at the way Clear Channel has reinvented itself over the last decade to become today's iHeartMedia, one can see a linear progression from being the first radio company to make substantial investments in proprietary information systems, to reducing the size of the sales teams while increasing the number of yield analysts, to increasing the number of stations programmed by a single Program Director or managed by a single General Manager, to this most recent announcement that it will be the first radio company to automate the sale of its inventory.
There are those, especially in the early going, who took a less-than-kind view that Clear Channel was simply living up to its old "Cheap Channel" reputation. Others thought the changes were cost-cutting moves made necessary by the tough economic environment. Unbeknownst to most observers, Clear Channel was involved in a metamorphosis from a traditional radio company into something entirely unique in the radio business and quite difficult to find among media companies in general: iHeartMedia has become a text-book example of an operationally excellent company.
Operational Excellence is a term introduced in The Discipline of Market Leaders, a book that, in my opinion, all managers in the media business need to read right now. Authors Michael Treacy and Fred Wiersema conclude that there are three, and only three, distinct strategies that are observable in companies that have become leaders in their industries. The three strategies, which they call "value disciplines" are: Product Leadership, Operational Excellence, and Customer Intimacy.
To understand product leadership you just need to think of Apple. A high degree of innovation. Big investments in research and development. Products that are so cutting edge that customers knowingly pay premium prices to own them. In the media business, the CBS television network might be the most accessible example of product leadership. As you can see in this Advertising Age cover story from a couple of years ago, CBS's focus is on creating great products. Only a product leading company has the intestinal fortitude to invest in the development of dozens of programs, hoping that one or two of them will become the new CSI or Big Bang Theory.
Customer Intimacy is a value discipline adopted by companies like Nordstrom and Edward Jones. Customer intimate companies know that no two clients are the same. They develop repeatable methods for understanding what their clients need and then they deliver total solutions that create results one client at a time. In media, Condé Nast stands out as an excellent example of customer intimacy. While the product leading companies are busy creating cutting edge products, customer intimate companies are busy building customer loyalty through custom programs that drive client results.
Here's what The Discipline of Market Leaders says about operationally excellent companies. To me, it eerily predicts in 1995 what iHeart has become 20 years later. "Operationally excellent companies deliver a combination of quality, price, and ease of purchase that no one else in their market can match. They are not product or service innovators, nor do they cultivate one-to-one relationships with their customers. They execute extraordinarily well, and their proposition to customers is guaranteed low price and/or hassle free service."
iHeartMedia may not call their strategy Operational Excellence, but believe me, that is exactly what they are building.
iHeartMedia is in Good Company
By adopting and pursuing a strategy of operational excellence, iHeartMedia joins a group of very good companies. Walmart, Amazon, and Southwest Airlines are operationally excellent companies. The reason you have to remove the pickles yourself from your Big Mac is because operational excellence does not allow even the smallest degree of customization at McDonald’s. Geico's positioning statement is not just a brilliant, succinct slogan. It is the battle cry of the operationally excellent market leaders: Doing business with us will always be easier and cheaper than doing business with any of our competitors.
iHeartMedia CEO Bob Pittman told the Wall Street Journal, "Expressway from Katz will probably be more commodity inventory. The private network will probably be more premium inventory, and then we'll save some for custom solutions for clients."
And just in case there was any question about the kind of company iHeart is becoming, Mr. Pittman added, "As soon as the buyers are ready, we will sell all our inventory programmatically."
Treacy and Wiersema would be very impressed.
Competitors Should Think Before They Act
The iHeart and Katz announcements were made less than two weeks ago and already I have heard three different fairly high-ranking radio executives say quite matter-of-factly that they are just going to have to continue to cut costs to deal with the inevitable drop in prices. One market manager told me that the only way he is going to grow his bottom line over the next few years is to reduce his expenses.
And this is the challenge when you are competing against an 850 station gorilla. Because of it's sheer size, any action iHeart takes creates a very powerful undertow for the rest of the industry. For example, the alarmingly low number of sales people in radio companies today is in large part due to iHeart's consolidation of their sales teams. Never in my career have I heard of so many media buyers insisting on a "single point of contact." And never in my career have I seen so many otherwise savvy managers agreeing to it.
Sometimes I am surprised at how media companies that are so strategic when they are developing programming and content can be so tone-deaf when it comes to choosing a sales strategy. All good marketers know that the way to compete most effectively is to be where the competitor isn't and, preferably, where the competitor cannot be.
So, unless a company has made the strategic decision to try to beat iHeart at its own game, essentially becoming the Target to iHeart's Walmart, cutting expenses could be the exact wrong thing to do.
In the future, I'll use this space to explore how to compete against a well-managed operationally excellent company like iHeartMedia. For now, I'll end with one of my personal take-aways from the Discipline of Market Leaders: There are only three strategies to choose from and, unless you want to end up like Sears, you need to pick one and pursue it with a passion.