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For radio, the digital disruption is delayed

Radio Disrupted: Ford and other car makers are poised to disrupt the radio business by adding the Internet to your dashboard.

The story of the Internet and its disruptive impact on society and business has been told many times before. The list of examples is long.

Since the Netscape browser introduced us to the World Wide Web in 1994, to the rise of Amazon.com a few years later, to Facebook's latest acquisition of the photo-sharing mobile app Instagram for $1 billion, long-established companies from Kmart to Kodak have fallen hard. New, more nimble competitors have swooped in with innovative products and services that better fit the changing needs of the consumer.

This phenomenon was best described in the seminal 2003 book, "The Innovator's Dilemma," by Harvard Business School Professor Clayton M. Christensen. His economic theory -- which has become the standard playbook for technology startups -- describes how disruptive technologies like the Internet lead to big shifts in market leadership: Established companies are overtaken or disappear completely as young upstarts move in with more innovative solutions.

Because these startups are smaller and have less overhead and legacy obligations, they can more quickly identify mass market opportunities and go after them. The established companies, meanwhile, move slowly or not at all; doing so would be a direct assault to their core product and divert critical resources away from these products in a time when they're needed most. Then one day those companies wake up and realize their core market has eroded from underneath them.

Need a primer on the Innovator's Dilemma? Watch the video above.

The Great Disruption in Media
There are few industries so embattled by the Innovator's Dilemma than the media and entertainment industry – with music, movies, and newspaper being the first and hardest hit.

For the music industry, it started in 1999 when a college dropout named Shawn Fanning created his peer-to-peer file-sharing network Napster. It allowed millions of people to do what they naturally wanted to do: easily discover and share music with their friends and family. Soon after it was upended by legal woes but quickly replaced with better, legal alternatives like iTunes. Why pony up $17 for a CD when all you really want is one hit song that costs 99 cents? The music industry has yet to recover.

Then came YouTube, Netflix and TiVo, and the way people watched television and movies was forever changed: we save for later, we search, we fast-forward through commercials, we want it everywhere and anytime.

For newspapers – perhaps the hardest hit – it was a combination of things that started with a guy named Craig Newhouse and his classifieds site, Craigslist. That good idea quickly decimated the newspaper's cash-cow revenue source – the classified ad business. Then came Wordpress and Blogger and dozens of free, easy-to-use digital publishing platforms that democratized the ability to publish and broadcast news and information to a mass audience. Anyone could be a publisher. Millions did.

When Google stormed in with its Adsense platform, these disruptive publishers now had a business model. Flashing banner advertisements and inline text ads could earn a publisher a few bucks for every thousand page views it acquired. Get more eyeballs to a page, make more money. It was a simple equation that was easy to solve and even exploit.

What's more, advertisers preferred it. They only had to pay for the audience they reached and they could reach only who they wanted. And it gave them instant access to audience data to study consumer behaviors and identify exactly where ad dollars are best spent. In 2011, for the first time ever, online ad revenue surpassed that of newspapers.

And then came Facebook and Twitter. The social network has rocketed to become the most-powerful platform for sifting through and curating the best of this news and information, and disseminating it to millions instantly. You no longer need to buy shelf space at the newsstand to reach a mass audience (and if you do, you're over paying). Instead, figure out how to get picked up on the front page of Reddit, or as the top search result on Google, or mentioned in a Tweet from Justin Timberlake. You can become an internet sensation in days.

Across all these technologies and platforms, there is another important instigator of change: faster and smaller computing devices with always-on connections to the Internet. These days we carry our computers around in our pockets and backpacks. They’re integrated into our televisions and car dashboard. And the innovation is moving so quickly it’s hard to imagine what might come next.

The Future of Radio
So what about radio, a media format that rarely gets the critical review like our print and broadcast peers? What does the future hold for us?

Radio still has a captive mass market audience – millions of people sit in their cars for hours during rush hour every day across America and show no signs of fatigue. Advertisers still want to reach that audience and will pay good money to do so. And the content is getting better; just ask the voting members of the MacArthur Foundation who gave RadioLab co-host Jad Abumrod a so-called genius grant this year for “inspiring boundless curiosity within a new generation of listeners and experimenting with sound to find ever more effective and entertaining ways to explain ideas and tell a story.”

Radio has another thing going for it, according to Jeff Cole, director at the Center for the Digital Future. He reminds us that radio has already weathered a major disruption in its lifetime. In the 1940s, network television arrived. The best radio news anchors migrated to television; so did a lot of their audience and advertisers. But radio would survive, and once again flourish. Commercial stations changed format. Public radio emerged for news and information. They all downsized budgets and dug in their heels.

But let's not get too comfortable. The digital disruption in radio is coming, maybe it will just take a little longer than the rest of them. Today there are people and companies dreaming up a new disruptions to the way we listen. Already, there are enough examples to speculate what they might be. They have names like Pandora and Spotify, Stitcher and SoundCloud, and they're run by people with new ideas about how consumers want to listen.

And then there's the big game-changer lurking in the garage. It became most evident to me at the Consumer Electronics Show in Las Vegas this January. The driveway moment – a term in Public Radio used to describe those times when listeners stay in their cars to finish a story, even when they've already arrived at their destination – is under threat.

The world's biggest car makers consumed thousands of square-feet of convention floor space to show off the car dashboard of the future: an Internet-connected LCD screen that can present smart apps that do everything from navigate the road to play NPR programming. German carmaker Audi announced that all of its new models would come standard with a WiFi connection so your kids can stream Netflix on the iPad from the backseat on your next road trip.

Learning from the Disruption
Once we can all get past questioning the fate of our industry -- and come to terms with the reality and magnitude of the changes we face thanks to the Internet -- there are ways for radio to survive and flourish, particularly if we take advantage of our established brand and audience. But to win the war will require a radical rethink of our business and our organization.

This week, I’m taking a tour of Silicon Valley and San Francisco to meet some of these disruptors and get a first-hand look at the culture and companies they’re created. After one day in Palo Alto, it's clear that the future looks bright for those who embrace it.

About the author

Matt Berger is the former Digital Director at Marketplace.

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