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Radio is the most stable part of the music industry, but that's not a high bar to clear

Radio commands by far the most music listeners, but it's got real problems with its economic model.
Radio commands by far the most music listeners, but it's got real problems with its economic model.

Streaming is the sexiest way to listen to music in 2015.

It's also the most controversial, because artists are constantly pulling their music from various platforms or speaking out against it. But the practice is constantly evolving, because the laws around music rights are complicated and competition between services is tight.

Many within the music industry believe streaming is the future. It's the fastest-growing sector, and one of the few formats with a young user base.

But even though streaming appears to have a long life ahead of it, it has a long way to go if it's ever going to unseat the current standard, radio.

Most Americans listen to the radio

Most Americans don't use direct streaming platforms like Spotify, Rdio, and Tidal. Instead, they listen to music where Americans have listened to it for decades — on the radio.

According to a 2013 Pew Research Center report on audio listening in the US, almost 92 percent of the listening public listens to AM/FM radio. That percentage hasn't changed much over the last 10 years, even with the advent of the internet.

Meanwhile, 39 percent of Americans listen to online radio, and 23.9 percent listen to satellite radio. These stats measure the listening public of America, so obviously there is some overlap among them.

The biggest AM/FM radio company in the United States is iHeartRadio. According to its internal statistics, iHeartRadio owns 858 radio stations that reach 245 million people. That's a number that online streaming can't even come close to. Plus iHeart Media is both an AM/FM company that streams music over airwaves and an online radio company.

The company's data says people tune in to the radio eight times per day (which makes sense if you think about how much time the average American spends in the car), and that they consume 2,045 minutes of radio (both talk and music) per week. According to the Pew Research Center, people spend more time listening to the radio than they do surfing the internet.

"Music is a basic human need," Tom Poleman, the head of programming at iHeartRadio, told me. "That's why we work so well with the music industry, because radio is inherently social. Artists and radio have always had that fantastic symbiotic relationship. We can't survive without music."

And the data backs him up. AM/FM radio is the only form of listening that hasn't seen a significant drop in the percentage of users in the last 10 years. In 2001, 96 percent of US listeners consumed music via the radio. In 2011, that number was at 93 percent. By contrast, consumption of music via CDs dropped 13.5 percent in 2013.

But if you're looking for growth, it's solidly in online radio, not AM/FM. "The difference between how many people are listening to the radio and how many people are listening to us is huge. It's a delta of about 120 million people," Simon Fleming-Wood, the chief marketing officer for Pandora, told me.

And online radio certainly sees AM/FM as its main competition.

"What's in the crosshairs for us is getting Pandora built into car dashboards. The hours that are for Pandora to take are in broadcast radio," Fleming-Wood told me.

Companies that provide direct streaming, online radio, and satellite radio want their music in the car dashboard, because the car is where people listen to music the most. The average American commuter spends 37 hours a year just stuck in traffic, and Harvard Health Watch reported in 2007 that the average American spends 101 minutes per day driving. That's an insane amount of time, especially when you consider that almost 80 percent of Americans drive to work alone. It's a huge moneymaker, and it's why AM/FM radio has so much power.

The radio has so much power over popularity

Because radio has such a high listenership, it also has incredible impact on an artist's popularity. Rich Bressler, the CFO and president of iHeart Media, told me when we spoke in March that his company is "very optimistic about the state of the music industry." He didn't qualify that.

When I wrote about the future of music broadly in early May, one thing everyone I interviewed said was that while they knew music would be fine as an art form, they weren't sure it would continue to be stable as an industry. But the industry's problems have only increased the importance of radio. Artists simply can't leave.

"The artists and anybody you talk to in the music industry will tell you that unless the artist's music is on the radio, they're nowhere," Poleman told me.

Think about listening to your local Top 40 station. You might hear the same six or seven songs twice every hour. You might not like them or think they're good art. But they're certainly popular. That's strategic.

A company like Pandora can try to compete with that massive reach by giving artists more data to help them find their fans and plan tours better. Pandora can guide artists to a type of fame that's accessible and comfortable and can help them live and make art. But Pandora doesn't yet have what radio has — a massive and captive audience.

Radio also has far more money.

AM/FM radio has one of the sweetest deals in the music industry. It doesn't have to pay performers any money under copyright law to play any song it wants. Radio negotiated long ago that publicity was payment enough.

So radio has a larger audience than any other platform and has to pay less money to play music. On the surface, it should be safe — but the fact is radio is swimming in debt.

What will the future of radio look like?

Though iHeart Radio is the big kid on the block right now, it's deeply, deeply in debt.

In September 2014, Billboard reported, "IHeartMedia carries $21.1 billion in consolidated debt, according to financial analyst firm Fitch Ratings, the result of a 2008 private-equity deal with Bain Capital and Thomas H. Lee Partners valued at $17.9 billion. "

IHeart says it has accrued this much debt because it thinks radio is stable and safe. The company says it has been looking at the long-term shift to digital and realizes it needs to get into that field as well. For years, iHeart had been called ClearChannel, which is a much less sexy name to put on a huge concert series or digital music streaming app. Rebranding as iHeart was just the first step in going digital.

But the digital landscape costs more money, and that's money that iHeart just doesn't have to give.

"We think that digital music provides the opportunity for all of us to make more money. We're looking to find win-win solutions [for] the artists, the music companies, and most importantly, the fans," Bressler told me.

Radio is still the biggest player in the music industry. It still calls the shots, and it's still by far the best place for artists to break out. But whether radio is a sustainable industry as iHeart's ad revenue drifts downward and streaming companies build out more robust advertising departments is yet to be seen.

Radio may be more stable than any other part of the music industry, but that, as it turns out, isn't a very high bar to clear.