What happens to a Radio Station's Share and Cumulative Audience When a New Radio Station Enters the Marketplace?

Abstract

This paper considers the share order effect on existing radio stations’ market share and cumulative audience when a new radio station enters an existing market. The share order effect model (SOE) predicts that all brands will lose market share to a new entrant, in direct proportion to their size before the new entrant’s launch. The concept of proportional loses is also consistent with the empirical duplication analyses such as Ehrenberg’s (1959) Duplication of Purchase Law, as shown by the Dirichlet model (Goodhardt, Ehrenberg and Chatfield, 1981). However, the SOE model may not hold true in all situations, especially where some products could be considered more similar than others. Such an exception could apply to radio markets where many stations have similar formats, for example, rock, easy listening or classic hits. In New Zealand, commercial radio stations are now primarily owned by two media organisations – Radio Works and The Radio Network. These two organisations control the majority of the country’s 15 commercial networks. While some networks broadcast nationally, on a range of different frequencies, others broadcast in only four or five out of the over 25 marketplaces. However, over the past decade the two media organisations have extended their network coverage into almost all of the regional marketplaces. This paper examines how a newly launched radio station in one New Zealand commercial radio market impacted on the market share and cumulative audience of the existing stations. It tests the hypothesis that all radio stations will lose market share to a new entrant, in direct proportion to their size before the new entrant’s launch. The selected marketplace has a 10+ population of 360,000 with 20 commercial radio stations. The data used in this research comes from the Research International official radio audience surveys which were collected during both 2009 and 2010. The surveys in the marketplace were undertaken during the same time frame each year. The preliminary results support the hypothesis. The correlations between the actual market share and cumulative audience and the predicted market share and cumulative audience were 0.960 and 0.962 respectively, whilst the Mean Absolute Deviations were 3.21 and 4.85 respectively. While the mean absolute deviation (MAD) and the correlation show a good fit, consideration also needs to be given to the average market shares and cumulative audience. The averages were; market share 6.1 and cumulative audience 10.5 - reflecting the intense degree of competition. However, these low average market shares and cumulative audiences mean that the actual sample sizes for each station are also low.While it does not conclusively show that the SOE model holds true in radio markets, this research adds to our body of knowledge. It indicates that while other variables may also affect the overall market share and cumulative audience, a new station entering an existing market will largely draw its audience from the existing stations in proportion to their market share and cumulative audience.