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AG News: Monday - 8/24/2009

Radio Revenue Stream Requires Revamping

The official reaction to radio industry revenue declines follows: "As Q2 unfolded, increasing signs of an improving economy emerged, indicating that 'we are most likely past the Q1 low point for Radio revenues and are now on the rebound'"; these words are courtesy of Jeff Haley, President and CEO of RAB. They are pulled from RAB's just-released report, which features a 25% decline in local and national ad sales between Q2 2009 and 2008.

While reading the above, I experienced deja vu. Checking former RAB CEO Gary Fries' comments on a flat revenue report for the same period in 2005, I know why. In his words, "The Radio industry is very actively and aggressively pursuing new technologies, formats, and platforms which will drive the business as we move forward into the second half of 2005 and into 2006."

At what point will it become apparent to radio industry leaders that problems within are systemic?

Our changing media world can be referenced by asking a simple question: Does radio help its advertisers sell product, or does it simply deliver an audience with ears?

Here's another sentence from the RAB 2009 report: "Radio’s revenue derived from Digital platforms continues to rise, illustrated by a 10% increase at 2009’s mid-point." Again, a question: Why do you think radio's digital platform revenue is rising? Is it because individual stations are bringing in online dollars, or because radio ad reps that specialize in delivering internet advertising are pushing more money towards the radio industry? I'm not going to answer this. It's only thrown on the table as a reason to pause and think.

If in dwelling over this digital question, though, you see radio industry executives continuing to deliver excuses instead of the claimed increase in digital revenue, consider that digital helps clients sell product. It produces reams of data on customer activity. Over-the-air broadcasts do not. Sales reps for over-the-air have yet to understand the implications of analytics and metrics, which are used by those radio ad reps specializing in online-only advertising through radio station web sites.

At this early stage of radio's entrance into digital, the perception is that the broadcast portion of the radio industry will do the same as its internet-only specialists (i.e., deliver data). Only, tread carefully here. Because it appears that radio's digital dollars may not continue an upward trend if those who are selling its digital side - and are employed on the station level - don't understand they need to help advertisers and not just deliver access to an audience.

Again, from the RAB report: "Much of Radio’s weakness in Q2 and for the first six months of 2009 is linked to marketers associated with the auto industry (formerly Radio’s top ad category, now #3) and major retailers feeling the impact of shaky consumer confidence and spending."

You'd think that with the increase in digital advertising dollars across multiple online ad systems the problems would not be so acute if, as according to Gary Fries, the "radio industry is very actively and aggressively pursuing new technologies...."

You'd also think if Jeff Haley's assessment is correct - how "radio's weakness in Q2 is about being linked to the auto industry..." - that radio would pursue other industries which are staples to the public, and offer those advertisers a hand at improving response.

The way out of this dilemma is to concentrate on improving an advertiser's ability to experience success, either by actively "testing" campaigns or providing metrics that allow those who are spending to get their money's worth.

Advertising dollars are still being spent, but they're not just being placed with broadcast radio. If you're looking for a fact to back this claim, look at the rising advertising dollars being placed with pure-play online radio stations. Year-to-year trends are as significant as growth of their audiences. Ask yourself why broadcasters aren't seeing an equally significant rise. (Though showing a 10% rise in Q2 for broadcast radio's digital revenue, 2009 figures only demonstrate how little broadcast radio's $120 million is in comparison to the bigger picture.)

Advertisers are looking for help with their ad campaigns. They don't want to just hand money over to reach a group of people anymore. Now it's important to analyze an ad budget, to improve the amount of response an ad budget delivers.

Do you believe "we are most likely past the Q1 low point for Radio revenues and are now on the rebound" as stated by Jeff Haley?

If not, you need to begin wrapping your head around how the digital world aids advertisers who want to know what their dollars are buying. In short, the radio industry will not see a significant upswing until it restructures its advertising platforms.

The "how" needs to be discussed, not statements about being over the hurdle and heading for recovery. Ignoring reasons for decline was a tactic Gary Fries tried, many times. It failed between 2002 and 2005, and it's not going to do much better today as RAB continues to use the same paint-over-the-problem approach it's used in the past.

On January 12, 2009, I wrote: "Radio is faced with a forecasted 13% drop in 2009 revenue. My bet is you can increase that to 17%, easily, and possibly hit 20% if some changes aren't made immediately." Nothing has caused me to alter this predication.

Radio is not "past" anything. If the truth be told, it's only starting to see how much revamping is required.

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President, Audio Graphics
Ken Dardis
Online Since January 1997

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