Radio Advertising and Its Fight for CPM

How much is it worth to reach a group of 1,000 persons? That's a question on many media buyers' minds as they dig deeper into new ways of reaching consumers. Cost-per-thousands has been the basis for billions of dollars in advertising spending.

But, for those who depend on pricing ad inventory using the CPM model, like the radio industry, times are changing - for the worse. No kidding.

I often receive questions from potential radio advertisers phrased like this: "I want to buy a radio ad campaign, how much is it going to cost?"

Obviously, these people aren't the major players. Questions come from local advertisers scattered around the US, who generate 70% of radio industry revenue. They really don't have a clue about reaching the masses. Not understanding campaign costs or creative is their problem.

They usually grasp the campaign cost concept quickly when it's explained that, as an advertiser, they will be charged for each 1,000 persons they reach. Ballparking how much they'll pay for each 1,000 persons reached depends on what market and stations they choose. But, then the issue quickly becomes cloudy.

"What's an average CPM?" is another question that crops up often, and it's getting more difficult to answer. You can give an average by media, depending on location. It's just that coming up with an average CPM that one would expect to pay isn't as easy as it sounds when you throw in the option of new media's search engine keyword ad buys. Here's an example: In one campaign I'm involved with, nearly 29.5 million impressions were delivered for just over $6,000; CPM charge for this campaign was $0.21. That's tough for any traditional media to beat.

Making the comparison between new and old media even more favorable to the "new" is that this $0.21 CPM also brought with it numbers showing - in absolute terms - how many persons immediately responded to these ads. We're still working on determining how many persons were directed to the product 10, 20, 30 minutes (or a few days) AFTER seeing the keyword search ads to calculate true ROI. When this formula is perfected, stand back. CPM for all media is going to drop like a rock.

Take a look at this prediction by eMarketer: By 2008, online advertising revenue will outpace radio advertising revenue by 34%. Online is predicted to generate $28.2 billion, radio $21 billion. The majority of online's revenue will be from search engine keyword buys.

Part of the explanation for this huge upswing in use of online media concerns its interactive ability. But the most important reason why advertising online is becoming so prolific is that its CPM is consistently low. Want to buy time on an internet radio station? Its CPM is hovering around $1-$2 today. Try to beat that in a regional or national buy on terrestrial radio.

New media is forcing traditional media to reassess its pricing and accountability.

The value of reaching a group of 1,000 persons is falling while the value of proving that you reached them (and generated response) is rising; that's the paradox facing traditional radio today.

You need numbers to justify your cause when fighting to keep CPM high. At this point in media's evolution, the numbers are all on new media's side. 8/29/2007      eMail to a Friend

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