Why Radio Revenue Has Missed the Mark

Spending Down Amid Currency Confusion After People-Meter Rollout

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It's a rough time to be in the radio industry.

The slow rollout of Arbitron's portable people meters in markets such as Philadelphia, Houston and, most recently, New York has created confusion among those buying across the rest of the country, which still uses Nielsen's paper diaries. And in last week's third-quarter earnings calls, total revenues came in lower than analysts' expectations, with local down 4% and national down 8% from the same period in 2006. Major radio groups CBS, Cox and Clear Channel reported total losses of 7%, 2% and 1%, respectively.
Initial blame for the decrease in spending was placed on categories including political, automotive, retail and particularly real estate, due to the subprime mortgage crisis. But what's perhaps plaguing radio most is the same thing that makes it work for advertisers: its flexibility.

"Radio is very easy to go in and out of," said Marci Ryvicker, an analyst at Wachovia Capital Markets. "You can drop off your radio budget on a Friday, but you can also cancel on a Friday."

Limited adoption
The gradual currency shift hasn't helped matters either when it comes to selling national advertisers on the medium. Philadelphia, the first market to sign up for Arbitron's PPM data, switched to its new currency in July. As a result, the market has been "atrocious," Ms. Ryvicker said. "There's not a consistent measurement system in all markets. If you're a national advertiser and you want to buy across all the different markets, there's two different types of data. Elsewhere, you buy off a diary, and they're not comparable."

Arbitron has long said the PPM shift will take one to two years to take full effect.

Matthew Warnecke, VP-local and national radio for MediaCom, added that the main disconnect between the PPM and diary data lies in the demographics, specifically in the 55-and-older category, which is expected to rise 10% over the next 10 years. "The PPM change is generally all to the good," he said. "Robust data is what marketers want, and we will continue to be able to demonstrate that reach is deliverable in spades through radio." He added that 2008 is already looking to be a healthy year for radio with the Olympics and the presidential election in the third and fourth quarters.

Another possible revenue booster for the industry is the monetization of HD radio, which goes ad-supported Jan. 1. The niche-radio market comprises 1,500 stations and more than 700 HD2 multicasts. The HD Radio Alliance is predicting that sales of HD radios will reach 1 million by the end of this year.

Too many options
Ms. Ryvicker said even if HD catches on early with advertisers, "it's still a small chunk. Consumers are faced with so many different choices. Are you going to buy a radio even if it's 100 bucks vs. a satellite radio or an MP3 player or download stuff from the internet?"

Natalie Swed Stone, who heads radio buying at OMD, agreed that media fragmentation and HD's similarities to satellite present significant challenges, but she still sees potential for marketers. "The opportunity for branding is a good one, because generally radio is thought of as driving sales through tune-in. Consumers know there's too much coming at them, so the way you stand out is to own something and be subtle about it so that the listener isn't resistant."
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