BRANDS' LANDGRAB HEATS UP; RADIODOTCOM: PRICES SHOOT UP AS COMPANIES FLOCK TO THE LOWER-COST MEDIUM TO QUICKLY STAKE THEIR TURF

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The internet has been very good to Joe Cariffe. As general sales manager at KZQZ-FM, San Francisco, Mr. Cariffe has raked in about $1.5 million to $2 million in advertising revenue this year from Internet companies that have gobbled up as much as 50% of his inventory.

"It's a land rush," Mr. Cariffe says. "Many dot-coms, trying to get branded by year's end, are staking out their Internet property as fast as possible. They hear their competitors on the radio and they accelerate their marketing strategies, ready or not."

Internet companies spent $77 million on network and spot radio advertising in the first half of 1999, already topping the $74 million spent in the category for all of 1998, according to Competitive Media Reporting data. CMR data does not capture all radio spending in the U.S.

2000 SPENDING PEGGED AT $1.1 BIL

Using a separate methodology, PaineWebber projects total dot-com radio spending for 1999 will hit $575 million, representing 29% of total dot-com media expenditures for the year, says Leland Westerfield, senior broadcast analyst at PaineWebber. In 2000, Mr. Westerfield projects dot-com radio spending will be $1.1 billion.

"Radio for years has been pounding on retailers' doors, unable to get their attention or due respect," says Gary Fries, president-CEO of the Radio Advertising Bureau. "Now, all of a sudden, dot-com e-tailers are knocking down radio's doors at a level that has never been seen before."

The buzz is that only those dot-coms who've sufficiently penetrated consumer awareness by the end of the fourth quarter will see the next millennium. For many up-and-comers, survival will depend on their ability to brand themselves and drive holiday shoppers to their sites.

With many dot-coms now receiving second and third rounds of venture-capital funding, many will turn to radio this quarter, executives say.

QUICK WAY 'TO GET OUT THERE'

For example, eCircles.com, San Mateo, Calif., a 1-year-old Internet company that creates private Web-environments for friends and family to keep in touch, spent $2 million on a radio-only campaign that began mid-October, targeting 13 of the most "wired" markets, including New York, Los Angeles, San Francisco and Seattle.

"It's a really quick way to get ourselves out there and create buzz," says Scott Aal, creative director for agency Grant, Scott & Hurley, San Francisco, which created the spots.

Unlike print, radio has much less lead time. Unlike TV, radio production costs are fairly reasonable. To create three spots in one day, eCircles.com spent less than $30,000.

But faster isn't necessarily better when it comes to creative, admits Mr. Aal.

"Dot-coms are so harried to get out their name that they're not taking time to do it well. They're just cranking stuff out," Mr. Aal says.

Bert Berdis, president of Bert Berdis & Co., Los Angeles, created a $5 million radio campaign for textbook e-tailer Big Words (bigwords.com) in September. He says the problem lies not with quick turnaround, but with uncreative minds. Specialized ad shops tailored to the dot-com category are needed, he adds.

"Ad agencies overthink their strategies," says Mr. Berdis, who has also produced radio spots for PayMyBills.com and Uproar. "These dot-coms don't have time for focus groups or big strategic outlines. They are run by 25-year-old kids who want to be on the air now. They want daring, bold, exciting work."

Beyond.com, Sunnyvale, Calif., a 5-year-old computer software and computer accessory e-store that went public in June, spent almost $2.3 million on radio advertising during the first half of 1999, according to Competitive Media Reporting. Now, Beyond.com has poured an additional $4 million into a 15-market third- and fourth-quarter radio campaign, just in time for the holidays.

"Radio is great for positioning yourself against others," says Sean Ehringer, creative director for Beyond.com at Leagas Delaney, San Francisco.

NO WINDOW SHOPPING

Without a brick-and-mortar store, dot-coms have difficulty projecting their brand's image because shoppers are unable to window shop, he says.

"People need a specific reason to go to your store," he says. "On radio (vs. TV), you have more time to explain all the features you offer."

In fact, radio is the perfect venue for dot-com companies to reach Internet users just a click away from the point of purchase. About 66% of women and 62% of men aged 25 to 49 listen to the radio while surfing the Net, according to a 1999 Yankelovich Partners/Cyber Dialogue study.

And 36% of Web users in that age group have visited a Web site as a direct result of hearing a dot-com radio commercial, according to a July Arbitron Co. study.

But placing radio ads isn't cheap in markets such as Seattle and San Francisco, where a good many in the audience use the Internet or are venture capitalists.

Radio stations are in a "demand pricing mode," says KZQZ's Mr. Cariffe. Rates are no longer set according to audience rating points, or the number of ears reached in a given demographic, he says, but according to how much advertisers are willing to pay. Mr. Cariffe has increased his rates at least fourfold to sixfold in the past six months.

Mindy Sherman, VP-director of broadcast buying for Hampel/Stefanides, New York, says she's never seen anything like it. Radio stations in the top 25 markets are charging premiums of up to 40% and smaller markets are up 15% to 20%. In San Francisco, stations have increased rates 200% to 300% over just six months ago.

Ms. Sherman, whose clients include CDnow, National Discount Brokers and Phonefree, says: "I've been a buyer for 24 years, and this has been the most difficult half-year I've ever been through."

CATCHING MONIED EARS

But companies looking for that next round of funding are smart to spend their dollars in hot markets such as San Francisco to catch the ears of venture capitalists, says David Smith, president-CEO of Mediasmith, a media-planning agency in San Francisco. "We call it 'VC targeting,' " he says.

For many dot-coms, still young and vulnerable to consolidation, being in the right market right now is priceless.

"In four months, all these dot-coms will be consolidated," says Brian Hurley, principal at eCircles shop Grant, Scott & Hurley. "It's well worth it to pay 40% premiums now, in hopes of being on top come January."

Dot-com companies turning to radio station groups with the hope of avoiding spot radio's rising prices will be disappointed.

NO SPECIAL DEALS

"The competition has been so high that we haven't had to do much value-added [packaging]," says David Kantor, president of powerhouse AMFM Radio Networks. "We've been able to sell every piece of inventory we have without offering any special deals."

In fact, about 12% of AMFM Radio Network's revenue so far this year has come from dot-com advertising on programming carried by 1,000 affiliates, compared to just 5% to 6% in 1998. Mr. Kantor anticipates revenue from dot-coms will jump to 20% in the fourth quarter.

Not only do dot-coms pay more, but many that are considered risky advertisers are required to pay cash upfront. KZQZ's Mr. Cariffe says at least 40% cancel at the last minute due to insufficient funds, forcing him to overbook his schedule by 20%.

"Yes, we're thrilled to have the business, but from a management perspective, it's more difficult to project our revenue and inventory usage," Mr. Cariffe says.

With dot-coms willing to pay big bucks for radio, offline marketers are being pushed into cable TV, newspaper and outdoor.

LOCALS SHUT OUT

Mr. Cariffe says that longtime national advertisers, such as Coca-Cola Co., still remain as big spenders, but many local businesses have been shut out because of the dot-com influx.

Hampel's Ms. Sherman says she has tried to steer traditional and dot-com clients away from radio this quarter. "You can't get the value for the money right now.

"Why be stuck in November sweeps and the Christmas season if you don't have to be?" she asks.

In fact, Ms. Sherman is advising her clients to buy radio time now for the entire first half of 2000.

"We are not going to see the same dry first quarter that is normal in radio," she says. "Those companies who can't move quickly and far in advance are going

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