Economy Watch: Radio runs aground, turnaround in doubt

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National radio sales have plunged so far that 2001 may end up being the first year since 1991-and only the second in more than five decades-to see a decline in radio ad revenue. National radio is down 20% for the first quarter, as compared to the first quarter 2000's 35% rise over '99, according to the Radio Advertising Bureau. That dire news has cast a cloud over previous predictions of a second-half turnaround, as analysts, media buyers, station owners and sales reps push back recovery estimates.

RAB President-CEO Gary Fries said a reversal will most likely occur in the fourth quarter, "a solid quarter later" than he predicted earlier this year. Salomon Smith Barney analyst Niraj Gupta, who previously predicted a second-quarter rise in radio, cut expectations to a 2% decrease for the second quarter, and does not foresee any significant uptick occurring until the fourth quarter. Media buyers like Pete Stassi, senior VP-director of local broadcast at Pentamark, New York, a division of Omnicom Group's BBDO Worldwide, thinks a turnaround won't occur until late 2001 or early 2002, since most agencies buy 75% to 80% of radio in the upfront. "Last year was a very good year for radio and it basically pushed a lot of advertisers out," he said, because rates skyrocketed.

Even behemoth Clear Channel Communications is smarting from an 8% decline in its first-quarter radio revenue. Clear Channel reduced its second-quarter revenue estimates to $2 billion-from $2.3 billion-and expects second-quarter losses to reach $170 million, more than three times the $52 million given in previous guidance.

Smaller player Citadel Communications Corp., which owns stations in small- to mid-sized markets, too, is suffering from national radio's decline, with an 150% increase in net losses to $35.6 million from $14 million. Although national radio accounts for only 15% of its business, Chairman-CEO Larry Wilson told investors in a first-quarter earnings call, "The biggest element has been the national business; it's really dried up."

Industry-wide, total radio ad revenue for the first quarter fell 7%. Local sales, radio's bread and butter, accounting for 75% of total revenue, fell 3%, enough to silence previous proclamations that local radio will save the medium. "It's not realistic to think that you can make it all up in local," Mr. Fries said.

A number of factors precipitated national radio's descent, including the economic and advertising slowdown, and tough comparisons against an incredibly strong 2000, produced by a flood of dot-com ad dollars. And when recovery does come, it most likely will be slow. "Instead of taking off like a rocket, I think it's going to take off like a steam engine," Mr. Fries said.

Interep, for one, is not sitting back and waiting for that train to move on its own. The leading radio rep company recently redirected $1.5 million of its marketing budget to boost national radio as a medium through an aggressive sales and marketing campaign promoting radio's effectiveness directly to advertisers. "I don't think that left alone, things are going to turn," said Interep CEO Ralph Guild. Interep has a vested interest in re-energizing the national market, which caused its first-quarter revenue from radio commissions to drop nearly 17% to $16.6 million from $19.9 million.

"National spikes, both positively and negatively, typically more than local," said Jim Boyle, managing director and media analyst at First Union Securities. "National advertisers tend to move their dollars quicker than local merchants."

The question is, when will they move them back?

The answer could come from national radio's biggest spender historically-domestic automakers-whose radio spending is down 17%, according to Mr. Fries. Their import competitors have increased national radio spending 8% in the first quarter, which he hopes will push U.S. carmakers. "Major marketers cannot sit on the sidelines for very long," he said. "You have to go out and protect your market share."

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