In the aftermath of a major industry merger and dot-com advertising fallout, network radio is seeing a sales slowdown after an unprecedented upfront sales boom last year.
The softening is just the latest warning sign about the economic outlook for 2001.
Currently, about 30 percent to 40 percent of radio ad inventory is sold, down from a high of 60 percent at this time last year. "Forty percent is a very sound, very good number from an upfront basis; it's a very traditional number," said Radio Advertising Bureau President-CEO Gary Fries.
"Last year at this time, inventory was extremely tight rolling over into the next year and advertisers were doing all they could to book their business upfront as strongly as possible." As 1999 ended, the economic outlook for 2000 was extremely positive, creating a high demand in all media, including radio, which was particularly favored by dot-coms.
LOCKING UP UPFRONT
As a result, radio networks last year locked up anywhere from 45 percent to 60 percent of their inventory in the upfront. Some major networks, like AMFM Radio Networks and Premiere Radio Networks - which merged in August when Clear Channel Communications, the parent of Premiere, acquired AMFM - booked a combined 59 percent of their 2000 inventory before the year began, according to Premiere President-Chief Operating Officer Kraig Kitchin. "Other advertisers, perceiving that dot-coms would take precious inventory, raced into other media, including radio," he said. Premiere expects to book 40 percent of its inventory in the upfront, while Walt Disney Co's ABC Radio Networks and the smaller independent United Stations Radio Networks expect to book closer to 30 percent.
"Last year, AMFM precipitated the move into upfront. They put a rush on it; that's why the ad community attempted to move quickly," said Natalie Swed Stone, managing partner-director of national radio services at Optimum Media Direction, New York. "This year, with no dot-coms, no pressure in the market, and the fact that Premiere had this huge consolidation going on, we all just waited a little longer," she said.
EXPLAINING THE MERGER
The $23.8 billion merger of AMFM and Clear Channel - which resulted in the No. 1 Premiere with 12 primary networks and a reach of 180 million listeners a week - required that the ad community be educated about the new entity's offerings before selling could begin. "We started our upfront on July 24" with presentations to clients and agencies, Mr. Kitchin said. "We wanted to explain the merger of our two companies."
The moderating of network radio upfront sales is an indicator of the state of the industry. "The understanding of Wall Street is that radio, after this amazing boom of 1999, is back to 7 percent to 8 percent growth," said Tom Taylor, editor of radio-industry publication The M Street Daily. He added that most radio companies' stocks reached their highs for 2000 by Jan. 3. "The big picture is, we're back to normal."
That means back to normal rates as well. The 1999 upfront season was sparked in part by the threat of high rate hikes due to increased demand, but buyers don't see that happening this year. OMD's Ms. Swed Stone called the prices "reasonable," explaining that the minimal rise is a standard year-on-year increase.
Total radio revenues are expected to reach close to $20 billion this year, up from $17.7 billion in 1999, according to the RAB. Despite a strong first half, "the third and fourth quarters have been what I would call a return to normal growth, which is good and very strong," Mr. Fries said.
Network radio revenues, historically the smallest piece of the radio ad revenue pie, are expected to top $1 billion in 2001, according to Mr. Kitchin.
The good news for radio networks is that their mainstay of traditional advertisers - including retailers, package-goods marketers and entertainment companies - are committing just as much if not more of their marketing budgets to radio in the upfront.
Premiere has 2001 commitments from marketers including Lifetime, Kraft Foods, Radio Shack and Sears Roebuck & Co. "They're back again this year at healthy levels," said Premiere's Exec-VP Marketing Roby Wiener.
United Stations is also seeing renewals from major advertisers. "You've got big players like Procter & Gamble and Warner-Lambert that continue to support radio," said Jim Higgins, exec VP-general manager. "Bayer is back in 2001 with more brands than they've had on in a number of years."
Copyright December 2000, Crain Communications Inc.