Radio weathers downturn

By Published on .

The looming economic storm is not troubling the radio industry, which intends to rise above it on the strong shoulders of local advertisers. Local revenue traditionally accounts for 75% to 80% of the total radio pie, but it becomes paramount in the current market slowdown.

A Salomon Smith Barney survey of 30 local advertisers-auto dealers and regional retailers-across the country found that one third of them are spending more in radio this year. "Our bias has changed to be more positive on radio due to local" activity, said Jason Helfstein, a research associate at Salomon, who forecasts 4% total radio growth for the year, with a stronger second half. The investment firm advised media company Clear Channel Communications on its acquisitions of radio network AMFM and entertainment company SFX last year.

"Radio has a tremendous core base in local advertising, which is not shared by all media," said Radio Advertising Bureau President-CEO Gary Fries. The RAB predicts radio will grow 7% to 8% this year. Although that's down from last year's 12% and 1999's 14%, it is still strong given the economic climate.

GROWTH IN RECESSION

"Fortunately from radio's vantage point, it actually outperforms in tougher times," said Jim Boyle, managing director and media analyst at First Union Securities. The last six recessions and one economic downturn saw average radio growth of 4.6%, compared with average GDP growth of only .3%, because "local advertisers tend to be stickier during tough times," he said. "Automotive nationally is going to be a different animal than the local auto dealer who still has to move units off his or her lot."

Those radio companies that do depend on national dollars-namely radio networks-are up against a tougher battle. Kraig Kitchin, president-chief operating officer of Clear Channel-owned industry leader Premiere Radio Networks, said this year's network radio landscape "is not for the faint-hearted," explaining that marketers are placing shorter buys rather than year-long commitments. "The local economy and the local advertising economy is a stronger radio economy right now than the national economy," Mr. Kitchin said. "National advertisers foresee that the marketplace might be slightly softer ... they're typically more in touch and think longer term," he added.

Ralph Guild, CEO of radio rep firm Interep, New York, calls radio "a more opportunistic medium" than TV, because marketers don't have to budget for it far in advance. Interep's bookings are off about 15% to 20% for the first quarter and 10% to 15% for the second quarter but look better for the second half of the year, compared with 2000.

Although Clear Channel last week reported pro forma revenue growth of 13% to $6.9 billion from $6.0 billion, things are looking bleaker for 2001, for which the company is forecasting only 2% pro forma growth. Mr. Kitchin expects Premiere's lowest growth in a decade, which led the network to cancel 20 programs and lay of 10% of its work force earlier this month.

No. 2 network ABC Radio Networks is also forecasting slower growth-about 5%-in part because of tough comparables from a 2000 bolstered by the strong economy and dot-com dollars. Last year "wasn't real and we all knew that," said Jennifer Purtan, ABC's senior VP-ad sales and marketing.

Rate increases became a real issue for media buyers last year, increases that were spurred by consolidation and the healthy economy. "It went way out of line in some markets where people thought just because they owned most of the radio stations in the market that they could charge whatever they wanted," said Larry Spiegel, principal at The Richards Group, Dallas. "We see pricing coming back to normal."

CHANGING THE BUSINESS

But not as quickly as it might have before consolidation, when a soft economy would have precipitated faster rate cuts in an effort to eat up available dollars. "Usually in a soft economy, you're aggressive. You reduce rates right away and everyone's happy," said Natalie Swed Stone, managing partner-director of national radio services at OMD, New York. But Wall Street pressure "is changing the way [networks] have to do business."

She predicts network radio will be flat this year on the heels of last year's growth.

"The fact that it's up less than it was last year doesn't make it a bad year," said Interep's Mr. Guild. "Radio-both local and national-has been growing at a faster rate than all other advertising."

In this article:
Most Popular