Radio scraps for its ad share

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Howard Stern made the radio industry sit up and take notice when he vented his spleen about radio advertising during an appearance on "Late Night With David Letterman." Referring to a recent ad on his show for a cream that makes a man's "buttocks smell better," Mr. Stern said he asked his general manager: " `Have things gotten this bad that this is what we're up to?' And he said, `Yeah, it's gotten bad.' It's very difficult to make a living in radio."

Radio is certainly underserved. Citing Infinity Broadcasting's own research, John Sykes, chairman-CEO of Infinity ( the distributor of Mr. Stern's show, which originates on Infinity's WXRK-FM, NY), claims that 40% of people's time spent with media is spent with radio while radio attracts 8% of media ad spending. "So there's a lot of upside there," he says. He notes that "TV pricing has gone through the roof" in recent upfront selling sessions, while radio is more flexible. And this responsiveness can work to radio's advantage, he claims.

And while Mr. Stern paints a gloomy picture, it's his flippant, outrageous edge that makes him so popular, and-ironically-proves the power of radio as a whole.

"Almost 4 million people are listening to this guy every day. The makeup of his audience is upscale, affluent and cool-edged," says David Goodman, exec VP-marketing at Infinity.

"I think that right now, radio is a great business to be in because consumers spend more time with radio than any other medium," adds Mr. Sykes.

much room for improvement

And yet Mr. Stern's comments can't be dismissed entirely. Executives on Madison Avenue, Wall Street and within the radio industry itself say there's room for advertising improvement, and plenty of work is under way to make sure that takes place.

Most revenue prognosticators expect radio will continue to climb away from the troubles it experienced in 2001, when it posted a 7.5% decline. Among the most positive forecasters is Merrill Lynch & Co., which expects radio to experience an 8.2% revenue burst this year.

But there's a dark side to consider. "Near term, I'm positive about radio. But long term, I'm concerned about local cable television advertising growth" and how that might erode radio revenue, says Marc Nabi, a broadcasting analyst at Merrill Lynch.

Mark Fratrik, a VP at BIA Financial Network, adds: "I'm generally optimistic about radio. I think it will provide an advertising vehicle for local retailers that you can't get with local cable. It's mobile and people turn to it in a traffic jam [for local traffic reports and news]." But in the recent past, local radio hasn't responded to improved economic conditions as well as other media have-a particularly troubling situation, analysts say, because 80% of all radio revenue is local. Last October and November, for instance, local radio revenue lagged behind TV and other media.

trending up

But Gary Fries, president-CEO of the Radio Advertising Bureau, says that revenue did start to climb again in December, and that the trend will continue throughout the first quarter of 2004. For the fiscal quarter ended Nov. 30, Emmis Communications Corp. reported that its radio net revenue rose 15% vs. a year earlier.

"Radio is a medium that's bought very close to the point of purchase," Mr. Fries says, "so it suffered a bit more" than other media.

So what's the radio industry doing to offset that Achilles' heel in the future and expand its revenue base? One of the most compelling initiatives comes from the Radio Ad Effectiveness Lab, a non-profit organization spearheaded by the RAB and Arbitron. It's investing $2 million on three new studies to begin over the next two years; they will give the radio industry better statistical information to sell its virtues to the advertising community.

One of the studies will look at the return on investment generated by radio advertising vs. other media, says Mary Bennett, exec VP-national marketing at RAB. She will be presenting plans for the studies at a special session during the RAB convention being held this week.

That's particularly important, says Stuart Naar, exec VP-director of the research division at Interep National Radio Sales. "One of the big issues now is accountability-showing what you say you're doing," he says. "There's been a general lack of research."

Observers say that radio stations are also trying to regulate the amount of commercial clutter on their airwaves since such clutter alienates listeners. National radio "networks don't necessarily have more inventory to sell, but local stations are maxing out their inventory, and the local clutter is horrendous," says Matt Feinberg, senior VP-marketing for national radio at Publicis Groupe's Zenith Media, New York.

infinity-aol pact

New creative connections are also on the upswing. Mr. Sykes notes Infinity's 2003 deal with Time Warner's America Online, which involved advertising for Infinity as well as a cross-promotional swap of content between Infinity's stations and the online provider.

Debbie Durben, president of Interep Marketing Group, notes that she's working with advertisers on alternative solutions, such as an in-school radio show focusing on songwriting and lyrics, which involves a school curriculum and allows advertisers to wrap their ads around the program.

Also, Bonnie Press, president of Katz Dimensions, a strategic sales and marketing unit within Katz Media Group,points to her company's efforts to create integrated solutions for advertisers through Web sites as well as radio itself.

Others say that radio stations have continued a trend of garnering revenue through special events, such as rock concerts that showcase local music. While events have been a growing trend over the last seven years, observers say that stations are now starting to refine their event strategy, weeding out less profitable endeavors.

For all the efforts to bring more allure to radio, there are still plenty more up ahead. Mr. Sykes notes that as digital radio catches fire, with its text messaging capabilities, radio has an opportunity to supplement the value of audio content and enhance advertiser messages.

Paul Jacobs,a principal in the Detroit-based consultancy Jacobs Media, says he'd like to see the industry widen its primary focus beyond the 25-54 demo, and target more advertisers with younger and older listeners.

Ms. Press says she's started to see movement in ad dollars targeting the 18-49 segment. "Things have settled down from the first few rounds of consolidation," she says, referring to the massive changes that have taken place since the radio industry was deregulated. "Group owners are in a better position to support R&D toward formats that target those younger audiences."

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