Radio's Place in Advertising Ecosystem Is Local and Digital

MediaWorks Viewpoint: BIA Financial Network's Rick Ducey

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The decision-making process advertisers go through in developing their ad messages, doing creative executions and determining media plans requires customer insight, product knowledge, strategy, lots of data and, finally, performance metrics that validate how successfully advertising investments drive increased sales. We can think of this as a complex, living process that combines both science and art and one that is, essentially, an advertising ecosystem.
Rick Ducey, chief strategy officer at BIA Financial Network, assists clients with their digital and new-media strategies. He is a frequent speaker on digital technology innovations, new-media directions and innovative business models including digital ecosystem collaboration strategies.
Rick Ducey, chief strategy officer at BIA Financial Network, assists clients with their digital and new-media strategies. He is a frequent speaker on digital technology innovations, new-media directions and innovative business models including digital ecosystem collaboration strategies.

An ecosystem consists of interrelated things that must work together for success. Relationships form both on competitive and collaborative strategies, as living creatures seek two fundamental outcomes -- to survive and to reproduce. Success requires the ability to innovate, adapt and overcome environmental challenges. Ecosystems must remain in balance or face obliteration.

What is radio's place in the advertising ecosystem? How can radio survive as well as grow in the face of threats from digital and online media?

Radio -- and by this I mean FCC-licensed, terrestrial radio broadcast stations -- faces the ultimate challenge of survival and reproduction. Radio will win only by innovating, adapting and overcoming. Radio must morph into the "next generation" of radio by understanding its core strengths and leveraging them to create new solutions in the marketplace.

Radio's core strengths include its local focus, huge audience draw and usage; its transition to digital; and its mostly untapped ability to leverage these strengths into the emerging digital and mobile media. Next-generation radio is terrestrial radio on growth hormones. It may not look like our parents or grandparents radio, but next-eneration radio will reach out and serve audiences and advertisers in ways they never dreamed of.

The facts support this conclusion -- advertisers underestimate radio's place in a balanced advertising ecosystem at their own peril.

How can this be true?

Fact No.1: Audiences are reforming media habits. The hottest usage growth trends are digital video, social networking, mobile media and user-generated content. Web researchers report more usage of social networking (45% use) and user-generated content sites (29%) than any other category (Zoomerang Research, April 2007).

For the first time since 1997, consumers spent less time with media in 2006 than they did the previous year and spending more time with digital alternatives for news, information and entertainment that require less time investment (Veronis, Suhler, Stevenson, August 2007).

Consumers are spending less time with ad-supported media and more time with user-supported media. Time spent with consumer-supported platforms (e.g., cable, video games) increased 19.8% while time with ad-supported media decreased 6.3% from 2001-2006 (VSS, August 2007).

Fact No. 2: The next growth spurt in advertising spending will occur in the "local online" category but overall local advertising will see a declining share of total advertising spending between now and 2011.

Online spending will more than double from $21.7 billion in 2007 (vs. $20.4 billion for radio) to $44 billion ($22.6 billion for radio) by 2011 (eMarketer, August 2007).

However, local online spending in the U.S. will nearly triple from $2.9 billion in 2007 to $7.8 billion by 2011 (eMarketer, August 2007). This will be driven by increased use of local websites, video applications, desktop applications and other new services along with the development of local online ad networks connected with local media. This takes local online spending from 3% of total online in 2007 to 17.7% in 2011.

This is not all good news for local ad media, as not all will be winners. Local advertising's overall growth will not come at national advertising's expense. Of $289 billion in 2007 ad spending, 35.2% was local. Local's share will decrease to 32.2% by 2011 ( Universal McCann, August 2007). There will be losers in the local media ad market. About half of the local online spending will be from paid search (rising from 43% in 2007 to 51% in 2011).

Fact No. 3: Search is huge, but increasingly users are attracted to content, content, content.

The biggest change from 2003-2007, in terms of where internet users spent their time, was with content sites (news, information, entertainment), which grew from 34% to 47% of overall usage (Online Publishers Association, August 2007).

Advertisers spent $260.4 million dollars on e-mail-driven ads (i.e., e-mail links to website ads), but time with e-mail and other communications has dropped from 46% of online time to 33% (Nielsen/NetRatings, September 2007).

Inevitably, ad dollars will shift from e-mail vehicles to content vehicles in the coming years.

Radio is a powerful medium by the numbers. The average person spends 19 hours a week with radio, according to Arbitron.

Radio occupies a top and stable niche in the media diet, even compared to high-growth internet with all its interactivity, streaming and on-demand media. Three-quarters (73%) of baby boomers will listen to the same amount of radio in the next six months; 15% will listen to more. This puts radio on par with the internet (20% more, 70% same usage over next six months) and ahead of the rest of the media pack (Bridge Ratings, August 2007).

Radio's strength is local spot, from which it earns 77% ($15.48 billion) of its revenue (Miller, Kaplan, Arase, 2006). There are more than 12,000 local radio stations in the U.S.

There is an "action connection" between the internet and radio. Radio listening triggers online searches such as searching for "maps/directions" among 92.5% of listeners or "info shopping" among 81.3% of listeners (BIGresearch Simultaneous Media Usage Survey, December 2006).

Radio reaches listeners everywhere -- car (46.7%), home (34.9%) work/other places (18.4%) (Radar,June 2007).

Radio station websites are forecast to generate $189 million in online revenue yhis year, with the average market share per cluster ringing in at 0.5% (Borrell Associates, June 2007).

Radio is positioned at the heart of where advertisers want to be spending their money -- it's locally based, got local content, offers a stable and committed audience, and has a proven ability to drive internet behavior, which ties directly to purchasing.

Next-generation radio is digital -- on the air, on the internet and on mobile devices. What radio meant 10 years ago is not what radio means now -- it's becoming an integrated media experience seamlessly bridging advertisers and listeners across platforms.

Here's what the radio industry should do to raise its flag and become even more attractive to advertisers:

Tell its story better

Radio has a great story. Pick out the best parts, grind it into data and tell the story to advertisers. Digital, mobile, interactive and user-generated content are inevitable. Make this part of your story and show how radio is integral to the audience and advertising experience since it can be at the center of emerging trends rather than left in the dust.

Start a next-generation radio development fund and invent radio's future

Do not wait to see what happens in radio's future, make it happen now. The radio and advertising industries have the chance to create a next-generation advertising powerhouse by developing ways to seamlessly extend the local radio experience into other media and digital platforms.

This is a great time to inject innovation and creativity into radio's future by reaching out to brilliant minds both within and outside the radio and advertising industries.

Steal a page or two from the competition. Facebook and Google have launched funds to support third-party developers seeking to create applications such as widgets, gadgets and desktop apps that enhance the value of their services. Facebook is offering grants (not equity plays) from $25,000 to $250,000 to encourage innovation. Google offers $5,000 initial grants but then up to $100,000 in seed investment to support a build-out of winning ideas.

The NAB's Fast Road initiative is a great start. Let us see some big radio and advertising groups put up funding for the good of the industry to redirect some of the brain drain going to Google, Facebook and others and get them to apply their intellects to radio's opportunities.

Do things differently

If AOL can trash its subscription model to switch to an ad-based model, radio can certainly get off its single focus of selling spots and get serious about making investments in online and digital services including video, interactive applications, user-generated content, desktop applications and making radio advertising easier for local advertisers to buy with computer-based networks and tools.

Where do we go from here?

Local radio stations have an impressive array of technology platforms available to them to enhance their already excellent local presence in market branding, committed listener base and advertiser support. This includes digital radio, datacasting, websites, desktop applications, SMS text and new services such as local search, streaming video, content on demand and providing content to a range of devices including radio receivers, PCs, mobile phones and portable players.

To be most attractive to local advertisers who seek accountability and presence in their local media investments, radio stations can offer an integrated local and digital solution that is simple to understand and buy. This means better understanding, embracing and developing the right set of services to meet the current and emerging needs of local advertisers. Radio airtime is incredibly valuable and successful for local advertisers. That puts radio squarely in the local advertising ecosystem. Next-generation radio has to makes sure it claims its rightful place among digital media. It can be done.

Here's the bottom line: Advertisers and agencies spend a lot of money to breathe life into their products and services. At the end of the day, we all need to see sales happen or it is time to make changes. Radio, advertisers and consumers all win when we get this formula right. The next growth in digital media advertising spending will be in the local category. Radio's place in this advertising ecosystem can be the local and digital solution of choice.
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