Special Report: Dot-coms' focus on the bottom line reels in spending

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Despite sky-high rates, requirements for up-front payments and strictly enforced four-week advance cancellation rules, radio advertising is still a key ingredient in many dot-coms' marketing plans. Internet companies flooded the airwaves last summer, snapping up radio inventory in the third and fourth quarters and driving up rates. This summer, however, media buyers say dot-com spending has slowed and rates have softened.


"It had to catch up," says Nata-lie Swed-Stone, managing partner-director of national radio services for Omnicom Group's Optimum Media Direction, New York, of dot-com radio spending. "It absolutely ties back to Wall Street and how tight it's all gotten. Everyone is starting to expect some kind of return" on investment. "We're back to negotiating again," says Kristi Argyilan, director of media services at Goodby, Silverstein & Partners, San Francisco, of talks between media buyers and radio stations. "Prices are coming back to a little more realistic standpoint. It's good news for any client, which has to get in--get on the air--right now."


At WTMX-FM in Chicago, strict cash advance policies for new business and a set inventory that's usually sold out a month in advance have "scared a lot of dot-coms away from us," says Jerry Schnacke, general sales manager for the adult contemporary Bonneville International station. Dot-com ads, which accounted for about 5% of the station's billings last year, have been slightly higher this year. Online grocer Webvan Group used radio when it entered the Chicago area last month and bought substantial advertising on WTMX. "Demand for radio has been through the roof and dot-coms have certainly contributed to that," says Mr. Schnacke. Internet and e-commerce ads have led spending in the New York market since the beginning of the year. According to New York Market Radio, $47 million was spent in the category from January through May.


Andrew Rosen, senior VP-regional sales for 43 of AMFM's radio stations in eight major markets, says demand for return on marketing investment will bode well for radio that is more targeted and has a fast production turnaround time. Dot-coms accounted for about 15% of ad sales during the first half of this year at AMFM and 8% of advance buys for the rest of the year. But Mr. Rosen has noticed a change for the rest of the year. "I believe we're still going to see a lot of dot-com money," he says. "It's just going to be different." As dot-coms use marketing to support their ongoing business, Mr. Rosen says e-commerce companies will begin to act more like bricks-and-mortar retailers, using radio spots seasonally and in advance of promotions or sales. Even during the first quarter, there were notable holes in the dot-com radio roster as companies moved from pre-IPO marketing to mass branding and then to a focus on more efficient marketing. Amazon.com, which spent almost $790,000 on network radio during the first quarter of 1999, has spent zero this year, according to Competitive Media Reporting data. EBay, which spent $1.7 million during first quarter of 1999 on network radio, is also absent from the list. Ailing CDnow, which European media giant Bertelsmann last month agreed to buy, spent almost $850,000 on national spot radio during first quarter 2000, but not a penny in the second quarter. Priceline.com, Computer-Jobs.com, loan site LendingTree, Travelocity.com, Quotesmith.com and MotherNature.com were the top six dot-com spenders on network radio during the first quarter, while Paytrust Financial Services, HomeGain.com, Headhunter.net, Allied Riser Communications, Preview Travel, EarthLink, VarsityBooks.com and Move.com held similar positions for national spot radio spending. The Top 50 marketers in both radio categories spent $102 million according to CMR. That compares to $12.7 million in the year-earlier quarter. Gary Fries, president-CEO of the Radio Advertising Bureau, says dot-coms' use of radio is changing as the companies mature. "Now we're starting to see marketing go into a business plan," says Mr. Fries. "Advertising and marketing will be in direct relationship to the success of the business plan." Flooz.com, a new entrant to network radio this year, uses the medium to promote its online currency to last-minute shoppers. "Radio is a great last-minute medium," says Flooz CEO Robert Levitan. Flooz, which has branded itself in TV and outdoor as well as radio with the help of spokeswoman Whoopi Goldberg, spent almost $690,000 on network radio during the first quarter.


In addition to advertising around holidays such as Mother's Day and Father's Day, Flooz has used radio for promotions. Earlier this year, Flooz sponsored trivia contests on the "Dan Patrick Show" on ABC Radio Networks' ESPN Radio. Winners received $100 Flooz dollars. Mr. Levitan has found a way to make the relatively low-cost medium even more of a bargain. Up to 25% of the company's radio marketing bills--and as much as 50% of its outdoor fees--are being paid with Flooz currency. Mr. Levitan would not say who is accepting the Flooz money in lieu of cash. Corporate sales account for almost two-thirds of Flooz's business; much of its radio advertising is aimed at potential corporate customers.


Despite still-high rates, Mindy Sherman, VP-director of broadcast buying at Hampel/Stefanides, New York, recommends radio to her dot-com clients. "Radio is very attractive [for dot-coms]," says Ms. Sherman, who represents clients such as National Discount Brokers and PhoneFree. "You can change the copy, it's cheap to produce and it's a personal medium. A lot of people have had to get over the concept of trusting the Net. People tend to trust their DJs and their stations. "What really is going to become apparent this coming year, as smaller, underdeveloped, lack-of-business-plan dot-coms go away, is people will stop referring to them as a dot-com," she says. "They are the same [as other businesses]. Retail is retail."

Contributing: Alice Z. Cuneo.1

Copyright August 2000, Crain Communications Inc.

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