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Media Outlook: Radio - Waiting Game

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In uncertain times, advertisers are placing buys close to air time.

Blame the shaky economy, the war in Iraq, even the bad PR surrounding media consolidation. Whatever the culprit, for the second year in a row, the radio business is hoping for better times next year. Although the year started off well enough in January, a traditionally soft month for radio, things began to unwind pretty fast, and what was expected to be a rebounding radio ad market turned into a painfully slow recovering one. That took a lot of folks by surprise for a medium that generally leads media out of a recovery, not follows it. By mid-year, many pundits, as well as the Radio Advertising Bureau, revised downward their projections for the year.

At the halfway point in 2003, radio was up only 2 percent. Various forecasts predict the business will pick up in the second half of the year to eke out between a 3 percent and 5 percent increase. Through July, revenue from radio advertising had inched up one percentage point to 3 percent, according to the RAB. For the year, Veronis Suhler Stevenson is forecasting 5.4 percent growth to $20.4 billion.

"It's been a steady, but slow recovery period, more pronounced on the East Coast than the West Coast," says Gary Fries, president of the RAB. For 2004, RAB's Fries is forecasting a 4 percent to 5 percent increase. Veronis Suhler Stevenson predicts 8.6 percent growth to $22.2 billion, while Price WaterhouseCoopers predicts 7.2 percent growth to $21.6 billion.

All year, the operative phrase to describe the radio business has been "lack of visibility." Because advertisers can get on the air practically at a moment's notice, they played a wait-and-see game, holding onto budgets until they were sure, and placing buys close to air dates.

Despite uncertainty dominating advertising demand, radio continues to attract advertisers representing a broad base of categories. Automotive, about 15 percent to 20 percent of all radio advertising, has been a constant all year. In markets like Los Angeles, automotive has been up nearly 20 percent. "It was a slightly bigger share of revenue this year. The automakers don't feel they can lose share, so that will continue," says Rick Cummings, president of radio for Emmis Communications.

Advertising from entertainment companies, particularly TV and cable, has also stepped up its investment in radio. "The tune-in category has grown to be the third or fourth largest category for network radio, and next year it'll probably be No. 1," says Peter Kosann, president of sales for Westwood One.

Though Olympics and political races don't traditionally spend in radio, the increased demand on TV in 2004 will spill over. "Radio tends to have a good year [during Olympic and political years] because the dance cards of the other broadcast entities are full," says Stu Olds, president of Katz Media.

Broadcasters are already seeing some signs of relief. "There is a little more certainty, confidence and action," says John Hogan, CEO of Clear Channel radio. "Our pacings for fourth quarter are healthier than third quarter. The expectation is we'll finish the year on a stronger note and that should carry over into 2004." But others aren't so sure that radio will post growth in the 7 percent to 8 percent range. "That seems high right now," says Anne Elkins, senior vp and director of local broadcast for Mediacom. "Where are the dollars going to come from? I don't see business coming back unless the health of the job market improves. Companies will make their first investment in employment, not advertising."

Local advertising, about 80 percent of the business, tended to be resilient during past downturns, but in 2002 and 2003 and leading into 2004, it has been national advertising that has posted healthy increases.

Consolidation, along with a new Arbitron national database that allows groups to compile ratings across customized geographies, has played a big part in pushing national deals to the forefront of the business. It has also given the top groups, such as Clear Channel and Viacom's Infinity Broadcasting, the mass to compete on a national level with other media. Up 8 percent through July, Olds forecasts national to be up by 10 percent or more in 2003. "Customizing markets and creating mini-networks to fit a retailer's footprint is a benefit from consolidation; it creates higher value," says Sue Johenning, executive vp and director of local broadcast for Initiative Media.

Anticipating the recovery as 2004 nears, agencies are urging their clients to begin placing ad campaigns further out in advance of the air date. "We've been telling our advertisers that if they gave us the money a month earlier, they'd get better rates. But so far, they haven't needed to," says Matthew Warnecke, vp/manager of local and network radio for Mediacom.

"Because of the way radio has positioned itself, it's the last thing planned," says Rich Russo, director of broadcast services for JL Media. "And if the cost is similar to TV, clients go to TV. TV knows it's splintered, so it lowers its cost, and radio has done nothing to combat it. Nobody is selling the value of the medium. Radio is poorly marketed."

"The industry has to put on a better face if radio is to get more than 8 percent of advertising budgets," says Joel Hollander, COO of Infinity Broadcasting. "The RAB has to do a lot better job to work with the industry." Katy Bachman writes about radio for Mediaweek.