CBS Radio Eyes Internet for Growth Opportunities

NEW YORK Two months ago, when wildfires scorched hundreds of square miles in Southern California, forcing the evacuation of a half-million people, listenership spiked on KNX Radio, the CBS-owned outlet in Los Angeles. But the uptick wasn’t for the station’s on-air signal; listeners had instead tuned into the station on the Internet.

Not surprisingly, audiences in the L.A. market were desperate for information about the disaster, which destroyed more than a thousand homes and killed nine people. The average daily listenership for the newscasts on the KNX audio stream soared tenfold over the weeklong period that the fire dominated the headlines, according to CBS radio division president Dan Mason. By contrast, the station’s over-the-air ratings won’t come until January.

For Mason, the online listenership spike experienced by KNX during the fires, and the real-time metrics available to quantify such digital audiences, reinforce the radio industry’s need to expand its Web content. All 140 CBS Radio stations (in addition to 10 Internet-only outlets) are now streamed online to tap into today’s fast-growing digital ad platform. And plans call for the development of much more Web content.

“Our digital revenue is growing significantly every year,” said Mason. Those dollars are also helping radio counter a drain on the broadcast side, where spending has been flat at just over $21 billion, according to the Radio Advertising Bureau, for the last three years as advertisers have sought better measured, more accountable media. Over-the-air radio ratings routinely have a three-month lag time, much to the dismay of clients and ad buyers.

Mason declined to say how much the digital revenues contributed to the division’s coffers, but Lee Westerfield, media analyst at BMO Capital Markets, estimates that 3 to 5 percent of the industry’s revenue, or roughly $640 million to $1 billion, are generated by online ad sales. Westerfield says the radio industry will continue to develop its online presence. “The growth in media use is clearly growing on the Internet, and growth of advertising dollars is also migrating to the Web, so it makes sense for the radio companies to develop attractive commercial audio entertainment brands on the Internet,” he said.

That’s critical at a time when the radio industry—like other media—faces a challenging business climate.

Buffeted by new media platforms for listening to music such as iTunes, poor metrics and more efficient online ad platforms like Yahoo and Google, forecasters predict radio is headed for a fourth consecutive flat year, or possibly even a decline in 2008. Universal McCann, for example, predicts zero growth, while Westerfield projects the industry will be down close to 2 percent next year, even with the expected and eagerly anticipated influx of political spending.

CBS CEO Leslie Moonves told attendees at the UBS media conference last week that he was “guardedly optimistic” that the radio division would show at least some revenue growth next year after several years of declines. Moovnes and Mason both refused to provide an estimate of how much growth they envision.

According to Mason, the radio division will continue to develop its digital assets. It will invest in significantly more original online content, possibly including niche sports and music offerings. In addition, Mason said he expects to partner with a music-focused social network site, London-based, which CBS purchased earlier this year for $280 million. The ad-supported site has built a community of more than 15 million music lovers in 200 countries., he said, “is a perfect tool that we could use to grow our online entertainment business.”

But Mason also said that grabbing a greater share of political advertising, not a major focus for radio in the recent past, would be key to achieving growth next year for CBS Radio. “If we do our job right with political, we should be able to achieve growth that’s at least in line with GDP growth,” he said. According to the Federal Reserve, GDP growth for 2008 will fall between 1.8 and 2.5 percent.

The division is investing significantly more resources, including the hiring of political consultants, to communicate with candidates and parties in its pursuit of political ads. “I think in the past you could characterize our effort at going after those dollars as a C-minus,” Mason said. “This time we’re making the effort an A-plus.”

How effective the effort will be remains to be seen. So far, the company has not sold a lot of political content because it doesn’t have much of a station presence in markets such as Iowa and New Hampshire, where spending to date has been heaviest. “We’ll know if we’ve succeeded or not in the first quarter, when many of the primaries occur,” he said.

But Mason and his competitors may have their work cut out for them if they expect to grab significantly more political ads in 2008 compared to two years ago. According to Patrick Quinn, CEO of PQ Media, there won’t be a huge increase in the amount of available political dollars for radio in the 2008 election cycle, compared to 2006. In a report released last week, the research company said that political spending on radio would rise just 6 percent to about $270 million. The reason, according to PQ: far fewer gubernatorial candidates—just 11 in 2008 compared to 36 in 2006—that rely heavily on non-television media, such as radio. As a result, radio outlets that plan to make a big push for political dollars in 2008 will be fighting mostly among themselves for a bigger share of the available pool of dollars, which is only slightly bigger than the 2006 pot.

But a more serious issue for radio going forward is the lack of sharp metrics. In fact, it’s one of the bigger obstacles to ad-spend growth for the medium’s traditional business, buyers and analysts said. Arbitron is working to roll out its electronic ratings, known as the Portable People Meter, but just two weeks ago it announced further delays in its timetable.

Maribeth Papuga, svp, local broadcast at Publicis Groupe’s MediaVest in New York, said radio’s continued use of diaries, criticized for their after-the-fact reporting timetable as well as their inaccuracies, has stunted the medium’s growth. “Radio may not be getting the consideration it deserves because it can’t be looked at through the same lens as other platforms with more data attached to them,” she said.