Listen Up

W hat was supposed to be a year of recovery for the radio business turned out to be another painful year of transition. Although business was positive for the first three months of 2004, demand for radio time never gained momentum, and analyst after analyst began to readjust forecasts. By the end of the summer, pundits were looking to fourth quarter to pick up the slack.

“The biggest issue for radio has been the economy as a whole,” notes Sue Johenning, executive vp and director of local broadcast for Initiative Media. “Spending was not what radio hoped it would be. The big retailers were off, as was automotive. Wireless has been big [in the past] and when it cuts back, it has a major impact.”

The lack of demand for national inventory, which makes up 20 percent of the business, affected stations most heavily in the largest radio markets. Although local was steady, posting small, single-digit increases month to month, national plummeted. “National was being bought at the last minute because demand was not high,” notes Gary Fries, president and CEO of the Radio Advertising Bureau. “Advertisers were cutting back on radio campaigns before they even aired because of low response on other media. It was an erratic pattern.” Fries expects 2004 to end the year up 3 percent to 4 percent.

Although local inventory sold better than national, its future health depends on the economy and the inclination of advertisers to increase budgets in the face of uncertainty. “For a lot of local retailers, car dealers and fast-food [outlets], the economy really has to be rolling for them to invest more,” says Kevin Gallagher, senior vp and media director for Starcom. “The national advertisers can plan 3 percent to 4 percent increases, but spot rises with the economy.”

Many pundits are banking that fourth quarter will deliver the recovery that radio has waited for all year. Peter Winkler, managing director of PricewaterhouseCoopers, expects radio to end the year up 6.1 percent to $20.7 billion. Veronis Suhler Stevenson is predicting 6.7 percent growth to $20.89 billion.

But those forecasts could prove to be overly optimistic. “I’m not hearing fourth will be strong. I don’t see any station having trouble clearing a spot with short lead time,” says Karen Agresti, senior vp and director of local broadcast for Hill, Holliday.

Even if the radio market doesn’t turn the corner in the fourth quarter, there is reason to believe 2005 will be an improvement.

“There is more optimism among advertisers. The restaurant business is picking up, and the automakers have to move inventory,” says Fries, who is forecasting 6 percent to 8 percent growth for 2005. That’s slightly higher than PwC’s 4.9 percent forecast, but in line with Veronis’ 6 percent gain.

Propelling the optimism for 2005 are a number of major initiatives undertaken by the radio industry to turn business around and cut back on the perceived overcommercialization of the medium. Clear Channel introduced its “less is more” plan to reduce spotloads by 20 percent across its 1,200 stations beginning next year, setting the tone for other radio groups to commit to reducing clutter. Clear Channel and other groups are also urging advertisers to replace 60-second spots with 30-second spots, already a standard in network radio.

“[Reducing spotloads] is a bold move,” says Winkler. “If there can be a strong push to show that operators are reducing clutter and enhancing the quality of ads, making it a more content-oriented medium, that will help.”

While seen as a positive, advertisers and agencies have questions about how reduced spotloads will work out in the marketplace. If business picks up, less inventory might tighten demand. “There will be less inventory, that is a certain,” says Kim Vasey, senior partner, director of radio for Mediaedge: cia. “But pricing will depend on how spending levels go. If it’s a slow transition into the year and there is plenty of inventory, then supply will not be an issue.”

Radio this year also began addressing the growing competition for its listeners. Stations, seeing iPods, satellite radio and online radio making strides, began rolling out new formats such as Progressive Talk (as a counter to the more established Talk format), and Jack FM, a free-form format that isn’t bound by tight playlists and boasts “We play anything.”

“Most of radio thinks its primary competition is newspaper and TV, but it isn’t,” says Natalie Swed Stone, director of national radio for OMD, a media buying agency. “Clients are looking at alternative media more than ever before. We need an infusion of new thinking in a more competitive market.”

The RAB reorganized to make marketing the medium its first priority and unrolled the first of a series of major research projects from the Radio Advertising Effectiveness Lab to analyze just how radio works as an advertising medium. It’s the first major research about the medium in more than a decade, and the radio industry is banking that solid research will raise the medium’s credibility with advertisers that have been reluctant to embrace it.

“We’ll look back on 2004 and say the groundwork was laid,” says Fries. “We’ve never had a year when radio has done so much to meet the needs of advertisers and listeners.”

Katy Bachman covers radio and research for Mediaweek.