Special Report: Radio

NEW YORK Radio has fallen on hard times— not as hard as local newspapers, it must be said. But in recent years, radio has remained one of the slowest-growing of all media.

PricewaterhouseCoopers projects ad spending on radio next year to grow 1.4 percent over 2007 to $20.10 billion, following five straight years of likewise flat-to-slight performance. Veronis Suhler Stevenson predicts a more bullish 3.2 percent growth in radio’s ad spend next year, with ZenithOptimedia seeing a 2 percent bump.

“The last year of unqualified revenue growth for radio was in 2000,” said Jim Boyle, an analyst for CL King & Associates. “It appears the out-of-favor sector, in the eyes of investors, may see soft revenue for several quarters to come.”

In 2008, there are few factors that promise to turn things around. Like other media, radio has been hurt by a sluggish auto category, about 12 to 13 percent of a station’s total take. Retail, the bread-and-butter category of local media, has been rocky at best, with newly merged retailers diverting a good chunk of dollars into national platforms.

There are also plenty of new media players out to eat radio’s lunch. While it’s difficult to quantify, buyers say some dollars from radio budgets have been reallocated to new media.

Then, there’s the question mark of the on-again, off-again merger of XM and Sirius Satellite Radio, which the National Association of Broadcasters has been fighting tooth and nail. If the merger happens, consolidation of satellite technology for consumers could mean satellite radio would get a second look from network and national ad buyers. Terrestrial radio would find itself competing not just for listeners but for national ad dollars, particularly in the coveted 18-34 demographic, said Leo Kivijarv, vp/research PQ Media, which partnered with VSS on its forecast.

“We’re going through a difficult time,” said Peter Smyth, president and CEO of Greater Media. “The national business has not been good, but that doesn’t mean all the radio business is a mess. The problems aren’t as grave as everyone says they are. Radio has to bet smart and put on their thinking hat. Auto might be better than anyone thinks. Telecom is coming back, retail is looking better.”

Radio has set its sites on campaign dollars. Despite the continued optimism of radio operators, however, it doesn’t appear political bucks will benefit radio in such a big way. In the last presidential election year of 2004, radio spending grew 2.5 percent year over year to $19.59 billion, the segment’s best performance since 2002, when it enjoyed 5.7 percent growth, per PwC. Radio’s biggest hope this election cycle is that spot TV inventory will tighten so radio can pick up the slack. “Historically, radio doesn’t get a lot of political advertising, but it benefits from other advertisers shifting out of TV,” said Sue Johenning, executive vp, director of local broadcast at Initiative.

The medium is likely to have better success with revenue from interactive sales, which at the half-year point contributed to a 12 percent increase in non-spot revenue, moving the radio industry’s total take out of the negative column.

Radio Advertising Bureau president and CEO Jeff Haley explained, “As trusted providers of news and information, radio stations are now taking those brands online. Smart broadcasters are integrating the entire listening experience online.” But that contribution—perhaps $189 million, per Borrell Associates—likely won’t be enough to offset the big picture for radio.

To counter satellite radio and other new media, radio has stepped up its experimentation with inventory, offering shorter spots and sponsorships of entire stations. But some of those efforts could be a double-edged sword, particularly shorter spots, which introduced more inventory into the marketplace at a time when demand is lukewarm at best.

Way out on the horizon is HD Radio. While radio groups have been quick to make the transition to the new digital technology, they’ve been slow to monetize it. HD is still largely unknown to consumers. “I’m disappointed that HD isn’t growing the way it should,” said Rich Russo, director of broadcast services at JL Media. “More people should know about it.”