Yes, digital revenue grew, but broadcast spot sales continued to erode.
Digital’s growth was a hollow victory: Digital contributes a mere 3% of radio’s revenue.
Broadcast spots contribute over 90%. If spot sales decline by a mere 1%, $140 Million in spots is wiped off the books. Given digital’s meager contribution, it has to increase 15% just to stay even, let alone jump-start sales.
As we pointed out in our previous post, digital grew by 16% last year, but growth is on a downward trajectory. It is increasingly likely that digital sales growth won’t be able to make up for even modest declines in broadcast spot sales.
What should broadcasters do?
The only practical solution is to put a stop to the decline in spot radio sales. Radio has to put considerably greater effort into growing the broadcast product, continuing to develop compelling programming, then selling it better.
If radio has any hope of growing revenue in today’s environment, it is going to come from increasing the value of broadcast spots, then selling more.
The arithmetic is obvious, but actions of the major groups suggest they don’t get it. They are still of a mind-set that digital will save the day.
That’s why the major groups are continuing to increase digital funding at the expense of their broadcast products.
Major cut backs in broadcast station staffs. No programming innovation. No marketing budgets, no research. Degraded morning shows to save money, and half-hearted efforts to sell time on these gutted radio stations.
If radio is cutting costs, telegraphing that it believes broadcast radio can’t successfully compete against digital competitors, why should we be surprised that spot sales are declining? If radio isn’t prepared to invest in broadcast, why should advertisers?
If radio continues on its current path, flat revenue is just a brief pause in broadcast’s rush towards self-destruction.
The good news is that maybe, just maybe broadcast leaders are waking up.
After years of touting digital initiatives and ignoring local radio, broadcasters rolled out three new projects spotlighting broadcast radio’s strengths.
Last month Nielsen and CBS collaborated on a study showing local radio’s ability to boost the effectiveness of television campaigns. According to the study, using local television and radio together can double the reach of TV alone.
(The study found that) an advertiser could reach anywhere from 84% to as high as 93% of all adults 18+ within a month by leveraging local television and radio together.
The CBS announcement was quickly followed by an Advertising Research Foundation hosted presentation on new research looking at radio’s impact on retail sales. The study found that for every dollar spent on radio advertising, there was a sales return of six dollars.
Clear Channel’s Insights and Analytics EVP Rada Subramanyam noted:
We have always known that radio delivers big returns for advertisers and these studies provide the much needed support of that return. The deep personal connection and trust that consumers have to their radio stations and on air personalities generates significant value for advertisers.
The latest defense of broadcast radio comes courtesy of Southern California Broadcasters Association. Earlier this month the group released a report making the case that some television money ought to be reallocated to radio. The bottom line (PDF):
We are urging advertisers to make a 39% adjustment in TV budgets from TV to Radio based on these findings and the growing DVR use/ownership in the LA DMA. Weekend sales events, limited offers, and expiring special offers are being compromised by delayed or no viewership from DVR usage for TV advertisers.
Three studies in the span of two months. And this after years of nothing of substance coming from local radio’s leaders defending the medium from relentless attacks from radio’s critics.
Maybe this is a turning point in the battle to get radio’s fair share of advertising dollars.
But broadcast leaders have to also recognize that radio can’t gut its product without ultimately hurting radio’s adverting effectiveness, and ultimately revenue.
We applaud these three efforts. They are long over-due. However, now these leaders have to reinvest in their radio stations if they have any hope of having this work impact their revenue numbers.