Spot revenue flat-lined again in 2013. Radio can’t seem to move the needle when it comes to selling spots on the radio. Thank God for digital.
Digital is the one bright spot for local radio revenue. It was up again in 2013, so it is understandable that everyone from the Radio Advertising Bureau on down would crow about digital:
"Digital continues to gain momentum among advertisers looking to maximize their use of all Radio platforms," states Erica Farber, President and CEO of RAB. "Based on the recent Borrell Associates forecast of a 22% rise in Digital spending on Radio in 2014, this category is poised to surpass the $1B mark."
Everyone seems to agree that digital is the bright spot in radio’s future. Unfortunately, while a digital future may be inevitable, economic success for radio in a digital world is by no means inevitable. Quite the opposite is possible, an issue we raised back in 2009.
Putting all of radio’s eggs in the digital basket may be a trap. Instead of securing radio’s future, it may sacrifice broadcast’s enormous advantage over its digital competitors, leveling a playing field on which radio has always won.
The RAB press release to which Farber alluded in the above quote predicts a bright digital future for radio noting that digital grew 15.9% in 2013, and projecting another 22% growth in 2014.
That might sound like a lot, but as noted in the release digital contributes an anemic 3% to radio’s revenue. Take a look at the graph at left. It illustrates how little digital contributes to local radio’s revenue. That tiny sliver at the top is digital’s contribution.
Even if digital revenue continues to grow at the RAB’s wishful double digit pace, it will take over a decade for digital to approach even half of spot radio’s contribution.
And the RAB’s projections are extremely optimistic verging on the delusional. We need only look at newspaper’s attempt to cross over to the digital world to understand.
Facing precipitous declines in print revenue, the newspaper industry pinned all its hopes on digital. The major newspaper chains predicted that digital would save the medium. We questioned their strategy, and the wisdom of radio following a similar path in 2011.
What’s happened since?
Compare that to radio’s digital growth over the same period. The good news was that radio’s growth rate coming out of the recession was nearly triple that of newspaper. The bad news is that radio’s growth rate like newspaper’s immediately began to slow.
As the table at left shows, after growing 28.1% in 2010, growth fell in each of the next two years. Growth rebounded last year, but still failed to achieve the growth rate of 2010.
The graph at left shows each medium’s digital growth rate indexed to their 2010 rate. Note that with the exception of 2013, the growth rate declines of radio and newspaper seem to be following the same pattern.
Newspapers have been developing a digital strategy much longer than radio. The major chains have reallocated more resources to their digital product than radio has. And the end result appears to be only an accelerated pattern of growth then decline, not a stronger one.
If radio is following the same arc of rapidly diminishing growth in digital revenue that newspaper is tracing, then radio has to rethink its strategy of pinning its hope for growth on digital.
So if digital isn’t the right basket to put all of radio’s eggs, what’s the alternative? That’s the subject of the next Radio Insights post.