"Radio from the Agency View"
Bear Stearns analyst Victor Miller held a conference call on Friday with Rich Russo, Director, Radio Broadcast Services, JL Media and Kim Vasey, Senior Partner and Director of Radio, Mediaedge, CIA. This week, we'll run a bit of a series on some of the major topics discussed-from Google Audio to satellite radio PPM to HD Radio.
First, Miller asked about any big takeaways from 2006 and is 2007 likely to be any different for radio ad spend?
Said Russo: "You know I don't think so. I don't think there should have been excuses last year. Going into 2007 basically there should be nothing other than the technology stuff. Whether they want to give out the People Meters and all that, that's an issue, but in terms of doing business, getting clients to do business it's the same approach that we've taken in the past. We've got to get people to do radio."
Said Vasey: "I have to say that I've had quite a few successes in moving some clients into radio in this past year. I think if you look at it from the station perspective it was to some degree a disappointing year. But the more I talk to a lot of the managers and the different broadcast groups I know that one of the big areas of focus was developing money in NTR. I think the growth in their revenue base will be from the NTR, the non-traditional revenue, which is going out and developing programs for specific clients for specific campaigns. Clearly we can see a pattern there in selling a particular package or relying on the transactional business, you really can get people's attention. You really can get clients interested in radio.
We had a great deal of successes in the past years since I've been in the industry and working in radio and working on different types of packaging, different types of mixes. I think a lot of the networks and the stations are really focusing on all of the new platforms and extensions such as streaming and podcasting and the HD channels etc, etc. So looking forward I feel very, very optimistic about 2007. I have seen just with my own efforts in focusing on dedicating a little bit more of my time internally talking to the planners, teaching the planners, working with the planners, the account teams and even the clients directly you really can engage their interest and get them to reconsider radio as a viable medium.
Next question, of course, was about Google Radio/Audio. "What is your impression of Google Radio?"
Said Russo: "The issue is that if they actually have tangible inventory or will get access to tangible inventory. Right now, It's really difficult to make sense of it. Kim and I were talking about this before we started the call. When they pitch you on a network buy and say it's a .3 or whatever the rating is going to be, what happens is it's not a true network because what they are doing is overloading one station or one market where they have the inventory. So for example I might get six spots in Phoenix but I'll get 972 spots in Sacramento. They'll just keep adding up that audience and trying to get it to a network audience number. But when you buy a network buy you're not saturating it like that and they haven't been able to figure out how to do it yet-even on a spot basis-haven't been able to say, 'We've got all this inventory in Sacramento and you are doing a Sacramento spot buy. Maybe we can get you a better deal or you can buy from us because we own this inventory because of the dMarc system.'
I guess they are trying to think they are going to get the smaller advertisers that aren't in radio and use Google Checkout, etc., and they will become the middleman of all things advertising. Well that's all well and good, but they're really not there yet. There are four or five rumored deals out there that are supposedly signed. One of those is going to have to pop, to be legitimate with a controlled inventory that they actually can do whatever they want with. It's got to be controlled real estate, it can't be remnant. It's got to be actual that if they want to sell it for 5,000 a spot or they want to sell it for three dollars a spot, it is their inventory to do whatever they want. I want to buy morning drive in market X, I get morning drive in market X, on station X just like I do a normal buy.
Said Vasey: "It's really not a platform for the national business at the moment in which their structure is set up. As Rich said it's mostly remnant inventory that is gathered around the country and you may have five spots in Sacramento and 10 spots in Poughkeepsie, and 25 spots in Boise, Idaho. It's really not that type of a platform that we can use. We generally, for all of our national buys, we have set guidelines. We have set day part mixes; we want to have really top-ranked stations. The inventory that they have available right now might be good for a client that is a direct response or per inquiry where it doesn't really matter where the response is coming from.
The one thing that scares me about this platform is that a client may use it who has never done radio before and get all of this you low quality inventory that really drives no response, and for them to take the position that radio doesn't work. Once you have a client that's has that positioning, it's get very difficult to get them to change their mind. Along that line I think also it's a bigger mix of complication in the sense of the national rep firms being involved. We do a great deal of business and want to protect that partnership there as well. We want to protect the partnership with the stations, the rep firms, but also we want to be opened to allowing a client to have inventory that can be obtained on a remnant basis at the last minute."
Isn't Google Radio going to be a way of allowing advertisers and agencies to cut better deals then what they can do directly with the stations or the reps and that it actually has downward pressure on rate card and radio in general?
Said Russo: "Well it's funny Victor, and that's where you come in [you meaning Wall Street] because in reality if one of these groups get an offer...let's say the average unit rate on station X is five hundred-when you add up all the spots in morning drive it's 500 bucks. Well if Google comes in and says, 'Hey I will buy 20% of that inventory for 750 bucks,' that's great, but once you've made that deal and they've [the radio group] got their number, the rest of the year all they have to do is sell morning drive for 275 or 250 a spot. They've made their number and are up 15 or 20%, you're happy [Wall Street], you run a nice report. But if Google decides to sell that inventory for three dollars a spot there's nothing anybody can do about it.
That's the deal you can make, and the reverse of that is that if inventory gets so tight maybe that Google deal becomes almost like an option for you guys, like a stock option. 'Hey, that 750 dollar spot is really now worth 950.' That all depends on the inventory pressure. Once somebody makes that kind of deal and you give up that inventory at a higher multiple it's theirs to do what they want. But if Google comes down and says you're going to have 10% of unsold inventory every year anyway, I'll give you 250 for that 500 spot, at that point they can be restricted in how they use it. But if you sell it for more than it's worth or you get them to pay rack rate, at that point it's their real estate and they can do whatever they want with it regardless of the cost or worth of it.
Tomorrow: Spot lengths and Less is More.
