Are you reading this from a forwarded email? New readers can receive our RBR Morning Epaper for the next 60 Business days!
SIGN UP HERE
Welcome to RBR's Daily Epaper
Jim Carnegie, Editor & Publisher

Click on the banner to learn more...


Google to get into radio the old fashioned way?

RBC Capital Markets analyst David Bank (who based it on a theory by Rich Russo, JL Media's SVP/Director of Broadcast Services) has speculated Google may buy into Clear Channel (in play right now) as a way to get firmly entrenched in radio-beyond the purchase of dMarc/Scott Studios. We've already heard about the 1 billion bucks possible purchase of CC Radio inventory by cash-rich Google. As well, Bank noted Google has been hiring top-notch radio salespeople in New York, LA, D.C., Baltimore, Atlanta and Chicago. The goal, according to the report is around 100. Acquiring a stake in Clear Channel as part of a consortium - or outright - would give Google Audio access to avails to sell in local radio markets - in conjunction with local search.

Indeed, Radio One CEO Al Liggins said in his latest conference call that he has heard rumors that CCU is working on some type of inventory deal with Google "but I don't know what it is." He also noted that Google has been out hiring people for local ad sales in large markets, but even the salespeople don't yet know just what it is they are going to be selling.

Google currently, via its acquisition of dMarc, is marketing mostly remnant and small/medium market radio inventory. Buying a stake in Clear Channel is a way to get more prime inventory - and profit from it. Clear Channel does control some 20% of local radio industry revenues in the U.S.


Google told us they don't comment on rumor or speculation. However, we did get a chance to speak with dMarc competitor SWMX COO Bill Figenshu, who noted: "If someone wants to buy a billion dollars worth of inventory from Clear Channel, it's fraught with danger. All of a sudden you're selling around Clear Channel sellers...and at what price? You're going to go out and sell Budweiser after I've already sold them? And by the way, CC owns Katz and Premiere Radio Networks, so who is putting together network buys?"

Nonetheless, with 10 billion bucks in the bank, Google could write a check and buy Clear Channel outright. Then the competitive sales issues would vanish - at least after they've fully integrated.

Adds Figenshu: "With over 1,400 major and medium market stations representing 15 of the top 15 radio groups, SWMX has the distribution. Advertisers want choice. SWMX delivers the stations they want. In NY, Chicago, & LA we have the top stations. Not two or three. The whole world is going to get turned upside down in the next 18-24 months. Buckle your seatbelts, it's going to get crazy. And we're [SWMX] going to be right in the middle of it, I guarantee you. I don't even want to tell you about the phone calls we've been getting over the last couple of months. We're making a lot of noise."

More of the case that Bank made (excerpts) |

"We find it perplexing that Google Audio is building such a robust sales force with little non-remnant inventory to sell right now - while Google Audio has had some very modest success with respect to acquiring remnant radio inventory, we don't believe the infrastructure they appear to be rapidly and aggressively deploying is necessary to support this immaterial level of inventory. In fact, our sense is the new hires aren't finding themselves very busy.

Getting ready to storm the beaches? While there are other possibilities, we believe there's a reasonable chance Google Audio is establishing critical mass in anticipation of a major acquisition of prime inventory. Our sense from recent discussions with Industry players has been most radio operators are reluctant to offer prime inventory to Google Audio.

Clear Channel would be the most likely candidate - of virtually any operator, Clear Channel (has been the most consistently willing to implement both dramatically novel (and disruptive) sales strategies (Less is More inventory restructuring) and dramatic innovations on the technology side (Tradewinds inventory management system). Given it's current exploration of strategic alternatives we could see this playing out potentially through Google making a modest investment in CCU (either in an LBO, or simply in CCU's current incarnation) to help secure access to inventory.

All that said, Google might have something completely different in mind-the next major leg of growth for paid search is local, which has been difficult for Google to penetrate in scale. Thus far, Google's efforts to sign up local advertisers has been through partnerships with aggregators and self sign-up. So hiring radio salespeople could simply be Google moving aggressively ahead of competitors to lock-in what might be the most valuable relationships at the local level and leverage these relationships across all its products over time, including: search, radio, display, video and others.

We think Google is looking to move in on the very addressable and very large local prime inventory radio market but needs a means to acquire quality inventory.

But the radio Industry is likely concerned over what impact the online media exchange evolution could have on the traditional pricing umbrella. Given concerns that dMarc / Google would have a significant negative impact on pricing, radio broadcasters (for fear of Google Audio undercutting station operators' own pricing umbrellas to gain traction and overall increased transparency potentially disrupting traditionally less sophisticated buyers) have been unwilling to provide anything other than relatively invaluable remnant inventory for resale. We think Google is either currently planning or has already planned means by which it can acquire substantially more high quality inventory.

With its 140+ billion market cap, we think Google could effectively buy its way into high quality inventory through taking a stake in a major radio broadcaster such as CCU.

There are certain characteristics about the radio industry that play into Google's strengths:

* Local is a focus area for Google: The vast majority of radio revenues are local, and Google has made significant investments in its local assets for search: targeting, mapping, IP address look-up technologies, and in acquiring registration information about users.

* Advertiser base is synergistic: The number of advertisers in radio is of a similar magnitude of that in paid search, certainly there are the large national advertisers in radio, but there are many times the number of smaller advertisers, this factor works well with Google's automated advertiser sign up platform/strategy.

* Biggest spenders are comfortable with Google's platform: For the 20% of radio advertising that is national, Google most likely serves all of these advertisers already. The three largest categories in radio are: retail, auto and entertainment. In particular retail and auto are both heavy search advertisers, and should be quite comfortable managing radio campaigns via Google's platform.

The challenges:

* Channel conflict: Traditional media planners and buyers are threatened, likely top be hesitant at first to turn over any control of the radio buying process to Google, at some level their jobs are at stake if radio becomes a fully digital medium and Google is the exchange.

* Pricing strategy requires complex algorithm: It is not clear how Google can work in harmony with the sales forces and systems of the radio broadcasting companies. Particularly as the inventory shifts from 30 and 60 second spots to a variety of shorter formats. It is much easier to lay out text links on a web page than it is to logically place radio advertising within a two minute advertising block.

* Ad placement: Radio advertisers prefer to have their ads separated from those of their competitors, not to be adjacent as in paid search. This is something that Google could accomplish, but it requires careful coordination with the terrestrial radio partner and it s quite different with search advertisers who have grown comfortable with their ads appearing next to their competitors.

* Radio slow to adapt to change: The radio industry has traditionally been slow to adapt to any change. Google by its very nature embraces and capitalizes on rapid change, and therefore there could be some anxiety provoked by Google's facilitation of radio ad sales.

RBR observation:
Google has said repeatedly it doesn't want to own content producers or be in the content creation business. A Reuters story in September quoted Google VP of Advertising Sales Tim Armstrong as saying Google viewed itself as "and operator of the Web," rather than a producer of original text, films or images. "We don't really have a ton of serious conversations about creating content," Armstrong was quoted as saying during a panel discussion at an Interactive Advertising Bureau event in New York.

So we're thinking this may be less about an equity investment and more about an inventory investment - CC's website inventory and radio inventory. For instance, Google did a 900 million ad deal with Fox Interactive in August (8/8/06 RBR #153) -- strictly online, no broadcast inventory.

Perhaps Google is looking to do the same with CCU, taking inventory only on the CCU websites. That would make a lot more sense than CC Radio parting with any radio inventory.

Also, if Google were to buy into radio, it might compromise other radio groups' business relationships with dMarc - it would be the same issue Clear Channel faces sometimes with its own vertically integrated vendor acquisitions.

On the other hand, maybe Google is fine with dMarc's technology serving only Clear Channel stations. Should be interesting.





Radio Business Report
First... Fast... Factual and Independently Owned

Sign up here!
New readers can receive our RBR Morning Epaper
FREE for the next 60 Business days!

Have a news story you'd like to share? [email protected]

Advertise with RBR | Contact RBR

©2006 Radio Business Report, Inc. All rights reserved.
Radio Business Report -- 2050 Old Bridge Road, Suite B-01, Lake Ridge, VA 22192 -- Phone: 703-492-8191