Despite the hype, digital radio listening has been slow to flourish. Commercial broadcasters have struggled to find ways to make a profit from the platform and numerous digital stations, most notably from the former GCap stable, have gone bust.
However, it is overly gloomy to say digital radio has been a false dawn for advertisers. There are definite signs that the promised rich rewards, are finally, if slowly, starting to emerge, while the internet is breathing new life into one of the oldest media platforms.
According to the Radio Advertising Bureau's managing director, Simon Redican, 'the lack of a single-minded focus in relation to the digital future' has been one of the main barriers to growth. However, he believes that the Digital Economy Act will bring greater clarity about the way forward.
'For the first time, we know when the digital upgrade will take place and the steps we need to take to get there,' he says. 'A target date is concentrating effort and resources as never before.'
Yet, even without this concerted push, digital listening has been increasing rapidly. Its weekly reach was just under 39% in the first quarter of 2010, according to Rajar, with 17% growth for the commercial sector and 22% for the BBC. Some 20m adults now listen to digital radio every week, putting its penetration at about 35%.
Awareness is growing, too, through the industry's 'Radio amnesty' campaign, with ads featuring Stephen Fry and Robert Webb. This offers consumers a discount on digital radios in return for their old analogue sets, which are sent to Africa.
'Radio audiences have reached an all-time high, and 30% of all BBC iPlayer requests are specifically for radio shows,' says Stacey Pratt, manager, investment, at media agency MediaCom. 'It's clear that there is a real appetite for radio content, and digital can bring a new level of accessibility to audiences, and increased usage will, in turn, boost advertiser spend.'
One of the assumptions underpinning hopes for the future of digital radio is that it can deliver niche audiences at a national level. This will enable commercial stations to build real national brands for the first time, meaning they can compete more effectively with the BBC.
The latest generation of digital radios feature colour touch-screens, which add a visual dimension, while wifi-enabled devices allow listeners to interact with stations. Additional features and functions are being developed, including radio red-button technology, enabling users to access extra content on demand and tagging, which allows listeners to save their favourite content.
Moreover, as Peter Davis, managing director of marketing ideas website getmemedia.com, argues, 'with its transferable nature, radio is the most available media inside and out of the home'. Listeners are accessing radio content in a variety of ways, including PC streaming, podcasts, iPhone apps and via Freeview.
Together, these developments allow advertisers to reach broadcast-scale audiences, while retaining the personal nature of the internet. Media owners refer to this combination of radio ads and online content as 'audio messaging'.
At the same time, radio stations are showing a greater willingness to adapt their content to accommodate advertisers, leading media agencies to coin the term 'radvertorial' to denote this blurring of the line between ads and editorial. A recent example, is a tie-up between the Sharm el Sheikh Savoy Hotel and Capital Radio; as well as running a promotional competition with holidays as prizes, the Breakfast Show presenters flew to Egypt to broadcast live from the hotel.
This convergence is likely to become more common, assuming the proposed relaxation of the rules on product placement on UK TV and radio - currently the subject of an Ofcom consultation - goes ahead.
'The old rules were about ensuring people knew they were being advertised to,' says Clive Dickens, chief operating officer at Absolute Radio. 'However, consumers are much more advertising-savvy now. Once we've got this regulatory framework in place, it will encourage much more brand-defining relationships, rather than spot advertising. There will be a genuine market shift.'
There are signs that this change is already under way. While there is still a heavy reliance on simple spot ads, highly creative digital radio campaigns that make the most of the latest opportunities are also starting to emerge (see box).
According to Dickens, as consumers become increasingly aware that brands are paying for sponsorships, they also want to know what value the advertisers are adding to the content. 'Consumers understand brands are important, but tokenistic badging can do a lot more damage than good today,' he adds.
Media agencies face a significant challenge in educating both their staff and clients about the nature and benefits of radvertorial marketing; media agency MPG has responded by setting up a dedicated Audio Integrated Unit.
According to MPG account director Dallia Hussein, one area that needs managing in particular is brands' expectations. 'A question that comes up a lot from advertisers is: "Why didn't they say our brand name more?"' she says. 'We explain that on the radio the presenters are having a natural conversation, so it would sound really fake if the brand were mentioned every second. We don't want it to sound like a branded piece - it's much more powerful if it's natural.'
Inevitably, the economic situation is holding back investment in fresh approaches to marketing on digital radio, both by advertisers and media owners. Dominic Woolfe, investment director at media agency Starcom, says: 'To move digital radio onto the next level, the vicious circle between marketing and monetisation needs to be broken.' If this can be done, digital radio will boom. Moreover, music streaming and internet radio services, such as Spotify, Last.FM and We7, show it is possible to build buzz and revenue on a shoestring budget.
'While there is little doubt that radio groups have the expertise to create content that would be demanded by listeners, the conundrum is how they will initially pay for this,' adds Woolfe. 'The question must be whether stations can hope for revenues to recover enough in traditional areas before investing in digital, or whether they need to invest to stop a downward revenue spiral in a converging digital world.'
- 20m adults listen to digital radio every week; penetration is about 35%
'RADVERTORIALS' - BRANDS AND BROADCASTERS
- The Honey Monster and Fun Kids
Sugar Puffs owner Honey Monster Foods wanted to make its famous brand character a celebrity in its own right, so it teamed up with digital station Fun Kids Radio. The station took him on as a 'roving reporter', covering stories from a spotting of the Loch Ness monster to camping and waffles (tying in with the brand's Honey Waffles product).
- Tilda and Magic
Tilda, the rice brand, ran a campaign, created by MPG, to tackle perceptions that rice is hard to cook and goes only with curry. This included 10 online recipe videos featuring TV chef Jo Pratt, who promoted them during an appearance on Magic. Tilda also hosted a cookalong attended by a presenter and listeners. In the month of the campaign, 25% of Tilda's site traffic came from Magic.
- Swiftcover Insurance and Absolute Radio
For this partnership, Swiftcover has become involved in creating a range of content including running a poll of listeners' favourite summer tracks that offers the chance to win a premium Spotify account. The car-insurance brand is also involved in the online coverage of festivals and interviews, and has developed a co-branded iPhone app. The aim is to promote the idea that Swiftcover can make renewing car insurance, quicker and easier so people can get back to enjoying life. 'Listeners see the brand as a facilitator, not a sponsor, bringing them free content,' says Absolute Radio's Clive Dickens.
- The 'Gorvid Camerown' station
Starting with the proposition that the Labour and Conservative parties are interchangeable, because a vote for either was a vote for the status quo, the Liberal Democrats created the 'Labservative' party. As part of its launch, the Lib Dems' agency Iris created a fictitious leader called Gorvid Camerown with his own internet radio station, which played only Status Quo tracks. As well as receiving more than 6000 plays, the station also helped to keep the conversation going via social media. Iris won an award for this activity at Orange's Digital Election awards.
- Baddiel and Skinner's World Cup podcast with Sony Ericsson
Absolute Radio sought to exploit Frank Skinner and David Baddiel's association with the World Cup by persuading them to resurrect their partnership for this year's tournament. The deal involves the comedians creating live shows and podcasts from South Africa, sponsored by Sony Ericsson, which is also an official World Cup partner. As an incentive to download the podcast, listeners can access the show on this platform from 5am, while it is not broadcast on Absolute until 6pm. The deal also includes a media partnership with The Times, which prints transcriptions of the podcasts, and a live comedy show for 1000 people at London's Lyric Theatre. Sony Ericsson is promoted as the brand partner in all these activities.
- Starbucks and heat radio
The Starbucks Discoveries Show airs daily on heat radio and is available on podcast. The Starbucks chilled-coffee product is also the subject of an extended promotion in heat magazine and on its website. The aim is to link the Discoveries range with gossip and music.