RADIO'S NEW FRONTIERS: Ian Darby travels up and down the airwaves and reports on how radio is growing its slice of the adspend cake

As David and Goliath battles go, the recent confrontation between

the Radio Advertising Bureau and the ITV sales house Carlton was

typical. The nimble-footed newcomer played on the frailties of the

lumbering ogre, namely television's falling share of advertising revenue

and its seeming reluctance to work as an industry as times get

harder.



It is good news that the radio industry has a united industry voice as

things get tough. The commercial radio companies have, more or less,

worked together over recent years in a bid to grow the current 6 per

cent share of the advertising cake. As a relatively small ad medium, it

is good to see the industry getting its case across to advertisers

through industry bodies and from individual radio companies innovating

some impressive commercial opportunities.



However, morale-boosting as the spat with Carlton was, and Virgin

Radio's chief executive, John Pearson, says:"I think Martin Bowley

(Carlton's chief executive of media sales) should receive the radio

industry award for man of the year for services to radio," it shouldn't

mask the fact that radio is struggling. Two of the sector's largest

players, GWR and Capital Radio, recently released downbeat trading

statements. GWR, which owns Classic FM, revealed sales were down 3.5 per

cent for the first six months of the year and downgraded full-year

profit forecasts from £13.5 million to £10.5 million.

Capital saw like-for-like sales drop 6 per cent for the 12 months to

September. David Mansfield, its chief executive, linked the fall to the

collapse of the dotcom sector.



Some argue that 2000 was a freak year, with dotcom advertising and the

Olympics swelling coffers, and figures certainly support this.

Advertising expenditure in the radio sector rose by 12.2 per cent in

2000, according to Zenith Media. The problems for the industry lie in

Zenith's prediction for 2001 - growth of just 3.1 per cent. Many in the

industry feel that this is on the optimistic side and that advertising

revenues across the sector will actually fall.



This should be set against predictions for other media that are far

worse.



Zenith expects that television advertising revenues for 2001 will fall

by 6.5 per cent and that newspaper and magazine revenues will also be

down. But there is no denying that the downturn has come at a

particularly bad time for the radio industry. Its share of advertising

has risen steadily over the past five years. It was 3.3 per cent in 1995

and industry experts suggest it will be 6.1 per cent for 2001. Audiences

have increased this year, the most recent Rajar figures show that

commercial radio has increased its weekly reach by 2 per cent to 32.2

million, and advertising revenues were at £596 million last year,

compared with £128 million ten years ago.



Share of advertising revenue is likely to increase but this is of little

consolation when overall revenues are down. Slow movement on the

regulatory side of the industry - the Government is unlikely to relax

ownership rules preventing consolidation of the industry until at least

2003 - has hamstrung the radio companies at a time when they would like

to be diversifying to create varied revenue streams and options for

listeners and advertisers.



So just what is it that radio can offer advertisers in these lean times?

It certainly isn't advertising creativity if you believe MT Rainey, the

managing partner of Rainey Kelly Campbell Roalfe/Y&R, who recently

attacked standards of radio advertising. However, radio can offer

advertisers competitive costs, flexibility and shorter lead times

compared with other media. It is such benefits that radio companies hope

will lead to growth as ITV struggles.



Most in the industry warn that these unique selling points are not

enough to prevent a downturn. Pearson says: "There is no media owner

that is recession-proof. We have been affected over the past nine months

by the slowdown in advertising expenditure. We are in for a tough time

but radio has been less affected than other media and we can come out of

this with a larger share of broadcast advertising expenditure."



Paul Davies, the operations director at Capital Radio, says:

"Categorically, in the medium to long term, radio has the ability to

grow. In the short term it will grow its share of the advertising cake.

TV's share is falling more quickly. In the last downturn, before the RAB

and the industry had become established, advertisers would retreat into

territory that they knew and trusted but now people know the value of

radio and commit to it."



Tim Bleakley, the former managing director of talkSPORT's sales

operation Impact Sales, says: "Radio has increased its share and is now

a mature medium. Ten years ago how many clients opted for anything other

than ITV? But now media is the Wild West. There are so many options,

there is choice and proliferation in every sector. There is no longer a

tried-and-trusted formula and this is great for radio because it can

complement everything else."



However, radio stations are up against falling advertising spend in key

sectors. Most mention the telecoms sector as a big area of decline

across 2001 (dotcoms were already cutting back last year). BT, one of

the largest users of radio, has cut back on its spend with stations

including Capital and talkSPORT. Davies says that only one of Capital's

top 20 spending clients, has dropped out, a dotcom that went bust, but

that others have cut spend. However, sectors such as the budget airline

industry offer signs of hope as they spend their way out of trouble

after the crisis in the US. The industry as a whole, led by the RAB, has

an initiative to promote growth in spend from alcoholic drinks companies

(which spend just over 3 per cent of their collective advertising

revenues on radio). There are signs that this is increasing at certain

stations which have a high percentage of young male listeners such as

talkSPORT and Xfm.



Davies says that stations are reacting to changing demand. Many

advertisers are moving away from long-term sponsorship deals to more

tactical promotional activity and sales teams are adjusting to meet this

need. Pearson emphasises that advertisers have come to see the value of

the flexibility of radio - from sponsorship and promotional activity to

the more current demands for response-driven advertising. Don Thomson,

the commercial director of Chrysalis Radio, says: "Over the past year or

so we have been deliberately trying to find new sectors. Our strategy is

to target advertising sectors that are not affected by the downturn. We

have had some success with local authority advertising as the Government

is spending more in general. Another new advertiser is Waitrose and more

than a quarter of our sales business is new."



Thomson believes that radio advertising must grow a creative reputation

if new advertisers are to be converted. "We are trying to persuade

advertisers to invest more in creative. At the moment, too many agencies

put junior people on writing radio and writing great radio is very

difficult. If the RAB can persuade agencies not to do this then we will

have great advertising to take out there."



Radio is working hard to combat the downturn and wants to come out

fighting.



If this is to happen then regulatory changes must occur to lift

restrictions on ownership that prevent widespread consolidation. The new

communications bill, to appear in draft form next spring, is expected to

recommend a relaxation of these restrictions. Currently, each radio

licence awarded carries a set number of points and no radio group is

allowed to build a number of points above 15 per cent of the total.



The Radio Authority and Commercial Radio Companies Association have

submitted recommendations to the Government on both national and local

licences that argue that any areas should be served by at least three

different commercial radio owners as well as the BBC. But the

recommendations also urge that a single operator can own several local

radio stations in the same area to "ensure genuine diversity of choice".

For national licences the RA and CRCA recommend that ownership be

governed by existing competition law.



Most experts believe that this will result in three large radio groups

controlling output. The argument is that this will create diversity

rather than stifle it. Davies says: "Consolidation will happen and it is

something that people should feel comfortable with.



Licences being owned by two or three operators won't mean that standards

will slip. As an operation you would build a portfolio of brands that

work in a complementary way. Consolidation will mean stations will be

better resourced, can share facilities and will have more

expertise."



Bleakley agrees: "Radio has got to be leaner and fitter and has to

consolidate for the benefit of choice."



The Ofcom bill is not likely to become law until the end of 2003 and the

radio industry is not guaranteed to get what it wants. Paul Brown, the

chief executive of the CRCA, says: "Clearly everybody wants change.

There are very few people putting forward proposals on cross-media

ownership, but all we know is that we need headroom to grow."



So when radio does finally limp out of the advertising recession, the

key to its future growth as an advertising medium is likely to lie at

the Government's door.



RADIO ADVERTISING: seeking advantage in a recession



Is it hard to ignore the evidence that marketing investment in your

brand through recession is more likely to lead to long-term share

growth? Or, in a climate which Jeremy Bullmore describes as ready-made

for the ascendancy of "toothsuckers", is it harder to maintain marketing

budgets as the spotlight tends to shift from the horizon towards the

bottom-line?



Whichever it is, the PIMS study of 1999 showed that businesses

increasing marketing spend during a recession not only profit in the

short term, but also make the fastest profit improvement once green

shoots develop. These two dynamics naturally lead to market-share

growth.



We're acting accordingly at the Radio Advertising Bureau. We can do this

as the commercial radio industry sees more opportunities than threats in

a recession. In particular, it is seen to be an opportune time to help

advertisers experience radio's cost-effectiveness in driving

awareness.



The industry is manifesting this opportunity through the Creative

Multiplier initiative that the RAB is marketing to advertisers and their

agencies.



This feeds off a fundamental finding of The Radio Multiplier study,

conducted by Millward Brown, which is that creatively engaging radio

advertising can be more effective at driving awareness than "average" TV

campaigns (see chart below).



So giving proper attention to the creative process on radio pays back in

awareness terms. To help advertisers experience this for themselves the

commercial radio groups are offering to fund effectiveness research and

specialist radio creative services. The RAB is leading the promotion of

this initiative and is already hearing enough noises of interest to be

optimistic that it will have a positive business impact.



A further demonstration of commercial radio's strategy to seek advantage

in a slowdown is the maintenance of investment in the RAB's trade

marketing programme. Our new fiscal year has just started and marketing

expenditure levels are unchanged from the last fiscal. But maintenance

of budgets doesn't mean the same tactics and the RAB has refreshed its

plans significantly, with a focus on two areas in particular.



First, we are concentrating on more personal communications. There are

now seven Rabbers whose responsibility is proactive one-to-one dialogue

with advertisers and strategic media planners. This increased investment

in relationship management is being managed alongside a more highly

targeted publication programme.



Second, there are significant plans to convey the emotional power of

radio. While RAB has done much to win the rational argument, we

acknowledge that more is needed to get advertisers and agencies to

really want radio.



Great creativity will play a fundamental role in demonstrating this

strength of the medium. Whatever perceptions may linger, there are many

examples of great radio advertising. Listen to the Hall of Fame and the

back catalogues of Aerials winners on RAB OnLine.



It is good news that Campaign has agreed to work with us on taking the

Aerial Awards forward with the objective of further increasing their

stature across the ad business. Allied to the RAB's increased marketing

investment in other areas, we are optimistic that it will help

commercial radio emerge bigger and fitter from the tough times

ahead.



Justin Sampson, managing director, RAB.