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.
