Radio ads now on Google's dial
EmptyRadio industry watchers reacted with a mix of excitement and concern when Internet giant Google Inc. recently last week that it has finalized a much-anticipated radio advertising buying system and has begun limited tests for it.
The move seems certain to expand and strengthen Google's role in selling advertising for traditional media companies. But analysts are not sure yet how the system will affect a weak radio ad market, with some expecting it will put pressure on ad rates, while others predict it will open up the space to new marketers.
Google's push into the arena comes at a time of continued sluggishness of marketers' spending in the sector, but expectations for a slightly strengthening radio ad market next year.
In recent years, radio revenue growth for broadcasters has been far off the high-single-digit gains they had seen in the past.
Bob Coen, director of forecasting at media agency Universal McCann, projects that national radio ad spending in the U.S. will end up 3% at $4.4 billion, with local spending down 1% at $15.2 billion. For 2007, however, he expects national ad growth to reach a more solid 4%, with local forecast to swing to a 1% improvement.
After three quarters of virtually unchanged year-over-year trends, the Radio Advertising Bureau recently reported a pickup in ad momentum for October.
The 6% overall gain was the best year-over-year jump since a 10% increase in March 2004.
But that strong figure isn't necessarily a sign of a major rebound, Wall Street observers warn. "While this gain was impressive, it was at least partly enabled by an easy comparison versus a year ago when the aggregate figure fell 7%," Barrington Research Associates analyst James Goss said in a recent report, adding that full-year figures should still show little change.
"At the moment, we are not assuming a significant pickup in overall spot revenue in 2007," he added.
Google's radio ad efforts have taken somewhat longer than observers had expected when it unveiled an agreement to acquire radio ad services and software firm dMarc Broadcasting in January for $102 million in cash and performance-based added payments. It was the latest deal by the Internet powerhouse to position itself as an advertising sales broker and apply its new-media sensitivity to an old-media ad market facing challenges.
The company, for example, last month said that it is starting to sell ads in 50 top newspapers to more than 100 Google advertisers in an auction system.
Analysts have argued that if Google successfully applies the dMarc and other technologies, it could evolve into a universal auction house for advertising (HR 1/18).
More than 20 of Google's online advertisers are testing the radio product, dubbed Google Audio Ads, using the Internet to bid for ad space at 700 radio stations and about a dozen channels on XM Satellite Radio while easily determining which ones target the desired listener demographic. Google then reports back, giving the advertisers whose bids are accepted the time, date and geographic region concerning where their ads aired. They also can listen on-demand to the commercial and the content that played immediately before it and after. Google also handles billing and it splits the revenue.
"The efficiencies gained are significant," Google head of radio Ryan Steelberg said. "We're bringing a level of transparency and accountability to the space."
RBC Capital Markets analyst Jordan Rohan recently explored whether Google is a friend or foe to radio, and traditional media in general. His conclusion was fairly ambiguous.
While he proclaimed that "winners abound as Google opens (its) wallet," he also noted that radio and TV station groups might suffer because Google could turn ad space into a cheap commodity. "Google is more of a friend to the producers of content than it is to the distribution incumbents," Rohan said.
Google might be looking at $700 million in annual payments to media companies, including radio, print, film and television, though much of that is because of its YouTube acquisition, he said.
A Google investment of that magnitude, all for the purpose of expanding its ad footprint into traditional media, presents the possibility of a near-term earnings miss, Rohan said, even as he maintained his "outperform" rating and $525 target on the stock.
Paul Bond reported from Los Angeles; Georg Szalai reported from New York.