The State of Radio

Double-Digit Growth Projected For Digital Radio Ad Revenue Through 2023, But It's No Panacea

Jennifer Lopez speaks with Elvis Duran at "The Elvis Duran Z100 Morning Show" at the Z100 Studio on April 9, 2019 in New York City.  Noam Galai/Getty Images

Steve Knopper is a Billboard editor at large, a former Rolling Stone contributing editor and the author of MJ: The Genius of Michael Jackson and Appetite for Self-DestructionThe Spectacular Crash of the Record Industry in the Digital Age.

A leading media advertising analyst predicts the digital radio ad market will approach $2 billion in five years, but says station operators will need to be more creative to make up for lost broadcast revenue

In October 2008, the same month that Spotify launched, Clear Channel Communications, the largest radio station owner in the United States, also entered the digital music arena with iHeartRadio. A free app that initially was available for the iPhone and iPod Touch, iHeartRadio allowed users to digitally stream some 10 stations in multiple markets, then gradually added exclusive content like a Joe Walsh-hosted Eagles channel, a Hawaiian station focusing on island music and a channel with Christina Aguilera as a DJ. By 2010, the app had been downloaded 10 million times and, in 2014, Clear Channel went all-in on the app, rebranding itself iHeartMedia.

Eleven years after its launch, iHeartRadio has evolved into a massive storehouse of content: live broadcasts by the company's 850-plus owned and operated stations, such as New York's influential hitmaker WHTZ (Z100), the home of syndicated talent Elvis Duran; Chicago’s R&B throwback giant, WVAZ (V103); and Los Angeles’ modern-rock bellwether, KYSR (Alt 98.7); podcasts; and special features such as its On the Verge showcase for up-and-coming artists and its annual Jingle Ball holiday concerts.

The app has also developed into a serious revenue generator. Although its parent company doesn’t break out digital-only listener numbers, its overall digital revenue, which includes iHeart's growing podcast business, was roughly $280 million in 2018, according to a public company presentation.

IHeart's ability to carve out a digital niche for itself in the wake of the burgeoning success of on-demand streaming platforms is part of an encouraging trend for the radio industry in general. According to Borrell Associates, a research and consulting firm that tracks local advertising, while overall broadcast radio ad revenue has steadily declined from $11.3 billion in 2013 to $9.1 billion in 2018, digital ad revenue for local U.S. radio stations is on the rise, totaling $804.5 million in 2018, a 15% increase over the previous year. Borrell projects that growth will continue for at least the next five years and in August revised those projections upward, envisioning a $1.9 billion market in 2023. Despite what CEO Gordon Borrell calls "a spark of hope," his firm also projects that digital ad growth will slow considerably by then, and if broadcast radio advertising continues to shrink, station operators will have to find other ways to shore up their bottom lines that may not involve radio at all.

IHeart plunged into digital early on, emphasizing its app as well as podcasts and content for what the company characterizes as 250 platforms and 2,000 devices. Smaller broadcast groups are just coming around to this kind of innovation. “Some companies really got out ahead of this, and digital has become a really robust portion of their revenue mix,” says Fred Jacobs, a longtime Detroit radio consultant. “Others have been more cautious, but finally the message is sinking in."

After merging with CBS Radio almost two years ago, Entercom, the second-largest station owner behind iHeart, consolidated all of its stations’ web and mobile efforts on its Radio.com app and relaunched in the summer of 2018 with additional content from CNN, Bloomberg and its own sports and political podcasts. "Let's just say it’s an understatement that [CBS] hadn't done a lot with Radio.com," says Entercom chief digital officer JD Crowley. "They had their station streams on it, but they also had their streams in a million other places." Digital revenue now accounts for 10% of Entercom’s overall business, the company reports, and, says Crowley, Radio.com has “tens of millions of registered users.” (He declines to be more specific.)

Betting on digital is not limited to major station groups. Midwest Communications, which owns and operates 82 stations in Michigan, Minnesota, Wisconsin and elsewhere, recently expanded its relationship with Triton Digital, which specializes in monetizing podcasts with advertising. Podcasts are the latest front -- for both radio and streaming platforms -- in digital monetization. An Internet Advertising Bureau study in 2018 showed podcast ad revenue jumped from $169 million in 2016 to $314 million in 2017 and could reach $659 million by 2020. Spotify and Apple have made major investments in the space, while iHeart bought podcast network Stuff Media for $55 million last fall and Entercom invested in producer DGital Media in 2017.

On a more homegrown level, KCMP (The Current), a Minnesota Public Radio station in Minneapolis, has beefed up its digital staff during the last 10 years from one person who worked part-time on its streaming content to six digital-focused specialists. Their responsibilities include programming the station’s app, which has features such as an all-Prince channel, Purple Current. "We're trying to take our aesthetic of being a source of musical discovery and spreading it to these new technologies," says Jim McGuinn, the station's program director. "That's the upbeat side of this whole thing."

When it comes to advertising sales, large radio companies such as iHeart, Entercom and Townsquare Media, a Greenwich, Conn.-based owner of 330 stations, use a combination of broadcast and digital advertising to entice advertisers, particularly local ones. Ten years ago, says Pittman, company ad sales representatives simply asked consumers if they wanted to buy advertising spots on the air. Today, they grill clients about their marketing needs and offer digital marketing and Google-style data and analytics. "We've built marketing solutions that happen to include radio,” says Pittman.

Entercom’s sales force generally signs up advertisers by offering spots on the company's 230-plus stations, then sells digital extras such as banner ads on station websites, assistance with advertisers’ social-media accounts and search engine optimization of their websites. The company also offers packages of targeted local-radio ads as well as broader national spots on Radio.com, and uses geographic data from the app and smart speakers to identify listeners’ general locations (with their permission). Listeners who live in the suburbs outside of New York get traffic reports, while those who live in the five boroughs of the city get transit updates as well as advertising that is relevant to their respective locations.

Entercom and iHeart press representatives would not reveal their advertising rates, but ad sales executives at both companies say that a single 30-second on-air spot in a major city costs roughly $200, while a digital spot, which can reach 30,000 to 100,000 listeners, runs $500 to $1,000. "We can get supertargeted," says an Entercom rep in Denver. "If you're looking for moms in [nearby] Aurora or Lakewood, I can pull those estimates and target those areas.”

"These are not $100, $200, $300 orders -- these are meaningful advertisers," adds Entercom’s Crowley. “Streaming is hyper-targeted, location-based, in many ways local, and looks and smells and feels like radio.”

Entercom CEO David Field predicts an eventual end to the disconnect between Nielsen data that shows the national radio audience has grown from 255 million in 2009 to over 272 million in 2018 and more downcast reports that ad revenue is declining. Referring to Entercom and iHeart, he says, “Now that there are two companies with the scale to be able to meet customer needs across all the larger markets in the U.S., we are well positioned to see potentially significant growth in ad spending.”

Borrell Associates, which revised its projections upward from July to August, predicts that year-to-year digital advertising for local radio stations will peak at 27% in 2020, then slide to 14% in 2023, where it will be a $1.9 billion business, over $300 million more than its initial calculations. CEO Borrell says the numbers were updated because print is declining more rapidly than he expected in terms of digital sales, prompting advertisers to fall back to radio. Second, digital investments by companies such as iHeart and Townsquare are paying off. “After years of talk about flatlining, they’re really tackling digital and serving advertisers better,” he says. “With all the hiring and investment and excitement, we anticipate they’ll do even better.”

Despite the positive news, Borrell adds, "I’m still skeptical. I don’t know if radio will grow digital revenue as fast as they’ll lose [broadcast advertising]. We’ll have to see what happens.” He also contends there's a flaw in radio’s digital investment. “They are not using a business-model strategy that makes digital independent,” he says. “They are all still radio operations with some digital stuff attached, which means they are tethered to the rise and fall of radio advertising.”

Borrell suggests radio companies will have to do more to make up for the shortfall, such as acquiring or launching companies “that don’t look like or have the same business model as radio and can provide significant depth in digital media advertising and marketing capabilities.” Asked for an example, he cites the online employment site CareerBuilder, which was launched as a competitor to Monster.com in 1995 as a joint venture of newspaper publishing and TV station operators Tribune Media, The McClatchy Company and Tegna. CareerBuilder is a digital operation but was not tied to the TV or newspaper business, and the three founders carved up a $475 million payday when Apollo Global Management bought a majority stake in the company in 2017.

“Radio won’t see significant, sustained growth in digital until it invests in something similar,” says Borrell. “I’d love to see radio companies investing their capital and savvy in something that tackles this huge wave of digital video we’re seeing. That’s much, much larger than anything happening in audio. They could compete with TV -- and why not?”

Not every radio analyst sees the same cliff ahead for broadcast companies. “Sometimes people think too negatively about the radio industry,” says Mark Fratrik, chief economist at media and advertising consulting firm BIA. “It’s obviously still important in providing local news and information, weather, traffic, etc., that people rely upon. It still has a place even four or five years from now.”

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