February 9, 2015
One-third of the $104 billion spent on local advertising last year was sold by online companies. That’s according to Borrell Associates data which shows that when the web advertising sold by radio and other local media is factored-in, digital’s share is far greater. "Traditional media controls half of all digital advertising," firm president Gordon Borrell says. "So it still controls about three-quarters of all local advertising because they’re selling quite a bit of digital in the marketplace." The digital evolution means some ad formats have cooled while others have become must-buys. Spending on targeted banner ads has doubled, for instance. "If you’re running run-of-site banners, people don’t care anymore, they want them targeted," Borrell says. His firm projects digital video spending will jump 50% this year. At the same time paid search is fading with marketers forecast to cut spending 5.7% on the format this year. Email marketing is also said to be cooling while digital audio remains a tough sell. "In all the surveys of small and medium size businesses we’ve done, we haven’t seen anybody asking for streaming audio advertising — it’s just not big to them," Borrell says. Overall, Borrell projects local advertising spending will increase 5.8% to $110 billion in 2015. "There is a slight rise, but it’s not bouncing back to where it should be," he says, pointing out that’s still below 2005 levels. "Classic advertising [growth] has flattened," Borrell says. "Advertisers are spending a lot more on promotions, which is marketing, but it’s not classic advertising." Spending data shows local promotional budgets overtook local ad budgets in 2007, following a similar milestone in national advertising recorded two years before that. These trends and the future of local media will be the focus of Borrell’s Local Online Advertising Conference, March 2-3 in New York. Inside Radio readers can save $100 on their registration fee by using the promo code "Inside100."
How’s Business? First quarter is off to a slow start. The polar vortex of 2014 hasn’t returned, but the chill in first quarter ad sales appears to have blown in again. Several radio group heads say they’ve seen an unexpectedly slow pace of activity across local markets in all four corners of the country. Forward pacing data can be unreliable, particularly in the lighter revenue months of first quarter. But the amount of money put on the books in January fell short of a year ago. "It’s scary," one group head says. The data seen by Inside Radio suggests industry revenue is pacing mid-single digits behind 2014. NRG Media COO Chuck DuCoty, who says his company shook off a slow January and has seen business improve in February and March, says one factor for last month’s softness may have been the calendar. Most sales reps didn’t begin hitting the street until January 5 because of how the New Year’s holiday landed, cutting nearly a week from the month’s sales effort.
Radio has traditionally served as an early-warning system for what’s happening in the economy since it’s a lot easier to buy or cancel a radio spot than a multi-million dollar television campaign. And while Friday brought an encouraging jobs report from the government, retail sales numbers have been softer than expected — even with falling gas prices. Radio remains at the whim of consumer sentiment. "Advertisers are not going to spend a lot of money to start new campaigns unless they think they can get sales from it," BIA/Kelsey chief economist Mark Fratrik says. "So, local markets have seen less than spectacular growth." The U.S. may have the strongest economy in the world at the moment but the economic recovery is still not at the level that America had become accustomed to.
What's exacerbating things for radio is that the slower ad market comes at a time of bigger change. It’s why Fratrik thinks when one market sees a pullback in business, it’s no longer isolated to one geographic region of the country. "You can say that the economy is in the doldrums, but underlying that tepid growth there is all this additional competition for listeners and advertisers — and that hits every market equally," he says. Fratrik says there are still some optimistic signals for radio, such as how strong sales have been in the automotive sector, which traditionally is among the industry’s biggest advertisers. BIA/ Kelsey forecasts radio revenue will grow 2% in 2015.
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