• by Frank Saxe , October 25, 2002

It is a law almost as old as supply and demand: sellers charge too much for what buyers need. In this case it would be radio charges too much for advertising. Throughout the consolidation of the radio industry in the late 1990’s, many buyers worried that bulked-up groups would bully higher rates from advertisers. That fear has largely proven to be only a nightmare, not reality. Indications are emerging, however, that radio groups are now tightening their inventories to put additional pressure on the rates they charge advertisers.

“We’ve been holding back our spotloads, and that’s really helping drive up the rates,” Emmis Communications SVP Judy Ellis revealed at the Kagan Radio Summit in New York this week. In some cases, says Ellis, those rates are up as much as 20% over what advertisers were charged in 2001.

Clear Channel regional vice president Andy Rosen, who oversees five stations in the New York market, said they are using a similar tact. “We’ve been very strict on the number of units that we run and adhere to those spot levels.” The result, says Rosen, has been rate increases as high as 17%. The New York radio market is up 8% so far this year, through September, and Rosen says the fourth quarter could post revenue increases of 26%.

Although no one could ever accuse radio groups of collusion, since images of battling stations is not far from most people’s memories, the competitive reality is that when one station cuts its spotload it’s competitors must follow suit or face listener defection. Programmers hate how commercials sound on their stations, and bean counters like the idea of higher rates – particularly at publicly traded companies. The result, says Regent Communications CEO Terry Jacobs, is across the board spotload reductions and rate hikes. “For the first time in a long time we have the ability to raise prices. When competition is more rationale, it makes life much easier for everybody.” Except, of course, the advertiser footing the bill.

“We always encounter advertiser resistance when we try to raise rates,” says Ellis. Those complaints, however, don’t seem to make much difference. Adds Ellis, “The markets are stronger, and so the rates are naturally going up.”

There is a certain irony to the situation. Advertisers have been complaining about the commercial clutter on radio for years, most notably during the dot com ad blitz in 1999 and 2000. Ellis admits as much. “We were a little out of control in the dot com era, and now we’re in a format [battle] which is keeping spot levels low – and that is raising the rates.”

Drew Horowitz, who oversees Bonneville International’s radio stations in Chicago, questions whether radio groups are actually cutting spotloads to push rates higher. “Companies will tend to add spots if demand in the marketplace will allow them to.” In other words, Horowitz says advertisers themselves are driving rates. “Rates are directly related to demand. If you’re seeing stabilization [in the number of spots], it’s because the demand isn’t there.” Yet most radio executives insist they are airing fewer spots, typically 10 to 12 minutes an hour, in part to increase the rates charged to advertisers, and in part to address complaints by advertiser.

“They’re pushing it.” That is the assessment of OMD USA managing director Natalie Swed Stone, explaining that clutter remains a concern at her agency. “We’re concerned because of what it does to the listener. I think clutter is what has helped drive away youth, even with some compelling programming. If I know there’s 3 minutes [of spots], I know I can go away and come back – and that’s not helping the advertiser.” Mediaedge:cia director of radio Kim Vasey points out stations are also not counting the increasingly prominent number of ten second spots in its tally. They too add to the clutter, she says.

Longtime network radio executive David Kantor believes the issue is not how many units an hour there are, it is how they are lumped together by programmers. “Even though there’s only 12 minutes in an hour, they’re run all at once, which makes the commercial pod seem longer than they actually are.”

Across the board, radio has been attempting to move the needle on its share of the advertising pie. It has been stuck in the single digits for decades, and the consolidated radio groups are on a mission to take a larger share of ad dollars away from other media. Newspaper is the number one target, said Emmis CEO Jeff Smulyan. He points to figures that show radio has shaved 5% off the daily’s revenue numbers in recent years. “That has been the fuel for the great growth for this industry.”

The hometown daily has been natural prey for radio, since 80% of all dollars made in radio comes from the local marketplace. As newspapers have seen their circulation figures fall and their readerships gray, radio has attempted to move-in on its advertisers. Its level of success is mixed, and Triad Broadcasting CEO David Benjamin said radio should not count out print just yet. “I’m envious – even with all their troubles, they’ve still be able to raise rates.”