• by August 2, 2006

Everyone knows that radio has had a tough time lately, with year-to-date sales generally flat vs. 2005. Radio stocks are taking a beating, and everyone from satellite to iPod is going after their listeners.

Google announced last week that it would finally leverage its purchase of radio ad automation system provider dMarc and begin offering "remnant" ads on selected broadcast radio outlets. Does this signal an influx of new advertisers, money and a potential turnaround for radio? Or is this another step toward the media commoditization that radio, newspapers and television are fighting tooth and nail?

For radio stations looking to thrive in uncertain times, maximizing the price and selling out every ad unit is critical. On the surface, the Google + dMarc solution seems to be just what radio needs to make this happen.

But, Google's mantra to create efficient markets by cutting out the middle-man and driving prices down may have a long-term negative effect on radio: creating a more downscale environment that eschews brand value in favor of commodity and chases away premium advertisers. In other words, the cure for the short- term pain may end up dooming the long-term business.

An analogy that comes to mind is, oddly enough, the New York City subway system. When I first moved to Manhattan ten years ago, the trains were filled with ads for hair replacement (and removal), shady legal services and city-sponsored PSA campaigns. Not a single national brand in sight--and who would blame them. Why would Apple ever want to be next to an ad for Dr. Zizmor's Apricot Acid Facial Peel? (Same food group, yes, but different customer base).

The local folksy ads were generally one-shot deals, and the Metropolitan Transit Authority decided there was much more money in a well managed sales strategy that attracted premium, long-term advertisers. So, they got serious, hired an agency, and today most of the trains are filled with brands ranging from Budweiser to NBC.

The MTA discovered that until it could guarantee that a certain amount of subway car space would be blocked out for the bigger brands, and they would be the sole owners of the space, the big guys wouldn't jump. National advertisers just did not feel comfortable with the Dr. Zs of the world (who, by the way, was later suspended and fined by the state). Could radio end up putting itself in the same situation? Judging from the slow pick-up of the Google/dMarc solution by top-tier stations in the biggest markets, it looks like some radio groups are contemplating just that scenario. Running a series of one-shot, bottom-feeder ads, may create an environment that no national advertiser wants to be part of--unless it is paying bottom-feeder rates as well. This could create a rate "death spiral" from which even the best stations couldn't extract themselves.

There could be a lesson for Google, and for local radio, however, in the MTA example. The MTA still blocks out certain train cars for the few small advertisers that remain, keeping them clear from muddying a national brand. This is a concept radio gets. By clustering non-premium, "auction" advertisers in certain non-premium dayparts, there may be a room for both to live together in harmony. But this could leave Google as a small niche player--which is definitely not what it wants to be.

Google has made it quite clear that it wants to revolutionize offline media the same way it has online, not be a remnant player. So far, its efforts to do so have been one of its few real disappointments. A similar venture with magazines earlier this year failed to gain traction, and its potshot last summer at the TV broadcasting biz got a cold shoulder from the networks.

What doesn't seem to have sunk in with the boys in Mountain View is that it's a lot easier to dominate a new industry with only 10 years of history than ones with deep personal legacies, relationships on both sides of the aisle (salesmen and agencies), and an ingrained infrastructure of people that need to keep paying their kids' tuition bills. If Google thinks that these people and the businesses around them will go down without a fight, they may be in for a surprise. Every revolution has its price--and both sides will end up paying.

When the easy money knocks on the door, broadcasters should be cautious as to whom they let in--or risk commoditizing their business beyond the point of saving.