Is Radio Advertising Worth It?
by Alex Cosper

After all these years, who in radio will admit that most listeners do not listen to commercials? Commercials are the bread and butter of radio revenue. Selling air time to advertisers translates into thousands of dollars per package, which adds up to big money in major markets. It is not uncommon for radio stations in Los Angeles to bill in the multi-millions per year. But small market radio stations are not as profitable. Since the lifeblood of radio dollars comes from advertisers, questions arise as to whether spending money on radio is the best way to reach a mass audience.

Radio advertising seems attractive because of radio's high "cume" (cumulative audience that listens to a station over the period of a week). The Arbitron ratings released every quarter affect advertising rates, especially rates set by advertising agencies, who use a calculation based on cost per point, which is the price to reach one percent of the market. In the 2000s industry studies showed that radio listenership has been steadily declining and losing listeners to various forms of new media including satellite radio and the iPod. Even Emmis CEO Jeff Smulyan warned in trade publications in early 2006 that one of radio's biggest challenges would be the iPod.

Cume numbers seem to have driven sales over the years. That's because they are always big numbers, at least in the thousands in most cases. Advertisers want to hear big number because they are targeting the masses. But one has to ask the most important question, that internet advertising has already embraced: how many impressions are made from each ad? In other words, how many people experienced the ad? If you are picking stations based on cume, you are automatically basing the campaign on inflated numbers. Even if a top ten market station has a cume of 400,000 listeners per week, that doesn't mean that all of those people will hear the advertisement. In fact, there is no way of telling at all, just from the cume, how many people the spot will reach.

A station with a weekly cume of 400,000 may only have 25,000 listeners at any given time throughout the day. The best number Arbitron gives that reflects the average number of people listening at a given time is "average quarter hour persons." This number still does not tell the advertiser how many people listen at a given time. It's an average based on estimates of over three months ago, not current information. Ratings tend to fluctuate from quarter to quarter. So the advertiser never really knows how many people will hear the spot at any given time.

One may guage radio's impact by buying air time that promotes a public event that features the radio station's personalities. Car dealerships have done a lot advertising with radio personalities who give out prizes at a heavily-promoted sale. Sometimes it takes a week of on-air announcements to create a scene for the event. One thing is for sure, though: one announcement on the radio usually does not pull a significant crowd, unless there is something very special about the announcement. For example, when a radio station is the first to announce that tickets will go on sale in one hour for a show that's sure to sell out, then it's possible to see a big turnout, even though many will get the news from other sources besides the radio.

Radio companies benefitted greatly from the dotcom boom of the early 2000s. That's because a lot of new internet companies emerged that had budgets for radio. It was believed at that point that all one needed to build a quick new market was spend a lot of money on traditional media advertising, which included radio. So radio began to air lots of dotcom commercials until the money went dry and the dotcoms did not see any return on their advertising investments. Then came the "dot com bust" which led to many once well-funded companies going out of business. Then radio's profit margin began to suffer.

What has always seemed to work in radio is advertising that fits the theme of the format. For example, music formats such as rock and top 40 seem to be great vehicles for reaching the concert market. Concert advertising usually features song clips of the artist coming to town, which blends in well with the overall music format. Anything relating to pop culture has a chance of holding the attention of the pop culture consumer. Talk formats become better advertising vehicles for a wider scope of products, as the commercials blend well with talk.

It has also always been true that radio is most affective as part of a media buying package. Exclusively advertising on radio may not yield the best results, but radio combined with print and television creates a very strong marketing campaign. Now, of course, internet advertising must be considered as viable. In fact, the internet has the potential to be much more powerful than any other medium for advertising, because the internet has tools to target specific consumers. That's why a website with 10,000 users may be more valuable to advertisers than a radio station with 400,000 listeners, in which most change the station when a commercial comes on.

In today's marketing jungle, one has to wonder where radio fits in. One cannot discount the fact that any given radio station in the bigger markets reaches thousands of people. But are these thousands of people sitting through the songs waiting to hear commercials? This concept has become so puzzling to the bigger companies, that Clear Channel has come up with five second ads called "adlets" that name the sponsor and are played between songs. Could this be the next generation of radio advertising?

Apparently big radio companies program and promote their stations on the concept of cume. This is the number they sell to advertisers. Radio is selling air time to the client, but in order to do so, the station has to sell the audience to the client, or so the client imagines. The station does this with Arbitron numbers, which again are estimates on what may have happened in the past.

What an advertiser really needs is a radio station, not necessarily with a high cume, but high Time Spent Listening, also known in Arbitron terminology as TSL. The higher the TSL, the more loyal the audience is to the station, and the more likely a good number of listeners will even listen through commercials. These are the stations that are well-programmed by talented programmers who understand music flow and how information moves like a train. We are seeing less and less of these stations, as the big companies seem to want to power the cume theory of big audiences who constantly tune out. Some formats, especially niche adult formats like Album Adult Alternative and Smooth Jazz maintain high TSL in which people listen all day at work and at home. It all comes down to how the station is programmed.

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