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The Evolution of Radio

1 Feb, 2012 By: Doug McPherson Response

Traditional radio sees its share of change, with new Internet and satellite options that let consumers create their own stations — and advertisers target their markets like never before. That’s music to advertisers’ ears.

The folks at Paul Fredrick, a direct-to-consumer men’s clothier in Pennsylvania, are betting their shirts — literally — that DR radio can add some cash to the company’s bottom line.

Paul Fredrick has a long history of tapping DR in many forms. Soon after the company started in 1951, it used catalogs. Since then, it has used the gamut of DR tools. About 18 months ago, it added Internet radio to the mix via Pandora, the create-your-own-radio-station company.

“We’re constantly searching to expand the ways we introduce potential customers to Paul Fredrick,” says Jason Spangler, a customer acquisition manager at the company. “Radio gave us an opportunity to reach new customers in a different way.”

Spangler says the company tested broadcast radio, but found a “greater level of success” through the streaming platforms such as Pandora. Why? Spangler believes it’s because Pandora delivered specific demographic targets along with visuals for the spot (Pandora and others offer banners that appear on the screen along with the verbal messaging). Add that little recall is needed in the redemption process and Spangler was sold.

“It allows for immediate response,” he says. “With broadcast radio, listeners may be in their cars or somewhere else where they can’t act immediately.”

Tuning in to New Radio

Some believe Internet and satellite radio are custom made for direct response. Count Doug Frankel as one.

Frankel, president of Broadcast Communications Media, a Santa Monica, Calif. media agency that specializes in radio buying, says DR advertisers stand to gain from radio’s cost structure and changing landscape.

“We look at DR radio and its advantage in DR as a low barrier of entry for both production and the actual media test,” Frankel says. “Typical long-form TV infomercials can cost the client significant budget for production and media testing. With SiriusXM boasting more than 20 million paid subscribers and more than 100 specialized channels, and the additional growth of Internet radio, the savvy marketer has many new opportunities to track and target their audience with more specific demographics than ever before.”

Frankel says the listening choices offered by satellite and Internet radio create cost-effective opportunities for a far greater range of DR products and services than ever before. “Testing media on satellite and Internet radio can be done with conservative budgets, and the performance and metrics can be tracked he same as for any other media. At the same time, many terrestrial radio stations and networks have become more price sensitive and flexible on inventory to remain competitive with satellite and Internet radio,” Frankel adds.

Frankel also says that advertisers can take advantage of the big name radio hosts who have flocked Sirius XM. “They can do it by targeting their product advertising to the audience demographics that listen to specific hosts, as well as taking advantage of host endorsement opportunities when the budget and commitment to these channels are made,” he contends.

And host endorsement can mean huge spikes in response, says Steve Pollak, co-creator of RadioActive Media, a DR radio ad firm in Orange, Calif.

“Sirius XM works well for advertisers because it has radio personalities who can pitch products,” Pollak says. “We’ve found implied endorsements with personalities yield 50- to 60-percent higher response rates.”

The Tune of Talk

Not everyone is on board with Internet radio just yet. Gavin Ballas, vice president of business development at Integrated Media Solutions, a direct response media agency with offices in Los Angeles and New York, reminds DR folks that news and talk, not music, have traditionally been the better formats for DR.

Some opportunities are emerging in talk. Sirius XM is one option and Slacker, another personalized Internet radio station, is letting listeners customize ESPN Radio.

Still, Ballas says Pandora has yet to prove the effectiveness of advertising on its custom radio offering. What’s more, he says that for most DR advertisers, Pandora and similar stations will have difficulty attracting much attention with only 15- and 30-second ads, which are typically much less effective for DR.

“If they can prove that audio ads on Pandora can drive as much or more response than over-the-air stations, then of course marketers will shift budget there,” Ballas says. “Right now I don’t think they can deliver results — at least not in large volume.”

Ballas does believe Slacker is on the right track. “If they can convert more talk formats to the customizable format, I think they’ll get good response for DR advertisers,” Ballas says.

Nevertheless, Ballas adds Internet radio stations can be good for DR marketers if they can go beyond age and sex demographics and allow for targeting by listener behavior. “It’d be hard for over-the-air broadcasters to compete with that,” he says.

He shares a scenario of ads targeting particular listening habits. “You could eventually get more predictive on who is likely to respond,” Ballas contends. “For instance, perhaps a listener who hits the thumbs up on a Bob Dylan song and on a Pussycat Dolls song is likely to buy a Snuggie. That kind of predictive model is now common with online display ads and lends itself nicely to more performance-driven advertisers.”

A Fading Signal

With all the benefits satellite and Internet radio have brought to the listener’s table, many wonder if traditional radio’s signal will fade away.

Ray Schilens, CEO of Radio Lounge, a radio advertising firm in Sugar Land, Texas, calls the entry of Pandora and satellite radio “a wake-up call” for terrestrial radio. Schilens says traditional radio has not, and will not, be able to compete unless it gives listeners the ability to respond immediately to an ad.

“Most advertisers want results, not a branding exercise,” he says. “Few stations have figured this out, and most never will because broadcast is full of egos from an antiquated generation. But here’s the catch: New media outlets are in their infancy, and it will take time for each to be on the same playing field as radio.”

Schilens says he does believe Pandora and similar media will continue to grow, and, yes, radio will feel it. But Rick Ducey, chief strategy officer at BIA/Kelsey, a media consulting company Chantilly, Va., says traditional radio hasn’t felt it yet.

Ducey reports that so far, neither Pandora nor satellite radio have diminished the weekly “cume” (the cumulative number of unique listeners) radio audience. “There’s some evidence that Pandora and satellite radio are simply increasing the number of listeners and not cannibalizing (traditional) radio listening,” he says.

Ducey and others believe traditional radio is remaining viable because of its local “feet on the street” appeal that Pandora and satellite radio lacks. “Nothing beats a local, direct sales force to move the needle,” he says.

Pandora says it’s developing a local sales strategy (particularly in larger markets) and analysts see that making it more competitive. Heidi Browning, senior vice president of strategic solutions at Pandora, gave one example of a dentist’s office in Dallas that ran a mobile campaign within a 10-mile radius for three months during fall 2011. The ad earned a click-through-rate of 1.38 percent.

Ducey admits that Pandora is gathering enough of an audience to be interesting. Pandora’s “freemium” model (listeners can get free music supported by about four ads per hour) has attracted “a loyal and growing” base that’s been successful to date, and he adds ad dollars will start flowing toward Pandora-type stations and away from traditional broadcast stations.

“While we see traditional radio ad spending growing by 3.5 percent through 2015, growth in digital spending will be even faster,” Ducey says. “Advertisers love the metrics and analytics supporting ROI analyses that digital provides.”

But Brett Astor, vice president of Strategic Media Inc., a direct response advertising firm in Portland, Maine, says Pandora may end up making traditional radio better. “Yes, Pandora is a competitor, but it’ll make them (traditional radio) work harder to understand what their listeners want and they’ll give it to them.”

Jeff Small, the CEO of Strategic Media, says Pandora is merely another advertising media placement. “It’s more opportunity to reach prospective customers. As an agency we’re assimilating it as another arsenal available for achieving our clients’ customer acquisition goals,” Small says. “Other than that, it’s the new kid on the block — nothing more.”

Tomorrow’s Tune

On the music radio front, the future is here in terms of the consumer having the power. “With digital outlets like Pandora, a listener can basically program their own radio station — select their own music, artists and formats to listen to, just like a radio station,” Frankel contends. 

Beyond music and into talk and other formats, channel selectivity will continue to expand, Frankel says, allowing marketers to find more targeted demographics. “The listener on satellite has so many choices and can now access exclusive on-air talk personalities, sports programs and live games, news channels and more,” he says. “That will only grow.”

Ducey sees all radio continuing to grow. “It has local content and local, direct sales forces. That’s killer,” Ducey says. “If that content and those direct sales forces get deployed by smart radio operators across more than just their traditional radio platform, they’ll hold their own, but also tap into growth engines.”

Still, Ducey says radio still needs to evolve, particularly in the mobile arena. The National Association of Broadcasters (NAB) is working feverishly to ensure HD radio is available on smartphones and other mobile devices.

“That effort is critical for distribution. The smartphone goes out the door with each of us every morning along with our keys and wallets and purses,” Ducey says. “As a personal medium, radio needs to tie its fortune to personal technology — the smartphone.”

Ballas believes over-the-air broadcasters will figure out how to better integrate customization into their formats, and that once the radio industry gets through its most recent round of consolidations, he says all eyes will turn to integrating online features into over-the-air-radio.

Astor says radio’s future as a medium for acquiring new customers remains bright. Whether radio will be delivered over airwaves or the Internet or satellite is an unknown though.

“In the end, it doesn’t matter,” Astor says. “The fundamental approaches from the marketer’s perspective that lead to profit via direct response radio are the same: hire DR radio experts you can partner with; make great ads; buy the right media at the right price; track; optimize; improve; and repeat.”

About the Author: Doug McPherson

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