Gordon Borrell has issued his latest report benchmarking local media’s digital revenues, and it’s another eye-opener.
Here’s my full conversation with Gordon about this report, the consequences for the radio industry, and what radio can learn from it. Part 1 publishes today, Part 2 tomorrow.
What’s the biggest way this report is different from your previous reports?
I think after 15 years, basically, of doing these reports, you really either see a pattern or you’re stupid. And the pattern is that the gorge between those who get it and those who don’t. We see a gorge widening between the people who really understand what the future looks like and those who are either in denial or just can’t really do anything about it.
What does the percent of overall revenue from digital look like for those who get it and can act on that knowledge?
The average for radio is about 6% of total ad revenue coming from digital. And those who are doing really well, I think, are in the 7%, 8%, 9%, 10% range. This assumes that they’re kicking ass on the broadcast side and maintaining healthy revenue levels there.
Are broadcasters wise to compare themselves against other radio stations, though?
There are so many radio stations that are so accustomed to looking in other radio stations as their competitors, their in-market competitors. The number one competitor is radio. And they’re doing the same in digital. So they’re comparing or benchmarking themselves against other radio stations. The problem is that radio doesn’t traditionally do that well in digital. The ones that are doing well have broadened their horizon to view their competition as digital, newspapers, yellow pages, television stations, etc. So while a radio station does 6% on average with some doing 10%, 11%, 12%, The Washington Post gets 79% of its total ad revenue from digital, 79 freaking percent! Yellow pages companies get 40%, 50%, 60% from digital. Newspapers are at 12%, 17%, 25% overall. So look at the threat-motivated guys if you really, really wanna do well, and don’t just look within the radio industry and say, “I wanna do what other radio folks are doing.”
Here’s the really interesting thing that worries me more about radio than, say, podcasting or Pandora. It’s cable. It’s really clear. Cable has come up very, very quickly in the past year in terms of preference of local advertisers to buy. And one thing that cable customers are taking money from is radio. Cable to the local advertiser is television advertising. They don’t make a distinction between broadcast and cable. It’s locally targeted stuff. And they love that. They can afford it because cable is generally cheap. So my concern is that in these local markets the cable guys know a lot about digital. And that is obviously the nectar that’s helping sell advertising. Having a rep that really, really knows about digital allows them to use their assets to drive traffic to a client’s Facebook page, their website, etc. Cable advertising is just as expensive or just as cheap as radio advertising. You ought to buy it. That’s what’s happening in these larger markets today: The cable guys are pretty darn savvy, maybe more so than the radio reps when it comes to digital.
But if everyone is doing digital and everyone’s getting an infinitesimal slice of these digital services, then where is the competitive advantage in wrapping your core asset around that if it’s not something that you can own uniquely?
First of all, it’s a necessary evil, I think, for radio or for any media company. Let’s say you didn’t make commercials. You didn’t do recording. An advertiser came to you and said, “Oh, yeah, I’d like to do a 30-second spot.” You know what? We don’t record them. You’re gonna have to go find somebody else. So they go and they talk to somebody else, and that somebody else is gonna give them marketing advice, right? And they might also say, “Well, you know, you really don’t need to buy this station. You should buy that station or you should buy some cable advertising or newspaper. We do newspaper ads as well.” So it’s the same thing that’s occurring, all of these little providers.
So, do you really want your advertiser going to someone else to get marketing advice about anything? But particularly their website, their social media page, etc? You know, everybody thinks they know something about marketing, but they don’t. Guess who does in the local market? Local media companies, particularly radio. They’re very promotion-oriented. They’re actually pretty graphically-oriented as well. Certainly, audio, but potentially video-oriented. And all these play very nicely into how a radio station can help an advertiser with what they really want and need, which is social media presence, website presence, things like that. They’re also so focused on all of that stuff that they can put on the web and promote themselves, that the person who comes in the door and in an intelligent way says, “Let me handle that….” They’re gonna make a little bit of money, but they’re also gonna be highly influential in what that advertiser buys next.
What do we do about the problem that the base of digital knowledge in radio brands, radio stations, radio companies isn’t that great?
Train the reps. That’s very clear. There are loads of companies out there. And I believe the RAB has a really good program, a good program, and it’s always getting better in digital certification and training your reps. So that’s a very good place to start. You really wanna know that someone has a very strong digital understanding, a digital education.
What is the difference between the structure of the brands who get it and act on it and the structure of the brands who either don’t get it or get it and don’t act on it?
Well, I think, you need to seriously consider quitting if you get it and your company doesn’t. The future doesn’t look good and you need to just take a look at, you know, where am I gonna be in 5 or 10 years if I stay with this particular company. You have a responsibility, I think, to go pound the table of your boss or your boss’s boss, you know, and say, “Look, we really need to do this. This could fall apart. This is an opportunity.”
Radio is not gonna disappear tomorrow or next week or five years from now, it’s still a fairly strong medium. I don’t think it’s gonna grow again. If it is, say, 1% or 2% growth, well look at the growth of GDP this year, it is shrinking. Radio is shrinking, even if it grows at 1% or 2%. So that’s that’s not a good thing and not a good position to be in.
So many of the leaders in digital are still losing money. What do we take away from that?
Well, if it’s crazy, you don’t quite understand the dynamics of the stock market and the dynamics of investment in the future. Look at the margins we have in radio. Our margin is at 35%, 45% EBITDA. Look at the margins they have in some of these digital companies, Angie’s List, Twitter, Snapchat, etc., We’re better than them, radio says. No, you’re not. You’re not better than them. You just happen to be taking your profits right now. They are reinvesting their money in the future.
Take a look at Facebook. Take a look at Google. Facebook and Google combined put more money into R&D last year, and the entire radio industry made twofold. So I wouldn’t scoff at these digital businesses that are losing some money. Quite a few of them, I think, you’ll see turn around pretty quickly when they decide to begin to take profits or they get acquired by somebody else.
So how do you or folks out there in radio land understand and seize these opportunities? You just follow the money. That’s all there is to it. You can’t make bets on what’s gonna happen next. That’s really, really difficult even for me to do, sitting on top of all this research and this data. Like the blacksmiths of a hundred years ago, they thought their job was shoeing horses and fixing carriages, but what they determined was their job was to serve the transportation needs of their community. So they said, “Well, these are our customers and they need to buy gas, so we’re gonna sell them gas. And they need to have car service, so we’re gonna figure out how to service cars.”
These are your customers. They need help with their social media, so help them with their social media. They need help figuring out what SEO is and how it works, so help them with that. And by the way, you also have some radio advertising. Follow the money. Where they’re spending their money is where you should be putting your investment.#Radio: Follow the money Click To Tweet
That was one of your suggestions. Essentially, get a greater share of customer, right?
Absolutely, yeah. If you get a piece of information that comes to you and you kind of don’t understand or don’t like what it says, you’re conditioned not to spend time with it and jettison it. If something comes through that supports what you believe and what you feel good or safe about, you’re going to believe it to be true. So, whenever someone sends to you a couple of emails, or you see a headline about ad fraud and ad blocking software, you’re gonna forward them to other people because you believe that this is what’s happening. You know, when you see stories about Google and YouTube, you know, advertisers pulling off of YouTube and, you know, not wanting to be around bad content, and the guy from PMG who a couple of years ago said we’re going to pull back our digital expenditures, you’ll start collecting all anecdotal pieces of evidence that support what you really feel. And then, suddenly, your reality, which is not reality at all, is that all this digital stuff is collapsing. You have to be really careful of the…really, be more open-minded about it and think about what’s going on.
I think digital, in a lot of cases is overblown. I think there’s a whole lot of fake news out there, and that fake news, to the advertiser, is that media is feeding them a bill of goods in the audience data. Audience data, whether it’s television or radio or digital, is inflated and it’s fake news. So you have to go in there and be their friend. You have to listen to what they’re buying. Understand, don’t fight them. Don’t try to convince them to do all kinds of different things. Listen to what they want. Turn around and try to sell it to them.
So you’re saying that the advertisers, the agencies are increasingly viewing, listening and viewing data, they’re getting from Nielsen primarily as inflated?
Yes. Here we go. How can media help you assess advertising ROI? Advertisers’ new demand, prove it. The number one thing that they want out of local media is better data and better metrics to prove the ROI of their advertising. Media partners are focused on hitting sales goals and will only present data that supports their products, not what’s truly in the advertiser’s best interest. These people are pissed. I mean, we’re talking about a Donald Trump-like revolution here in the electorate of advertisers. You had better have your reps be truthful and you had better have them ready to sell some type of digital services to advertisers because that’s what they’re wanting, that’s what they believe works.
There was a piece from somebody in Nielsen that ran in Media Village last week and a couple of people forward it to me. And it was all about the impressive reach of radio all the way down to teens. And I thought, “Well, that’s interesting. And let’s suppose that’s 100% accurate, so what? Does that change my spend? Does that change my allocation? Is that an effort to say, bring the money back to the traditional radio station? Are we trying to change the minds of the clients, in other words?”
I think, advertisers are smarter than most people realize. They know when that newspaper rep or that yellow pages rep or that radio rep comes in the door, that rep isn’t gonna say something bad about the newspaper readership or the radio listenership. And they also know that your numbers are gonna be inflated because it’s your incentive to do so. When you get your radio data and your numbers and your listenership, are you gonna go with the lowest number? You’re gonna go with the biggest number you possibly can. The advertisers see through that. So they’re listening with a very healthy dose of skepticism. It’s really incumbent upon the radio rep to be as truthful as they possibly can and say, “Yeah, you know, some of this stuff is working.” How revolutionary would it be for radio rep to go in and say, “Yeah, you might wanna buy some cable advertising.” You know, the newspaper still works. You might wanna do that. Realize the power of that. You truly become a friend that has that advertiser’s best interest at heart.
One final chart happens to be sitting in front of me. It’s reliance on gut versus data from about 2000 local advertisers, happening right now. So they’re relying on gut to buy radio advertising and everything else. And they’re relying on facts, they think, not always true, to buy digital media. So the rep has to really bridge that and understand that phenomenon.
Part 2 publishes tomorrow.