Biggie Advertiser Anheuser-Busch Cuts Back Its US Radio Advertising In Favor Of TV – Just What ‘Overlooked’ Radio Doesn’t Need Right Now

Philip Stone July 10, 2008

Much has been made of the trend by major advertisers to tweak their advertising spend away from traditional media to the Internet, but it came as a bit of a shock recently when Zenith Optimedia forecast that globally the Internet advertising spend will surpass radio this year.

In the US the National Association of Broadcasters, Radio Advertising Bureau and HD Digital Radio Alliance have launched Radio 2020, to reinvigorate radio. The NAB release told the bleak picture rather clearly. ““Our research shows that 92 percent of Americans believe radio is important in their daily lives. But while it is valued, radio is also taken for granted. Because it is so pervasive, radio is sometimes overlooked, just like water or electricity.”

Be that as it may, when a major radio advertiser like Anheuser-Busch (A-B) lets it be known it is transferring some of its  radio spend to TV and billboards, then that’s not the supporting message the NAB campaign exactly had in mind.

A-B spends about 8% of its measured media outlay on radio –around $38 million – and major radio groups out there rely heavily on that business, and it is generally recognized that  A-B is one of radio’s top 10 advertisers.

TNS Media Intelligence says  that in Q1, A-B reduced its radio spend by about 11.5% -- some $600,000. With A-B  headquarters in St. Louis the media there obviously covers the company closely,  and the Post-Dispatch reported, “The company says local radio is a valuable medium, despite audience erosion due to satellite radio. But A-B is trimming local radio spending to store up cash for national television later in the year.”

The newspaper says that overall A-B is boosting its media spending by 15% this year with its TV spend up approximately 70% this summer from a year ago.

Advertising Age reported the shift is hitting hard at such groups as Clear Channel and Emmis. It quoted a Clear Channel executive saying Clear Channel took heavy cancellations from the “draconian move”, and it quoted an executive for Emmis  Communications’ two Chicago stations as saying A-B has cut all its remaining spot buys for this year although other promotional activities continue.

Radio advertising and listenership in the US is down, according to Arbitron. Radio reaches about 93% of Americans each week with listeners tuning in an average of about 18.5 hours, but 10 years ago they listened to  22 hours a week. Radio advertising, including radio Internet sites was down 1.9% last year  from the year before, a drop of $400 million from $21.7 billion to $21.3 billion. 

So why should advertisers spend on radio when there are increasing digital options? A good explanation comes from the web site of KONP Radio in Port Angeles, Washington. “Almost 80% of all adults listen to radio every day, week in and week out. Radio delivers high affordable frequency and repetition. Repetition builds awareness and awareness is a key component in gaining and holding market share. Less than 50% of all adults read a newspaper  five days a week. On average, they spend less than one hour per day with the paper.

“Demands on customer's time make it almost impossible to read from cover to cover every day, creating a very selective reader...Light television viewers spend over twice as much time listening to radio as they do watching television. Weekly, radio reaches almost 90% of all light newspaper and magazine readers. Radio reaches people who do not make extensive use of other media.”

So that’s the pitch, but A-B seems to be saying that TV and outdoors can do that job even better. And it continues to spend big dollars getting its name splashed at sporting venues. It just signed a deal said to be worth $8 million a year to be a major sponsor at the new  $1.7 billion stadium in New Jersey that will be the future home to the National Football League's New York Giants and New York Jets. And it has extended its marketing relationship with The Chicago Cubs baseball team through 2013.

When talking about the troubles of traditional media most attention has focused on newspapers, but radio has also taken its hits on Wall Street. Radio always seems to get hit hardest during recessionary times, and $4 a gallon gas  is not helping. Take the case of Salem Communications in California, owner of close to 100 stations across the US. Its debt at the end of Q1 was $338.4 million – among the top five of all broadcasters --  but net income was only $5 million. In June it was kicked out of the Russell 3000 index – mutual funds like to buy shares listed in that index – and thus  its shares have fallen to around $1.60; a year ago the shares were at $12.07 so that’s an 87% drop in just 12 months -- quite a comedown for a group that is the fourth largest station owner in the top 25 markets. 

Evan Masyr, the company’s chief financial officer, put it simply, “Radio performs poorly in recessionary times.” But since recessionary times seem to be here to stay for a while what happens to radio?

And then take a look at the share price of a major group such as Emmis  Communications. Emmis is a powerhouse in US radio and owns stations in the top three national markets - Los Angeles, New York and Chicago plus in St. Louis, Indianapolis, Terre Haute, Indiana  and Austin. Texas. It says it owns the two most influential hip hop stations in the world - Power 106 in Los Angeles and HOT 97 in New York -- and America's most influential alternative rock station - Q101 in Chicago.  It also is doing very well in Europe with stations in Hungary, Belgium, Slovakia, Hungary and Bulgaria.  But for all of that its shares closed Thursday at $1.74 – a huge 13% decline – on a wider-than-expected first-quarter loss due to lower expected revenue.  These days there is just no mercy if a media company puts out disappointing earnings.

Standard & Poors Ratings last week raised its outlook for Emmis from negative to stable, citing the broadcaster's increased margin of financial covenant compliance, but it still noted the company’s high debt and that the company is exposed to economic downturns because of its concentration in a few markets. Last quarter it reported net revenues rose 7% to $85.8 million, but that still resulted in an operating loss of $13 million

Like newspapers, most radio stations are still very profitable in the US, it’s just they are not as profitable as they once were. And if other advertisers follow Anheuser-Busch and start diverting more of their radio spend elsewhere then it will be even tougher times ahead in radio land.