Originally Posted On Apr 26, 2008 6:00 PM ET  
Digital Buzz
  
By Paul Heine
Radio & Records

After years of trying to pull itself by the bootstraps out of the digital Dark Age, radio’s Internet investments are beginning to pay off. Overshadowed in the RAB’s 2007 radio revenue report, buried beneath the news of a 2% total decline, was a silver lining for the battered industry: double-digit growth in off-air revenue. In fact, off-air—which reflects all radio sales activity apart from on-air spots and is driven largely by digital applications—has eclipsed network radio in annual billings. Formerly known as nonspot revenue, off-air shot up 10% to $1.68 billion in 2007 from $1.52 billion in 2006. Network revenue, meanwhile, inched slightly from $1.1 billion to $1.2 billion.

It gets better: Last month, off-air jumped 18% year over year for the largest monthly increase since the RAB began tracking nonspot revenue.

Though it accounts for just 7% of the total $21.3 billion spent on radio in 2007, off-air is the only segment significantly growing, according to the RAB’s Miller Kaplan-generated numbers. Paralleling that progress is a concurrent upswing in online traffic. Radio Web site visitors aged 18+ increased by 12% nationally from 2006 to 2007, according to an analysis conducted for R&R by the Media Audit of the 89 markets it surveys. All demos saw increases, except adults 75+.

Now the not-so-good news: While trending up, radio owns a minuscule portion of the exploding local online ad market—just 1.1% of the $8.5 billion spent last year, according to Borrell Associates, a research and consulting firm that tracks local Internet advertising. The fastest-growing segment in the interactive ad market, local online, is forecast to grow by 48% to $12.6 billion in 2008.

Despite its progress, Borrell Associates CEO Gordon Borrell characterizes radio’s online sales efforts as “miserable” and contends that the industry has failed to grasp the magnitude of the Internet’s potential. “They’re severely underperforming their peers” in the TV, cable and newspaper industries, he says. “It surprises me because radio salespeople really know how to sell, and the newspaper and TV guys have been recruiting radio salespeople like crazy to help sell Internet advertising for them.”

Pure-play Internet companies, such as Yahoo and Google, carved out the largest chunk of local online ad revenue last year—43.7%, according to Borrell’s 2008 Outlook: Local Online Advertising report. It was the first time out-of-town Internet companies pulled ahead of all locally based traditional media. Local newspapers were second with 33.4%, followed by directories (10.1%), broadcast TV (9.3%), other print (1.4%), radio (1.1%) and magazines (1.0%).

In another first, the Internet’s share of total U.S. advertising expenditures leap-frogged past radio in 2007, according to data that TNS Media Intelligence released in March. As marketers continue to shift ad dollars online, the Web’s share grew to 7.6% from 6.6% in 2006, while radio slipped to 7.2% from 7.5%.

The single biggest factor preventing radio from grabbing a larger piece of the online pie is its reliance on existing sales forces to upsell current radio advertisers, Borrell says. “They’re not adding Internet-only sales staff. They think they can do it with their existing broadcast reps and they can’t.”

Apart from a handful of exceptions, most notably Clear Channel, Cox Radio and Emmis Communications, radio broadcasters think too small when it comes to the Net, Borrell insists. “This is a sophisticated form of advertising. Radio stations for the most part are just piddling around, thinking they can put up a Web site, put some interesting content on it, promote it and sell banners. They’ll make a little bit of money, but they’re going to leave a huge opportunity on the table.”

Copyright © 2008 The Nielsen Company. All rights reserved.