'Benchmarking Local Online Media' Finds Healthy Profits
Radio's Online Revenue Up 22% In 2012
April 11, 2013 at 4:09 AM (PT)
Who’s winning the race to snare the largest share in locally spent online advertising? In a new report, BORRELL AND ASSOCIATES writes, "In some markets, Internet pureplay companies. In others, local newspapers. In a scattering of others, aggressive TV stations."
"Benchmarking Local Online Media: 2012 Revenue Survey" examines interviews with online managers, studies survey results from thousands of local online operations, and plots revenue and expense data on charts and scatter grams in a quest to find patterns.
* Profits are healthy. The average EBITDA margin for local digital operations that are leveraged out of traditional media companies is 49%. Driving the figure is the fact that the vast majority aren’t charging for rent, advertising and content -- things that are already paid for by the host company. Even for pureplay companies that are taking the hit for those charges, reported margins are a respectable 20% to 30%.
* The unthinkable is happening. Millions suddenly started paying monthly fees for access to local news content. (Remember the saying, "Information wants to be free?") Millions began paying to access yellow pages listings with reviews. (You read that right -- millions are paying to access directory listings.) One website made more than $120 million off a "free classifieds" strategy last year.
"Local businesses are significantly upping the ante for online media," writes BORRELL. "Overall spending increased 20% in 2012 and is forecast to jump 31% this year. That’s causing hundreds of media companies -- even the pureplays -- to rush to newest-new things: selling marketing services and charging for content. The biggest untold story is the tidy profit that many are amassing, particularly for traditional media companies. If current trends persist, digital ventures could be contributing half of company profits to these media companies in five years. As this story unfolds, it’s likely to begin propelling these digital ventures into a new era where they move from incubation works to become full-fledged stand-alone business entities."
Radio stations grew their online ad revenues 22% last year, outpacing the 20% growth in spending on local online advertising.
Some stations saw little to no growth, while others enjoyed gains of 50% or more. Overall, radio sellers closed $370.7 million in local online advertising last year. BORRELL notes, "Based on our survey in JANUARY of local GMs and GSMs at 1,070 stations, we’re forecasting growth of 14% this year. However, that won’t be enough to keep up with the predicted market pacing of 30.8% growth.
Radio gained share last year, from 1.8% of all locally spent online advertising to 2.0%. Stations tend to sell website banners, e-mail advertising and streaming audio. Those three formats are responsible for 80% of all of the radio industry’s local online sales. One noticeable difference that the report found between radio and its competitors is the sale of targeted banner advertising. Radio gets only 7% of its sales from targeted banners, while the average for everyone selling digital advertising is 33%. With the migration away from run-of-site or untargeted banner advertising -- and toward banners that are served based on a user’s demographics or psychographics -- this could mean trouble for radio’s online sales.
BORRELL found streaming audio advertising accounted for 20% of all online advertising for radio stations last year, unchanged from 2011. Though data was sparse (only about one-tenth of stations chose to report audio-streaming revenues), it appeared that clusters in smaller markets generated in the high tens of thousands of dollars while those in larger markets generated audio-streaming revenue in the low hundreds of thousands. For those stations reporting, it accounted for 36% of station revenues. The average radio station made $137,033 in online advertising last year. The average cluster of stations made $595,863. Both figures are up about 33% from 2011. Wide disparity exists among stations when it comes to how much online revenue they make. About 3% of the stations in BORRELL's database continue to report no Internet revenues at all.
The report found the average radio cluster received about half a percent of all locally spent Internet advertising. Put differently, it did not get 99.5% of what was spent. Averages for TV stations tend to be in the 2% to 5% range, and for newspapers in the 7% to 15% range. There were eight station clusters with more than 3% share. All but one of them had revenue of between $100,000 and $820,000. There is a trend toward smaller-market clusters attaining greater share.