October 18, 2011
When Katz decided to launch its own digital arm in May of 2008, Brian Benedik was chosen from one of Katz's terrestrial rep firms to lead the unit. Previously, Benedik worked on the local side at Clear Channel/New York and was GSM at Z100. Yet he took the challenge of overseeing Katz 360 as an opportunity to build a pure growth industry. Here's his take on how Katz is faring in the brave new digital world.
Would it be fair to say that Katz 360 division has hit the ground running in growing online ad sales?
For us, we started literally at zero three years ago, so our growth with both resources and revenue has been steep. We launched Katz 360 at a time when the marketplace enabled Katz to enjoy a quick build. We've been able to take advantage of the growth in the online space in general because we did it at a point that was a few years into the evolution of the medium.
Has it been difficult convincing the analog radio advertisers to start a significant online ad buy?
The short answer is that it was tough selling online audio in the beginning, but it's become easier as the channel has evolved and audiences have grown
The long answer is that it depends on the advertiser. We serve a few different customers including the radio advertisers and pure digital groups. The radio advertisers are now buying radio plus buying strategic online -- it's the audio medium reaching consumers via radio on desktops, laptops and smartphones. It's been fun to watch. We still have work to do, but online advertising within radio budgets is much more commonplace than it used to be.
Are agencies still carving online ad money out of their existing ad budgets, or are they actually setting up separate online advertising budgets above and beyond what's devoted to analog radio advertising?
It's both. Sometimes large radio advertisers will cannibalize a small portion of their terrestrial budget when trying online audio for the first time. We certainly try to avoid it. We have found that the general response from online audio is high, so in the following year, the clients will come back with allocated incremental budgets completely outside of traditional radio. In those cases, we've got two budgets to work from. That's the best-case scenario.
What percentage of total radio advertising will be generated on the digital/online side?
The online audio revenue is growing a bit slower than the entire online ad space. Clearly, over the next three to five years, we're going to see quick growth of the online audio marketplace, but terrestrial radio dollars are going to be infinitely higher. Total Online Ad revenue will finish 2011 with $30 billion in ad revenue -- half of that is in search, a quarter to 30% in display, and the remaining 20-25% split between video, e-mail, classified and audio. Because audio and video are fairly new, the new online advertisers are lagging behind mature ones in search and display, as more consumers migrate from analog audio consumption to IP consumption.
It's going to be an interesting time as consumers spend more time on more smartphones and tablets, listening to favorite web stations. If more ears and eyeballs go in that direction from terrestrial, we'll see online audio grow more quickly, even though terrestrial can continue to slowly grow. Both can grow together if we do a good job of establishing our positions in the audio marketplace
How important is it to offer different creative from online advertising compared to analog advertising?
We recommend that national advertisers differentiate their online and analog creative advertising. But when you say creative, there's audio creative with companion banner launches, as well as video inventory. In a lot of cases, you need fresh creative for video with most media players. When you launch Pandora, Slacker or iHeartradio.com, you'll typically see a video unit launch for 15 seconds before you get to the audio content.
We're finding more and more longtime radio advertisers using online as a side supplement, which is giving us more video to use, where the creative pieces are more complicated. But there's no question that creative needs to be customized. Still, many advertisers just re-purpose their offline audio ads. We'll do it but it's not maximizing the available potential of the channel.
Do you need special talents sell online inventory?
We've found that the background of a salesperson does matter. We look for people who have experience selling in other online companies, such as Yahoo and Google, and the folks on their digital teams. They know how to speak the language, how online audiences are targeted and various ways to fulfill a campaign. You can't just take a terrestrial salesperson of 15 years and expect him or her to go into digital agency and do good business. In fact, you could be setting them up to fail if you're not giving them experience with digital agencies.
We know this isn't brain surgery and it doesn't mean people haven't crossed over from analog radio sales to online sales. But a lot of people who do it have to understand the benefits that the online community provides. We already know that online advertising offers a big benefit of being more trackable and much more measurable, but you've got to have a sales team who can take that info and make it work for their clients.
Does it come down to improving click-through rate to achieve better results?
No. In fact, I also work with the Internet Advertising Bureau as part of its Leadership Council and we've spent a lot of time on this. The web hasn't done a great job of attracting brand advertisers. A lot of big brand money has yet to come into the online world in a big way. The reason for that is that I don't think the online community has been that brand friendly; they've been much more friendly to direct-response clients.
The IAB is working hard to create a better environment for advertisers. The key for us is offering more brand-friendly creative; that will bring more brand money online. It's a challenge, but as time goes on we expect the money to move away from click-through and more creative that features a better brand environment. The IAB is creating a system where there's one set of standards to measure the effectiveness of ads for online brand advertisers.
So how do Katz 360 and other digital sellers attract the big brands?
At Katz, we have the benefit of being involved in both our Radio and TV divisions, where we're already working with a number of large companies with branding ads. We have a lot of access and experience, and we're getting great feedback. These clients are solely interested in brand advertising and not direct-response, so basing a campaign on click-throughs does not interest them.
We want to make sure that however the audience sees or hears our ads, whether it's a video display or any other online entity, it is brand friendly. We know exactly what sites our ads will be running on and know how their effectiveness will be measured.
For the most part, the web has done a really good job with direct-response ads. If we can get brand advertisers on board by making it a friendlier environment for them -- and that's happening as we speak -- everyone will benefit from the online ad space. It's a $30 billion industry, which has grown exponentially over the last five years. And we feel it has the potential to be a lot bigger.
While you expect the audience to grow, how are the efforts in identify the online audience demographically?
The issue of collecting demo data is a pretty acute one right now. Ideally, if you're a webcaster such as Slacker, Pandora, Spotify or terrestrial broadcasters that stream, such as CBS radio.com or Clear Channel's iHeartradio.com, you want to try to collect registration data from the people who go online. If you have a social media sign-on, you're essentially handing over Facebook data. iHeartradio is getting pretty rich information. Pandora has been leader in this. If you open up an account with Pandora, you have to give them three items -- birth date, zip code and gender. Of course, they assume you're giving them accurate information, but that registration info is a big reason why Pandora has been successful out of the gate.
More companies are figuring out how to aggregate data into psychographics. The whole idea of social information is that it can take your interested targets to a whole new place. With added scale by registering into Facebook and other social products, you get to be a lot smarter and can relay that to advertisers. The goal is to offer a target such as "35-year-old males who live on the West Coast and are interested in buying car."
Even at this point, are there still analog broadcasters who have reservations about adding a digital platform?
While I think dollars in online ad space will certainly grow, I'm not sure analog radio faces a threat of losing significant money to digital in the near term. It will take years for digital audio to come even close to terrestrial audio in terms of audience and revenue.
Even now, some radio broadcasters are hesitant about investing in a digital infrastructure -- and I can certainly understand where they're coming from. Digital is not cheap and you have to invest in both technology and staff to create a viable product on the sales side. It's a pretty heavy investment. But if you're truly watching your audience -- and more and more of them are migrating from analog to IP -- can you afford not to? It's not an easy answer by any means. It's tough to invest in a business and know you're not going to make money for a couple of years ... yet you know the direction of where business is going.
Can you foresee a time when the 360 will become the dominant revenue-generator at Katz?
Naturally, I'm pretty bullish on this unit, but if you go back to its earliest days, Katz started by selling ads for the newspaper industry. It migrated to radio, then TV, and then added cable in '80s and '90s. Now we're busy in the advent of online. Katz has always focused on the consumer throughout the changing technologies. That's why we have such a good relationship with big national advertisers -- not only in radio and TV, but a growing number in the online community as well. It's been fun collaborating with my other division heads in Radio and TV. And we're certain the digital unit will continue to grow.
It's certainly a good time to be involved in online audio advertising, what with the "land grab" going on with Pandora, Facebook, Spotify and others.
That's a good observation; it is like a land grab. There's been more activity in the last six months than we've had in the last six years. Just take a step back and look at what has happened this year: Pandora goes public, as does LinkedIn ... iHeartradio is rebranded with a big event in Las Vegas ... CBS's move with Radio.com ... Spotify launches in U.S. ... and Facebook becomes an all-media hub. A lot of moves are being made by investors, and advertisers and agencies are looking harder at all of this. After a few years, this online audio space is finally getting together. There's no question that there's been a land grab and I think we'll continue to see a lot more moves being made.
But are you concerned that this could be a Tech Bubble 2.0?
Not really and here's why: You look at ad spending -- at a time when 30% of the consumers' media time is spent online, only 14% of ad dollars are spent chasing that audience. From the advertiser and publisher standpoint, there's still a lot of room to grow. The inequity between the amount of time spent online and ad dollars will gradually close.
In terms of valuations of some of these companies, I believe that investors are a lot smarter than they were 10 years ago. The first bubble is still in the back of their minds. There's always a threat or a chance we'll have a mini-bubble, but with some of the work being done by a lot of companies that have investors who got burned 10 years ago, I find it hard to believe it will happen again. They realize there's still a lot of room to grow in online, chasing more consumers.