Google rides the radio waves

If you're trying to catch on in radio, Motown is probably a good place to start.

Google-powered ads, which have become a mainstay on Web sites, are now being played on at least one radio station in Detroit. And like so many other Motor City radio products, it won't be long before they go global. Google Chief Executive Eric Schmidt said in a conference call with analysts last week that the search giant plans to make its radio-ad business generally available within three months.

"We are in the process of introducing AdSense for radio, which is essentially the integration of the DMarc console and management tools into our advertising system. There are a number of very interesting deals being negotiated," Schmidt said. It's a typically ambitious effort for Google, which got into the radio business in January with its $102 million acquisition of DMarc Broadcasting, a company that had an automated radio advertising system.

"It gives advertisers enormous capabilities at the touch of a finger, capabilities that have never existed before for advertisers."

--John Fullam
Greater Media Philadelphia

If Google radio ads actually catch on, they could have significant implications for the way radio ads are sold. That could be a good thing for an industry that saw April revenues, for example, drop 5 percent from a year ago, according to the Radio Advertising Bureau trade association.

"I think DMarc has an opportunity for us to connect with advertisers we don't normally interact with," said John Fullam, vice president and market manager for Greater Media Philadelphia who said this week that Google ads were already being tested on Greater Media radio stations in Detroit. "It's big for radio."

So why the excitement? DMarc automates the process of buying ads, placing them in time slots and tracking them, which is usually done by ad agencies over the phone, experts said. Automation could lead to efficiency, and that means lower prices for advertisers while bringing in more sales for the radio stations.

The Google-DMarc system would be a big change from the current ad-buying system, where ad salespeople establish personal relationships with radio stations, Fullam said. Advertisers could better quantify how well an ad campaign is doing and modify the ads quickly depending on the response rate from listeners, he said.

"It gives advertisers enormous capabilities at the touch of a finger, capabilities that have never existed before for advertisers," Fullam said. "Creating a whole new advertising base and delivering more measurable results is extremely encouraging for advertisers and radio."

Mixed results
More than half of the advertisers DMarc has talked to have never been called on by a radio rep, he said. "That's untapped potential," Fullam added. In addition, Google's DMarc can help radio stations sell ads for airtime that would otherwise go wasted, known as unsold or "remnant" inventory.

Of course, there's no guarantee Google's radio project will take off. Indeed, skeptics say Google's print advertising project has so far had mixed results and, for all its interesting ideas, the Silicon Valley company is still almost entirely dependent on online advertising. While that's not much of a problem right now--revenue in Google's most recent quarter was $2.5 billion, nearly double what it was a year ago--it's clear the search company's executives are looking long and hard for ways to diversify the way the money comes in.

There are questions about the value Google will be able to provide to more-sophisticated advertisers as opposed to what they get with traditional ad buyers, said Maribeth Papuga, senior vice president of local broadcast for media services firm MediaVest.

"Why it raised so many eyebrows when the deal first came down is the fact that it opens the door to people thinking that radio ads would become a commodity; you put a bid in and get a buy," she said. "Most advertisers work through brokers, and (Google's automated system is) not the form most agency buyers would follow because it doesn't give you any choice to determine the real value of the media buy."

For example, advertisers may not be able to really pinpoint ads to run when a specific disc jockey is on the air, she said. "How do you know you are getting the lowest rate, the best mix or most efficient mix of stations? There's nothing to compare it to."

"It's disruptive, and that's what will keep it from really getting off the ground in the short term."

--David Bank
RBC Capital Markets

But Google's system is addressing concerns about discounted inventory, according to Greater Media Philadelphia's Fullam. "What's neat about this is the radio stations get to preview the creative copy and we pre-approve all rates before they get aired," he said. "Radio stations and Google will explore on a case-by-case basis which opportunities make sense."

Google contacted Greater Media a month or so ago and the two have since signed a one-year, nonexclusive contract, he said. Greater Media should be running ads by Google within the next 60 days, he added. Greater Media has 19 radio stations in its network, but Fullam said he did not know how many would be running Google ads.

David Bank, media analyst at RBC Capital Markets, predicted that resistance to change on the part of established ad agencies and some radio stations themselves will slow adoption of the automated system Google is offering. The new "transparent" buying system threatens to displace ad agencies, while radio stations are not likely to sell off their best ad time slots, he said.

"It's disruptive, and that's what will keep it from really getting off the ground in the short term," Bank said. "It runs counter to 75 years of industry practice. If you (radio stations) sell some of your inventory online, you are kind of competing with yourself. That probably won't make your sales force real happy."

Over time, however, the efficiency of Google's platform will win over the industry, he said. "The fact that it is more electronically based gives advertisers more comfort that they are getting what they are buying," he said. Ad agencies and stations "are still faxing invoices to each other and typing up affidavits."

"Will it be more successful than print? Who knows?" said Derek Brown, an analyst at Pacific Growth Equities. "Out of the gate, I would say expectations are extremely low."

But Google's strong sales and margins give it the luxury of being able to experiment, he said.

Bob Struble, chief executive of iBiquity, which created HD Radio technology, welcomed Google's move, calling it "fabulous" for the industry.

"It's a blending of old media and new media, and it's a validation that radio is still a vibrant medium," Struble said. "If you pair that with some of the new technology approaches of what Google has done with online ads, it makes a ton of sense."