Google encounters hurdles in selling radio ads
There is growing speculation that Google is finding it harder than expected to muscle its way into the radio business.
Now, there are indications that Google Audio, as the company's foray into radio advertising is known, has hit some snags. The two brothers who founded dMarc in 2002 have left Google amid growing speculation by analysts and radio and advertising executives that the Internet giant is finding it harder than expected to muscle its way into the radio business.
Industry insiders cite everything from culture clashes to resistance in the radio industry, which relies heavily on sales representatives, to automate its advertising systems. But the hurdle mentioned most often is Google's apparent inability to secure enough air time, or inventory, to make its system attractive to advertisers.
"At a high level, dMarc and Google are both trying to move mountains and reshape traditional media," said Jordan Rohan, an Internet analyst with RBC Capital Markets. "That's not easy to do. If Google Audio were to be successful, it needs to have prime-time and drive-time inventory in major markets."
Google, which began testing radio ads late last year, confirmed the departure of Chad and Ryan Steelberg, the dMarc founders, which was first reported on Thursday by paidContent.org, an industry blog. In a statement, the company said it was happy with the progress of the tests to date and remained committed to the audio business.
And during a conference call with analysts last week, Jonathan Rosenberg, senior vice president for product management at Google, said the radio test was "pretty robust in terms of scope."
"I believe we had over 700 radio stations in more than 200 metros in the network," Rosenberg said, according to a transcript of the call published by Thomson Financial.
But radio analysts said that they were not impressed by the numbers themselves, stressing that Google's access to air time may be limited, by and large, to what the industry calls "remnant inventory"--ad time sold at the last minute and at low prices.
Many analysts say that Google has been trying to sign a large inventory deal with CBS Radio, whose network of 147 radio stations is among the largest in the country, but that negotiations have taken longer than expected and no deal has been announced yet.
A spokeswoman for CBS Radio declined to comment. Ryan Steelberg did not respond to an e-mail message and phone calls seeking comment, and Chad Steelberg could not be reached for comment.
Google's success in radio is important, in part, because the company's lofty valuation is partly based on investors' expectations that it will be able to expand beyond its core Internet advertising business to media like radio, newspapers and even television.
Success is important for the Steelbergs, too. Google paid $102 million in cash for dMarc, and agreed to pay as much as $1.14 billion over three years, depending on how well the company meets certain performance targets.
Google's relationship with one radio network suggests that speculation about its inventory problems is accurate and that the company faces challenging negotiations with others besides CBS.
During a conference call with analysts last month, Rick Cummings, president of Emmis Radio, described the airtime it had made available to Google as "remnant inventory." Emmis owns 23 stations in major markets and was one of the first radio networks to work with dMarc.
"The Google folks have expressed an interest in doing more business with us and in some prime inventory," said Cummings, according to a transcript of the call. "We've said we're happy to discuss it so long as the money is there and the price is right. That remains to be seen. That's really up to them."
Analysts say they expect Google will eventually find a way to make deeper inroads into radio.
"I would assume that someone in the industry will eventually sell Google some inventory," said Jonathan Jacoby, a broadcasting analyst with Banc of America Securities. In a note to investors, however, Jacoby said it was possible that "the management disruption at dMarc could slow the march toward online radio selling."