Radio has not had a good six months. The medium's poor fourth-quarter advertising performance has continued into 2005, and its market share has been overtaken by the booming online sector. All this has caused media observers to ask whether radio has lost its gloss.
Analysts will scrutinise next month's release of trading statements from the big radio groups for answers to this question. The last trading updates, covering revenues in the fourth quarter of 2004, were gloomy. Chrysalis, GWR and Capital Radio all reported year-on-year advertising declines of 3%-4%. The national radio market was especially challenging, with leading national station Classic FM reporting a 7% fall.
Preliminary figures for the first quarter of 2005 from Nielsen Media Research indicate that these steep declines have plateaued, yet radio is still underperforming against most other media.
January was down on 2004 by 0.3%, February was marginally up by 0.1%, while March, up 9.4%, was artificially boosted by the lucrative Easter holiday period, which fell early this year. Without the Easter benefit, radio would likely have been reporting flat results in a first quarter in which TV enjoyed a 14% gain.
The jury is out on whether its recent performance represents a blip in the fortunes of radio; the start of, at best, a bottoming-out in the sector's growth; or at worst, medium-term decline.
The consensus is that radio has lost the sexy image it gained with the trebling of its take of the advertising cake between 1993 and 2000. Much of this can be attributed to the rebirth of the internet as the new growth medium. TV is also prospering at radio's expense, as diminishing concerns over TV inflation have prompted advertisers to shift spend back out of radio into TV.
Radio's self-harm
Some blame for underperformance is laid at the door of radio owners who, it is said, have become too internally focused, concentrating on growth through ownership consolidation and failing to stimulate organic growth through the selling of the medium.
It is a charge that is accepted even by media owners. 'Radio has got into a bit of a pickle,' admits Julian Carter, group sales director of GMG Radio. 'It lacks the visual identity of TV, press and outdoor, so it has to be sold harder to advertisers. Consolidation has seen the industry take its eye off the ball; we have become more reactive in our selling.'
Furthermore, public spats between Rajar and Wireless Group chief executive Kelvin MacKenzie over audience measurement have done radio's image no good. Some media buyers believe the rows, highlighting the inadequacies of the current system, have damaged advertisers' confidence. And it only needs a shift in the perceptions of radio by a few big advertisers to make a significant impact on trading performance. Procter & Gamble, Unilever and the COI have all pulled radio campaigns recently.
Another inhibiting factor, according to media buyers, is the deficiencies in its trading system. Soft market conditions have created a short-term marketplace, with some bookings being placed the day before going to air.
Matt Blackborn, executive buying director at Starcom Mediavest, says that this short-termism, combined with the fact that radio does not manage its advertising inventory as well as other media, can lead to stations turning away advertising in the belief that they are sold out when they are not.
Limited flexibility
Furthermore, says Blackborn, most radio stations are operating at their maximum level of advertising minutage. To increase the level risks turning off listeners. The only way they can grow revenue is by increasing listening figures, and the sector has failed to achieve this in recent Rajar periods.
'Since they can't put prices up on the back of audience growth, it limits their flexibility in offering good-value deals to new advertisers,' says Blackborn.
While accepting the need to initiate change, radio owners point the finger at media agencies, alleging that the merger of TV and radio buying teams at a number of agencies has resulted in radio being downgraded in importance.
It is difficult to forecast how radio will perform over the short term due to the prevailing volatility in its market. Media buyers say the second quarter does not look good, but that goes for most sectors - TV is expected to be down 3%-4%.
In the longer term, radio's prospects are brighter. The introduction of electronic meter audience measurement in 2007 should boost confidence, and will enable the calibration of listening through digital stations on platforms other than radio. Carter believes this new media area presents radio with a big opportunity for advertising growth.
Another boost comes in the form of recently announced alliances between the Radio Advertising Bureau and the trade bodies for outdoor and the internet to promote the advertising multi-plier effect of radio when used in conjunction with other media.
More than anything, radio needs to become sexy again. The hiring of presenters such as Jamie Theakston, backed by big marketing campaigns, can help in this. But the future of radio hangs on its transition from an 'invisible' medium into interactive multiplatform entertainment for the digital age.