PORTLAND, ORE. — Following a review of current trends related to out-of-home advertising, esteemed media industry financial analyst Brian Wieser, who recently launched his own Madison & Wall advisory shop, decided to take a look at the Radio — “or more accurately ‘audio’,” he notes – advertising sector.
What he found wasn’t so bright. But there is sunshine ahead, he suggests, if Radio did more to look beyond advertising for revenue growth.
“Audio advertising used to be significantly more important than it now is, at least as a business,” Wieser said in a new investor note.
Noting that the U.S. is “by far the biggest market for radio, given its history focused on commercial rather than publicly-supported radio,” Wieser notes that radio ad dollars peaked 20 years ago — in the early 2000s.
Back then, he notes, the medium generated more than $20 billion in revenue and would have accounted for a peak of more than 10% of all advertising, “and significantly more if we only looked at locally-skewed advertisers.”
Fast-forward to today, and Wieser finds that audio advertising in all of its forms accounts for around $16 billion, or around 5% of domestic advertising.
Wieser then examined current growth trends as seen during Q1 2023, focusing his attention on iHeartMedia, Audacy Inc. and Cumulus Media. The three-biggest radio broadcasting companies account for around 40% of the sector. And, as RBR+TVBR has noted in its coverage of quarterly earnings reports and Q2 2023 pacings for radio broadcasting companies, total ad revenues including digital properties (digital audio, podcasts, etc.) are falling — by around 6.1% on a pro forma basis excluding M&A and political advertising, Wieser finds.
This, he notes, followed 3.3% growth for all of 2022, with the positive outcome primarily driven by the rapid growth observed across the industry during last year’s first quarter.
BOUNCY ROAD FOR RADIO
What, then, does Wieser have to say about the U.S. radio business when looking at the Big Three? “If I appropriately weight this group of radio station owners and add the other two large pure-play sellers of audio inventory, SiriusXM (which also owns Pandora) and Spotify, with an assumption around Spotify’s U.S. revenue skew, I calculate a 4.9% decline for all audio advertising during the first quarter of 2023 following on a 4.0% gain during 2022,” Wieser concludes.
Presumably, he adds, the numbers “would look a little bit better if the podcast divisions of companies not primarily focused on audio (such Amazon) were added, but not by much, as those businesses are small in absolute terms.”
While it’s possible that difficult comparables are a factor, unlike TV and digital media, which also faced similar challenges in the first quarter of 2023, Wieser concludes that audio advertising has yet to exceed pre-pandemic levels on a full-year basis.
What’s Wieser’s reaction to this fact? “The absence of a complete recovery for audio advertising is significant, if unsurprising to me.”
For a sense of where the business is versus its pre-pandemic peak, Wieser estimates that on a pro forma basis, iHeartMedia, Audacy and Cumulus were 8% smaller in 2022 relative to 2019; the overall audio advertising sector including Spotify and SiriusXM was around 3% smaller in 2022 versus 2019.
Interestingly, the U.S. radio industry is performing better than in key international markets, based on Wieser’s assessments. In Canada, radio division growth for Corus was seen in their most recent quarter. But, Wieser says, “its revenue base was approximately 28% lower during calendar 2022 relative to calendar 2019 levels.” Indeed, Corus has had numerous challenges, including the demise of Classic Rocker Q107 in Calgary, now simulcasting News/Talk “QR77” — a move the CRTC flagged as possibly improper.
In Australia, Southern Cross Austereo’s advertising revenues were 12% smaller in 2022 than they were in 2019.
Does this mean the U.S. radio market is healthier than international radio markets, and that growth is on the way? Sadly, Wieser does not predict this. “I am doubtful that U.S. audio advertising will ever exceed its pre-pandemic levels,” he concludes. “Ongoing decline seems more likely, despite operating as part of a broader advertising industry that should return to mid-single digit growth trajectory beyond this year.”
‘A MYRIAD OF POSITIVE ATTRIBUTES’
While Wieser says that statement “can be true,” there is a dim chance it will be proven to be incorrect, even as Wieser takes note of “a myriad of positive attributes for audio.”
First, Wieser points out, Radio has “superior levels of reach versus other media, accounts for significant volumes of time spent and should benefit from research that can show the medium to be highly effective and efficient.”
Nevertheless, Wieser argues that “none of this matters as much as the factors which I think are responsible for the medium’s relative decline over the past couple of decades.” He points to national advertisers electing “media which are consistently available across a given country,” and the rise of programmatic self-service advertising solutions.
Importantly, while Wieser’s assessment is rather glum for Radio, he offers one big disclaimer: “none of this means the owners of legacy audio businesses are necessarily pre-disposed to decline in total.”
In particular, Wieser shares, “As historical owners of radio continue to invest in their digital platforms, they are evolving their businesses to better match advertisers’ increasingly national skew. That will help to offset some of the decline of the traditional business.”
Next, he says, “most of those same owners will continue to find ways to demonstrate the cost-effectiveness of traditional radio to larger advertisers, which will probably help to overcome some of the structural limitations described above, and that will likely contribute some incremental revenue as well.”
Then, there is Wieser’s assessment that another source of growth may come as owners of audio properties scale up additional services for the marketers they can super-serve. He points out that this already occurs to a modest degree as with local promotions or events that radio owners develop.
Lastly, Wieser believes the development of other consumer-centric and consumer-paid services may provide another pathway to growth, “especially as there is so much demand for two of the main types of content traditional radio historically provided.”
He says, “Spotify, Amazon, Apple and Google have each demonstrated that consumers are willing to pay for access to music services. Publishers such as the New York Times, News Corp. and others continue to demonstrate that there is a willingness to pay for news content, too.”
Wieser concludes with a look back to his own experience in community radio in the 1990s. He says, “It showed me that audio can be a vibrant medium, even when it’s not much of a business, if only because content doesn’t need to be expensively produced to be highly desired by an audience. Regardless of the state of the business in years ahead, audio platforms will still retain much of their importance as a result.”
