SCBA issues Q2 guidance report


scbaThe Southern California Broadcasters Association (SCBA) has published its SCBA Quarterly Market Guidance Report for clients, advertising agencies, and its Radio member stations. It’s a comprehensive look into Southern California Radio listenership trends, key advertising category trends, economic trends, competitive analysis, industry trends, research highlights, and SCBA recommendations for Q2 Radio advertising strategies.

“The dynamic Radio advertising environment for Southern California really demanded its own impartial report that looks ahead into each quarter to help clients and agencies gain a full understanding of the region,” said SCBA President Thom Callahan. “As the nation’s number one Radio revenue market, the need for substantive Radio information to help guide the market was imperative. Our SCBA goal is to offer solid market intelligence for our clients and agencies as they plan and execute their Radio advertising strategies and to be an invaluable partner in their future planning and thinking.”

As a service to both clients and advertising agencies who are investing in Southern California Radio advertising, or considering it, the following quarterly market guidance report provides critical insight into the regional economy by highlighting Radio trends, category business trends, and up to the minute market intel from member stations’ management. The report looks primarily at the upcoming second quarter of 2014 and how it may impact Radio and its advertising clients over the next 90 day period.

The Southern California Economy

We begin the 2014 second quarter report with a look at the region’s economy which is always a critical factor in advertising decisions. For additional information about the Southern California economy, we have included a link to the full February 2014 report from the Los Angeles Economic Development Corporation.

  • Additionally, the state Employment Development Department reports the LA county jobless rate dipped to 8.9% for the first time in nearly six years as of March 14, 2014. The report takes into account seasonal hiring or temporary employment which ended in January 2014 and the reporting of home health care workers to the job rolls. As the regional trend towards more employment remains positive, the biggest gains have come in professional and business services, up by 27,000 jobs and health care/social assistance, up by 19,000 jobs. The one negative number in the report is from the entertainment industry which shed 6,000 jobs in January as the sector continues to deal with out of state production issues.
  • A FilmLA study reports that California now ranks fourth in the nation in feature film production. Of the 108 feature films looked at for the study, only 15 were made in our state. The Mayor of Los Angeles has introduced new tax incentives to bolster production in the LA region with initial results of those efforts to be announced in June.
  • Traffic at the port of Los Angeles declined by 8.9% in February compared to the same month last year. The main reason for the decline was an earlier Chinese New Year holiday. The port predicts continued growth going forward as China is the LA port’s largest exporting and importing client.
  • Overall, the region is experiencing steady job growth which is a good indicator for the nation since California remains the most populated state, and if it were a country, the region would now be ranked as the 8th largest economy in the world, based on its GDP.
  • Based on an improving jobs environment, personal income increases since January, a healthy if sometimes bumpy housing market, and the dynamic nature of Southern California, we remain confident that 2014 will be a strong recovering year for our region.

Southern California Radio Industry Conditions:

According to Nielsen Audio, total Radio listenership for Persons 12+, Monday-Sunday from 6:00AM-12:00 Midnight continues to rise for Southern California Radio stations each week. This comes despite considerable competition from a variety of audio sources. Comparing January 2013 to January 2014, the Nielsen data reveals a medium that is growing.

January 2013 cume was 10,317,400. In January 2014, total cume had risen to 10,495,500, which represented a 1.7% growth rate for Los Angeles. For Riverside/San Bernardino, total cume rose from 1,817,300 to 1,839,200 which represented a growth rate of 1.2%. And the largest cume growth came from San Diego going from a cume of 2,459,700 to 2,507,800 which represented a 2.0% growth surge.

According to Miller Kaplan Arase, LLC, total market revenue for reporting LA Radio stations grew by 1.0% for 2013 vs 2012. However, by factoring out 2012 political advertising, the market really grew by 4.4%. The January 2014 total market growth rate for LA Radio was 1.7% on a YTD basis. We started 2014 in positive territory and we expect a Q1 growth rate of at least 2%.

Another positive sign of solid economic health for Southern California Radio in 2014 is that has accepted 41 job postings to our web site from member stations. These are full time career positions in sales, programming, engineering, web development, and administration. Southern California Radio is hiring again. Additionally, the SCBA spring 2014 Radio Sales Training Classes are a complete sell-out and now we have been asked to develop classes for those wanting to break into the Radio broadcast business for on air and production training and development.

Publicly traded Radio stocks are advancing rapidly as of mid-March 2014 with almost all Radio stocks up 6-8% in value in March trading. Investor confidence in the Radio sector has not been this strong since 2007, which was Radio’s biggest revenue year.

Radio Market Conditions:

As anyone stuck in LA traffic knows, the region has some of the worst traffic conditions anywhere so it comes as no surprise that InRix’s annual Traffic Scorecard confirms what many Angelenos already knew; Los Angeles has the worst traffic in the nation. Drivers each year spend an extra 64 hours behind the wheel due to traffic. Of course, that is what makes Radio so strong in our region- a captive audience every day of the week!

The SCBA follows a number of key advertisers and their industries and supplements local radio management input to offer the following overview of the region’s advertiser categories and how it may affect your advertising decisions regarding Radio and its digital platforms. We offer this overview as a reminder that events and client strategies can change quickly, thus impacting commercial inventory as well as event and sponsorship availability at many of our member stations. All of this category data is public information. We share it within this report for our clients’ advertising, planning, and strategy purposes.

We begin with the automotive category, Radio’s largest advertiser. With 25 new models being introduced by foreign and domestic manufacturers in or around Q2, a looming factory incentive cashback war, and the introduction of lower MSRPs for older models, the auto and automotive aftermarket should be record-breaking for Radio in Q2. Additionally, the recent GM crisis over its massive recall will prompt a significant PR ad campaign, most likely to hit in Q2, according to Ad Age. Moreover, Automotive News reports that Hi performance Hybrids, Almost Autonomous Cars, and Diesel powered cars will all gain in popularity in Q2 and beyond.

  • Manufacturers are racing to build diesel powered engines as we write this report based on industry trending that now predicts that 50% of all cars sold in the USA by 2020 will be diesel.
  • Ford Motor Co. is betting heavily on its number one selling truck in America. The F-150 is about to re-launch with an all-aluminum body, the first of its kind in the auto industry. The implications for both dealers who must retrofit their service bays, as well as to Ford who must market a truck without a steel frame, will increase Ford’s ad spending considerably in late Q2 for an August launch.

Additional key category growth so far in 2014 has been impressive and market conditions indicate this trend will continue into Q2.

Here is a brief overview of key categories and their trends to watch:

  • Communications and Cellular Radio advertising is expected to grow by 23% in Q2 based on pacing and up front activity. The trend towards no long-term contracts and bundled services will get hotter among all the leading cell phone suppliers as summer approaches.
  • Education and Continuing Education has grown by 61% YTD. We see that trend continuing as summer sessions are now as in demand as fall to spring classes. MBA fast track programs and certain vocational training schools will also become year round in attendance.
  • Insurance, including car, home and health categories have skyrocketed for Radio in 2013 and we view 2014 as even stronger as health plans and car insurance will continue to use Radio for market and brand awareness. We see this category jumping to 152% in Q2.
  • The Entertainment category for movies/concerts/theatre will remain strong in Q2. We view the entertainment category as robust into Q2 and Q3 with a growth rate of 55%.
  • An already strong Sporting Goods category will only accelerate as spring arrives in Southern California. The region’s 72% growth rate from January 2014 will continue as more people are outdoors and enjoying a variety of sporting activities. We project further consolidation of this sector with the announced sale of Sports Chalet.
  • Lawn and Garden had a big growth year in Radio and we expect that to grow by at least 40% in Q2 of 2014. The spring months are the prime time for this category and with the improving new housing starts and the overall health of the economy, we view Lawn and Garden as a significant Q2 advertiser for Southern California Radio.

Another category that looms large for Q2 in Radio is the Supermarket Grocery business. The recent blockbuster announcement of Albertsons buying Safeway for 9 billion dollars is the game changer for this category. The merger would create a company with 2,400 stores, 27 distribution facilities, and 20 manufacturing plants in the U.S. This huge purchase will help both companies fend off any attacks from big box stores and/or future online food delivery retailers. We see this category growing as new names such as Whole Foods discover Radio in Q2. Additionally, the online grocery store will continue to grow in major cities such as Los Angeles in 2014.

Political advertising in Southern California will be substantial in 2014 with all congressional seats up for grabs and many incumbents not returning to Congress. The primary season for all these seats begins in April and concludes on June 3, the heart of Q2. Borrell and Associates projects all political spending to break down as 58% to TV, 8% to Radio, and 7% to Newspapers.

We see political spending for our region returning to 2012 levels of approximately 20 million dollars.

This projection will put pressure on valuable Radio commercial inventory in a critical time of year. Radio groups such as Radio One have already hired a director of political sales to develop candidate and issue money as well as coordinate state efforts where Radio One has properties. We expect other groups to follow this strategy as will the national rep firms.

SCBA Recommendation: Political advertising will come quickly in Q2 so we urge advertisers to book Q2 schedules as soon as possible to avoid sell-out. Please remember that political advertisers cannot be moved or bumped under any circumstances per the FCC.

The New Business Category:

The biggest factor facing Q2 for Radio will be new business or new advertisers that have not used Radio before. This category alone represented $39.1 million in 2013 among 545 new advertisers. In January 2014 alone, Radio produced $7.4 million in new business among 297 advertisers. If that trend continues into Q2, Radio will have increased the new business category alone by 50%. This segment is somewhat unpredictable in nature but judging by the fast start in January, inventory will get tight quickly.

SCBA Recommendation: New business development is a large part of Radio sales today and is somewhat difficult to predict and control, simply because it is new. We urge advertisers to consider new business as a large part of our stations’ daily inventory in Q2 and again, try to work with your stations in advance when booking schedules.

The QSR category remains one of the most competitive and heated battles for market share in Radio today and we view the critical Q2 months leading into summer as bigger than ever with market share challenges for most leading brands as the public’s appetite for healthier choices continues to grow. We see increasing amounts of new menu items being introduced and thus advertising these new offerings and growing awareness of healthier options will be critical to market share in Q2 and all of 2014.

This report would not be impartial if we did not include advertiser categories that have shown erosion for Radio as well. Most of the following categories are experiencing disruptive changes in their respective industries and business models that is not a reflection of their Radio advertising usage and/or belief in the effectiveness of Radio.

The Television/Cable category has been hit hard by recent cable and TV transmission fee arguments, creating confusion for the viewer and public mistrust. With the meteoric rise of Netflix as the alternative to prime time viewing (now with 33 million paid subscribers), the rapid increase of DVR usage (which is up to 36% in Southern California), and a number of web based alternative viewing options to TV and Cable, this category for Radio is not expected to improve in 2014.

Other troubling factors for the TV/Cable category include the rise of Aereo, an upstart company that is streaming TV network programs using TV antennas to transmit via the web, eroding TV viewership trends, and causing Wells Fargo analysts to downgrade the entire sector of TV stocks. Citing the “regulatory environment worsening in the near term,” a tightening of joint sales agreements, and the fact that local market TV stations should not band together to negotiate re-trans fees with cable and other operators, the market turned TV stocks downward. An example of the decline is Sinclair (SBGI) whose TV stock slumped 8% in trading so far in March. It was trading at $36 a share in January and is now at $24.42 as of 3/19/14.

With Aereo winning two key court decisions regarding their Internet transmission of current TV network programming at the protests of the 4 major TV networks, we are not optimistic this category will be spending more ad dollars in 2014. The complaint will now be heard by the Supreme Court in May.

Department Stores as a category has been hit hard by store closings from Sears, JC Penney and others around the country as the public shifts its buying patterns and shopping habits for clothing and other accessories to smaller retailers and online shopping. We do not see this category growing for Radio in 2014.

Competitive Analysis

As stated earlier, Radio listenership continues to grow in Southern California despite numerous audio competitors that did not exist just a few years ago. Our industry welcomes competition as comparisons to Radio are usually in our medium’s best interest. The more effective and viable advertising options that advertisers have, the more effective each ad campaign becomes. Stating that, here are some trends worth noting among Radio’s competitors.

The Pure play industry just got a lot more competition for itself as Samsung introduced a free streaming “Radio” service, somewhat similar to Pandora. Calling itself “Milk Music,” the South Korean gadget maker launched the new service on March 7 with 200 “stations” and 13 million songs. The Motley Fool Investment newsletter of Mach 16 reports that Google is in talks with record labels and plans to bundle the coming pure play service into its highly popular Amazon Prime delivery and streaming video service. Amazon is a fierce competitor in any market it enters, but their primary interest is in supporting and enhancing their Prime delivery service.

According to Edison Research, Pandora maintains its lead in the crowded and unpredictable Audio streaming space. The report shows the % of Americans aged 12+ who listened to the following services in the past month. (February 2014)

Pandora – 31%, iHeart Radio, 9%, iTunes Radio, 8%, Spotify, 6%, Google Play All Access, 3%, Rhapsody, 2%, Slacker, 2%, TuneIn Radio, 2%,. We find it impressive that after only 6 months in existence, that iTunes Radio is already in 3rd place.

The pure play sector likes to call itself Radio, yet they are only a music streaming service with none of Radio’s innate qualities, features, or informational value points such as news, traffic, weather, sports updates, DJ humor, entertainment elements, and all the additional programming elements they are not that Radio is today.

Other News from this crowded sector:

  • Spotify has landed a $200 million dollar line of credit from Goldman Sachs, Morgan Stanley, and Deutsche bank. This is to fund their continued operations and possibly prepare them for an IPO in the fall of 2014.
  • With 5 straight months of eroding listenership, Pandora has stopped reporting its monthly listener results. This comes on the heels of another drop in their stock and concerns about their long term viability as the company continues to lower it guidance to investors and a more crowded pure play space to deal with which now includes Samsung and Google. Despite all its hype, the Pandora stock can’t get above $34.00 a share, which it has been trading at for over 4 months.
  • Radio Digital Platforms:

As we approach the second quarter of 2014, Radio is fully engaged in both on air and digital solutions for its clients. With an ever mobile consumer, Radio and its digital systems remain the only medium that can reach your customers at any time and in any place. While the Radio industry posted an 18% gain in digital spending by its clients in 2013, Southern California Radio once again leads the nation with a 22% growth rate.

From mobile apps, to streaming audio, to geo-targeting, to email blasts to an exclusive and involved audience, to a rapid social media following, Radio offers a gateway to a direct and intimate relationship with your brand, your business, and our listeners. Radio’s digital platforms can enhance, supplement, and complement your media and digital strategies.

The SCBA Quarterly Market Guidance Report provides market and business trends as well as regional info from sources including The Los Angeles Economic Development Corporation, The state Department of Employment, The Regional Business Journals, Miller Kaplan Arase X-Ray data reports and market summary reports, Motley Fool Investment Newsletter, Inside Radio, Nielsen Audio, The Wall Street Journal, The Los Angeles Times, InRex traffic data, and up to the minute local and regional market intelligence from its 175 member radio station network.