MOUNTAIN VIEW, Calif. Google's announcement that it is exiting the radio ad placement business might have sent nervous chills down the backs of a few radio station executives worried about lost revenue, but industry analysts say the overall impact to radio stations likely will be minimal.
Google's efforts to sell remnant radio inventory dated to its purchase of dMarc Broadcasting, including the latter company's ad insertion and radio automation systems, in 2006.
Analysts said Google unquestionably was hampered by the economic climate for advertising sales but that there were other obstacles.
The company acknowledged it hadn't achieved its goals: "While we've devoted substantial resources to developing these products and learned a lot along the way, we haven't had the impact we hoped for," stated Susan Wojcicki, Google vice president of product management. "We have decided to exit the broadcast radio business and focus our efforts on online streaming. We will phase out the existing Google Audio Ads and AdSense for Audio products."
A Google spokesman further described the move as a "discontinuation of Audio Ads."
The February announcement came just weeks after Google scrapped its newspaper ad program AdWords. The company will trim some 40 jobs from the radio business. It said more than 1,600 radio stations were part of its Audio Ads network at its peak.
Radio stations used the Google Audio Ads platform in most cases to fill remnant inventory, ad time that would have otherwise been left unsold. It's unclear exactly what the revenue split was between Google and broadcasters. Several other companies offer similar third-party ad-placement services.
Google will also depart the radio automation business.
Google purchased dMarc Broadcasting from founders Ryan and Chad Steelberg during much better economic times. The big company's entry into radio sales made headlines three years ago and was viewed positively by some who thought Google would inject a new revenue stream for broadcasters. Others worried about the impact of a new buying model on ad rates.
The Steelbergs made a lot of money in the sale of their company and stood to make much more if Audio Ads was successful, observers said. In addition to paying $102 million in cash for dMarc's assets, Google was obligated to make additional contingent cash payments if certain targets were met through 2009. Potential contingent payments could have totaled $1.136 billion over that period. It's unclear if any additional payments were ever made.
Not real inroads
The departure of the Steelbergs less than a year after the Google acquisition was viewed as troubling by some analysts at the time. The Steelbergs "stood to gain a significantly greater sum of money had they stayed," said Marci Ryvicker, analyst with Wachovia Capital Markets, in an interview with Radio World when they left in early 2007. "I believe this signals that there are some unexpected difficulties" with Audio Ads.
Chad Steelberg, now chief technical officer with Brand Affinity Technologies, a technology company that offers advertising and media solutions, said, "Despite our departure from Google, Ryan and I are disappointed in Google's announcement of its decision to shut down the audio broadcast division." The Steelbergs declined further comment.
Google said at the time that it would focus on bringing advertisers who traditionally preferred online advertising into radio. But radio analysts say Google never made tremendous inroads into winning guaranteed inventory from broadcast groups because radio stations feared loss of control over ad rates.
A 2007 agreement with Clear Channel was the biggest announced deal. On 675 of its radio stations, Clear Channel agreed to carry a guaranteed portion of 30-second advertising from Google Audio Ads, or up to about 5 percent of Clear Channel's inventory.
"We understand that, like all companies, Google is looking at what makes the most sense for them moving forward," Clear Channel said in a statement. "We're disappointed (Google) is ending the program, but this was only one of the sales innovations we are pursuing."
An early Google partner was Emmis Communications. But it began phasing out agreements with Google to fill remnant inventory for its stations in November 2008, according to a group spokesman.
"We had one station still running the ads and it made a minimal amount, probably about $100 in January (2009)," said the spokesman.
Greater Media also experimented with dMarc at one of its stations in Detroit but it saw "no value in a long-term commitment," a radio group spokesperson said in March.
Several other Google Audio Ads participants confirmed that earnings from running the Google radio spots had dropped dramatically in the last 12 months. Industry analysts said this coincides with the radio industry's ad sales performance during that period.
Many radio owners struggled with the concept of Google selling more than just remnant inventory and worried the company would turn the radio advertising business into a commodity. Therefore, analysts said, Google never struck enough deals to sell sufficient advertising time over and above remnant inventory.
"Radio operators were never comfortable getting in bed with Google. After three years Google was unable to attract a serious number of radio stations as clients," said Mark Fratrik, vice president, BIA Advisory Services.
Google, which said it will remain in the online streaming advertising business, is refocusing efforts on digital IP radio advertising, meaning the company may still work with traditional radio companies in that forum.
"We still have radio station Web sites in our network and we are exploring online audio adds as well," a company spokesman said.
"Remaining in online radio advertising sales while exiting over-the-air radio sales is a tremendous market indicator of where radio broadcasting is moving," Fratrik said.
Another analyst stated, "If the Google whiz-kids can't figure this out, no one could. It's clear radio never embraced third-party selling."
John Sanders, an analyst with Bond & Pecaro, said, "It appears that Google's efforts evolved from being very challenged to catastrophic as the national economy began to sink.
"Actually, given the weakness of the local ad markets, it would seem that stations would have had more remnant advertising inventory to share with Google, so (the failure) probably has more to do with the acceptance of the concept by Google's advertising base."
Sanders doubts many radio broadcasters counted on Google Audio Ads as their salvation. In fact, he believes more viewed the venture with suspicion.
"Movie theaters do not sell empty seats at the last minute at a cut rate under the theory that the empty seats are forgone inventory; otherwise full-paying customers would just wait to buy at a discount."
In the end, Sanders said Google's decision to exit radio sales speaks to the severe challenge facing all ad-supported businesses.
"It again emphasizes that the future of the radio industry rests in building market clusters, enhancing localism and utilizing multiple revenue platforms. Those are efforts that could truly build and fortify a revenue base. Certainly more so than just selling remnants at a reduced rate."
At least one radio analyst believes Google's pullout will have minimal impact on most of its radio station clients.
"It will have very little negative impact on most stations, who looked at what little revenue Google generated for them as bonus cash anyway," said Mike Henry, chief executive officer of Paragon Media Strategies. "Google never circumvented the national way companies purchase air time."
Bid4Spots: We're Poised for Growth
ENCINO, Calif. Bid4Spots CEO Dave Newmark said the business of selling radio remnant inventory is still a viable business model, despite the struggles of Google with Audio Ads and its decision to leave radio broadcast radio sales this spring.
"I believe Google overreached by trying to move from last-minute inventory to also going after scheduled buys. The result was that stations were reluctant to work with Google. We only deal with last-minute inventory, so stations know they have nothing to fear."
Bid4Spots, founded in 2005, is doing well, according to Newmark, who said the increase in total ad revenue for its station partners in 2008 relies on a "reverse auction" bidding process between stations and advertisers.
"Google's departure doesn't affect us in a big way, because Google never really got much traction in the radio space. For us, it's further validation that we have the business model right. If advertisers are looking for an online mechanism for buying offline media, we're now it."
Newmark described Google's "forward action" model as unappealing to radio broadcasters hoping to hold desirable inventory at higher prices. Instead, Bid4Spots uses a reverse auction that happens every Thursday in a live online bidding session for spots to air the following week.
The bid rates are sealed so stations are not competing against their own rate cards, he said.
"The rates are confidential so it doesn't degrade the value of their inventory. They can bid as low as they wish and it won't hurt them."
Bid4Spots, which has 20 employees working out of its headquarters in Encino, Calif., said in a report last year that in 2008 the weekly auctions were grossing between $100,000 to $200,000. Sales are up so far for 2009, Newmark said.
He said another problem Google faced was the demand it put on radio stations to adopt the Google Radio Automation platform in order to participate in Audio Ads.
"I believe stations felt a loss of control and didn't want to adopt the platform. The key is automating what can be automated and leaving the rest alone. The radio industry wants to maintain control of the sales process," Newmark said. "There are certain things a computer can do very well, like allocating last-minute inventory based on specific pricing and audience demographic requirements."
Not all radio broadcast companies were forced to switch to Google Radio Automation in order to participate in Google's Audio Ads. Clear Channel officials said they continued to use RCS, which controls the Prophet Systems radio automation system, while running Google Audio Ads. A Google spokesman said Audio Ads "worked with several different" radio automation systems.
Media Commerce Systems is another firm using an online portal to buy and sell remnant media inventory. The company's StandBuyMedia is an "easy-to-use Web-based application designed to sell unsold inventory without disrupting or compromising current radio stations sales processes," according to the firm's Web site. And RegionalHelpWanted.com posted ads in trade publications making reference to Google's departure and reminding readers of its unsold media inventory offerings. — by Randy J. Stine