Saturday, 29 November 2008

Google not expanding into European radio ad sales (for now)

Philipp Schindler, Google's Managing Director for Northern & Central Europe, told German magazine Horizont that his company is not currently planning to initiate European trials for marketing radio inventory in Europe. "This is not our focus at the moment", he said. "We are concentrating on the areas where we’re 100% certain we can offer added value for advertising companies. This means our core business of search engines, but also video advertising on the platform YouTube." If you work in the existing European radio sales ecology (stations, saleshouses, agencies), this statement means that you can breathe a sigh of relief that your lifeblood will not be under threat from an extension of Google's successful online advertising inventory auction system. If you are a potential, small-scale radio advertiser, you might not be so pleased, as the opportunity to place your advertising within commercial radio at a relatively low cost is unlikely to happen..... yet. In the interim, we are apparently stuck in some kind of no-man's land between the past and the future. Almost everybody (even RadioCentre) agrees that the old commercial radio advertising model of 'spot' ads is broken and needs to be replaced by a new one. But, as yet, no one can agree what that new model is. Bauer has done interesting deals with the branding of some of its digital-only stations, and Absolute Radio is experimenting too, but the overwhelming majority of commercial radio revenues are still derived from the old 'spot' system. In the future, an advertising inventory 'broker' such as Google could be selling space across many radio stations via an online interface system that deals directly with advertisers and cuts out all the middlemen (the trial is underway in the US). The problem is that such a system, whilst undeniably making radio advertising more efficient, effectively cuts out the livelihoods of the middlemen (saleshouses, agencies, even stations' own salesforces). Hence, there is massive resistance from all those directly affected by such a change. The other likelihood is that the price of radio advertising would fall under an auction system. All the radio owners are already struggling with swathes of unsold inventory which they choose not to sell at deeply discounted rates. The argument goes that once you sell a spot too cheaply, you will never be able to raise the price again. However, there is an urgency that will eventually (and sooner rather than later) force radio owners to sell at least part of their inventory to a Google-type advertising broker. The facts are simple. Listening to commercial radio is in decline. Radio advertising revenues are falling. Commercial radio is largely a fixed-cost business. Eventually, these radio businesses will not be able to cover their costs unless they bring in a whole new clientele of radio advertisers. There are thousands of small businesses that would use radio advertising if it were made cheap and easy to book. Individually, these businesses' ad spend would be tiny. But, when aggregated, it could give radio industry revenues just the shot in the arm they need. In the meantime, we are all sat in a waiting room. Yes, everybody agrees that the old radio advertising model is broken. No, nobody can agree what the new model will be. But, whether it happens this year, next year, or next decade, a company like Google will eventually control the majority of radio advertising in the UK. Even if the door isn't open now, once their backs are against the wall financially, owners will be desperate for revenues (any revenues) even if it means turning radio stations into the equivalent of a classified ads section. So, the news that Google is not buying radio inventory in Europe creates a breathing space for now. But that doesn't mean station owners can simply cling on to their old ways and ignore the future threat. The radio business simply has to change, whether that change is precipitated by Google itself or not.

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