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Google and Clear Channel Communications will announce a partnership today whereby the search company will sell 5 percent of the radio group’s inventory in 100 top U.S. markets. The agreement covers roughly 675 Clear Channel stations. Terms of the deal, including any potential cash or revenue share agreements, were not released.

Clear Channel is the largest U.S. radio broadcaster in terms of revenues and stations. The radio group is the result of an aggressive rollup strategy that merged numerous regional players and independent operators into a national radio powerhouse. Clear Channel books roughly 20 percent of all U.S. radio industry revenues.

Clear Channel revenues grew faster than the industry overall, rising 6 percent last year, mostly as the result of price increases. The National Association of Broadcasters forecast revenues slightly above the $20 billion mark. After years of consolidation, the industry is basically flat.

Increasing the number of advertisers for radio is being touted as one of the drivers of the partnership. The way the deal is structured, Google will be responsible for selling new advertisers, and those with existing station accounts will be handled by their current radio reps. Over time, we would expect these lines to blur as the realities of carving up sales territories and radio accounts take hold at the station cluster level.

Overall the deal is a boon for Google and its wholly owned subsidiary, dMarc, which it purchased last year for US$100 million and the potential of a US$900 million earn out. DMarc provides radio stations with the equipment to schedule and play airtime, commercials and other on-air tasks. Typically, the radio industry offers what are called “trade-outs,” or exchanges of airtime instead of cash payment. These spots are then resold or bartered for cash and services.

Google’s purchase of dMarc prompted some nervousness among radio owners. The company’s massive market cap and robust performance-based ad serving platform caused station owners to pull back slightly and reevaluate their existing deals. In the end, if Google can deliver advertisers and revenues, stations will likely opt to give more spot inventory over.

Radio is an interesting industry for Google to target and its aggressive purchase of dMarc shows that the search company is serious about making in-roads in the market. We learned some months ago that Yahoo! is in talks with CBS Radio about various types of partnerships as well.

Radio advertising is basically local in nature. Local spot inventory makes up nearly 80 percent of radio revenues.

Radio Industry Revenues by Spot Type

Source: National Association of Broadcasters

In our opinion, the configuration of radio has several important characteristics for Google:

  1. The largest segments of advertisers that currently run spots are Automotive, Entertainment and Retail. These segments, generally speaking, are strong search advertisers.
  2. Radio spots are among the most expensive local advertising inventory.
  3. A mix of direct response advertisers (search advertisers) and display advertisers (DoubleClick advertisers) can conceivably increase Google’s chances of creating meaningful revenues.
  4. Radio spot flights are somewhat similar to Internet display advertising in that they are sold on reach. Google has previously rolled out day-part targeting.
  5. An audio ad format can be used across multiple platforms, like Google’s 1-800-GOOG411 product (their newly announced Free DA project), on Internet radio and other similar markets.
  6. An AdWords dashboard will be appealing for many non-radio advertisers that are interested in testing new advertising methods but find the radio sales process out of step with performance-based advertising.
  7. Finally, where local sales are concerned, Google has been out aggressively hiring radio reps well ahead of this announcement. It’s conceivable that these reps could, over time, sell multiple ad products mentioned earlier. This would likely be akin to Google’s AdSense network where advertisers can opt out of campaigns and focus only on search.


Typically, traditional media sell products unique to their industry. For example, newspapers sell print display ads and television stations sell commercials. We have long held the belief that traditional media market ad models are transitioning to ad formats. In these new format-centric models, an audio ad may be initially purchased and recorded for use on radio, but an audio ad has potential to reach a much larger and diverse audience. This audience and ad flight will transcend individual markets.

This is potentially unnerving for traditional media, but over time we believe this model will increase their revenues. Simply put, it offers advertisers an easy and valuable opportunity to try their ads in markets where they could not have easily done so before. The more advertisers that are exposed to cross-media ad purchasing the more we believe will decide to broaden their advertising portfolio.

These new leads will be up-sold by the traditional reps into core non-shared products like DJ mentions, promotions and other radio revenue products. In no way, do we foresee all or even a majority of traditional inventory moving to a search company; rather we believe it will become an important pat of the traditional media revenue mix. In other words, a limited amount of inventory will be allocated and in this way traditional media will still maintain the pricing power. In our numerous discussions with this has largely been the appeal of their program. We see parallels here as well.

In the search world, when companies like Google, Yahoo! or MSN push their network of advertisers to third-party sites, these partners receive the vast majority of revenues. Our expectation is that given the scarcity of traditional media formats, companies that control the inventory and aggregate the audience through programming will command a significant share of revenues.

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