The radio industry includes 12,275 radio stations in more than 238 major markets.11 Although there has been consolidation since the Telecommunications Act of 1996, the radio industry is still highly fragmented and managed by many small mom-and-pop operations.12 Radio stations derive 75% - 100% of their revenues from advertising. In 1999, the US radio advertising market represents a $17.7 billion industry with expected 8.5% continued annual growth. This growth had been fueled by radio industry marketing campaigns, the growth of the Internet, and the use of radio as a primary communication medium to drive consumers to the web.
Radio & Technology
Radio stations have been slow to adopt the use of the Internet as a broadcast, advertising, or ecommerce medium. Realizing the lack of development of an Internet strategy among radio stations, CEO Gary Fries called on radio stations to be "E-Born" at the September 9, 1999 Annual Radio Advertising Bureau (RAB) conference. However, even Mr. Fries, like many radio stations, is not seizing the power of the Internet as a channel to automate traditional sales and expand the market reach and size.
Radio Advertising Process
Approximately 75% of radio advertising is purchased at the local level.13 Buyers of radio advertising space include national advertising agencies, local advertising agencies, businesses, and media brokers (representative firms). Most radio stations have their own personnel to manage sales within their respective markets. However, national media representatives or "rep firms" are contracted to sell to national clients. There are currently two major radio "rep firms," Katz Communications and Interep Radio Store.
Radio advertising can be purchased on a national network and individual local market spot basis either direct or through advertising agencies. Spot radio programming formats vary widely from market to market, from talk shows to music. Prices also vary depending on the size of the market, from $601 cost per thousand in New York City to $58 in Austin, Texas.
In 1996, 99% of all households owned a radio. Ninety-five percent of all adults not only listen to radio each week, they listen for more than 3-1/4 hours per day (Table 2). One-third of people surveyed indicate they listen to radio at work. (Table 3). Radio reaches over 80% of professionals and managers each day. Radio is also one of the only mediums that can reach the increasingly mobile American at home, from their commute to and from work, as well as throughout the day at the office.
|Table 2:||Table 3:|
The 15 largest radio broadcasters, which own about 11 percent of all U.S. stations, accounted for about 42 percent of all industry advertising revenues in 1997, up from six percent of stations and 34 percent of revenues in 1996. With the relaxation of federal station ownership regulation, a radio station operator can own as many as eight stations in one market, but no more than five of one kind (AM or FM). The ensuing consolidation has allowed for the centralization of back-office functions such as sales, billing, and marketing, and investment in new product and sales efforts. The concentration of ownership across markets appeals to advertisers who can make one station "block" ad buy then negotiate on a station-by-station basis. This one-stop shopping concept boosts the attractiveness of radio as an advertising medium, no matter whether the advertiser is a local merchant, or national advertiser.
AdGrove.com has defined a unique competitive space as the high-service, low-cost provider of advertising and advertising services for small businesses (Graph 1). However, the market is not devoid of competitors. Our key direct competitor includes radio advertising sales websites. AdGrove.com also has identified indirect competitors: traditional radio sales people, media representative firms, advertising agencies, market research firms, and other advertising sales websites.
Radio Advertising Sales Websites - As of October 29, 1999, the major national online resellers included: BuyMedia.com, and AdOutlet.com. BuyMedia.com caters to the needs of 2,500 media buyers representing major clients and advertising agencies and sells BuyMedia.com sells premium television and radio advertising space. BuyMedia uses an Internet and fax-based purchase system and operates on an auction-negotiation model. BuyMedia does not offer discounts or comprehensive advertising tools.
AdOutlet.com sells leftover advertising space in a number of mediums including: billboards, television, and radio. AdOutlet does not offer discounts or comprehensive campaign planning tools and targets high-end media buyers.
Traditional Radio Sales - Although the partnership of AdGrove.com with radio stations is critical to the success, the continued traditional radio sales channels (local and representative firms) represent a competitive threat to AdGrove.com. However, Adgrove.com will position itself as the low-cost, convenient, high-customer service center for small business.
Advertising Agencies Advertising agencies, primarily small ad agencies, will compete with AdGrove.com for customers. Although many small business ad agencies do not target a national market, they do offer highly customized services for their clients at the national level. AdGrove.com will replace much of the outsourced services for a fraction of the price.
Market Research Firms - Market research firms such as SRDS that provide market research data to high-end media buyers will be threatened by our ability to aggregate data across the country and provide it to customers in the format that meets their campaign planning needs, on an "as needed basis". There are a number of market research firms that service the radio industry including: SRDS, Telmar, Arbitron, and LNA Market Research.
Advertising Websites Selling Other Media - A number of websites, such as AdKnowledge, offer services for the Internet, television, billboard, and outside advertising. Although not a direct competitor, these sites are substitutes of radio advertising and do compete for ad dollars. However, most of these websites do not target small businesses, but rather fairly sophisticated or high-dollar customers.
|Competitor Category||Types of Ad Space||Information|
|AdOutlet.com||X||X||X||-||Auction - Discount||High||High||None|
|AdKnowledge.com||-||-||X||XXX||Fixed Price - Premium||High||High||None|
|Advertising Agencies||X||X||X||XXX||Cost Plus - Premium||Medium||Medium||Small|
|Representative Firms||X||X||-||XXX||Cost Plus - Premium||Medium||Medium||Small|
|Radio Station Direct Sales||X||-||-||X||Negotiate||Low||Low||Small|
|Market Research Providers||-||-||-||XXX||Fixed Price - Bulk||Medium||Medium||None|
|AdGrove.com||X||-||-||XXX||Fixed Price - Discount||High||High||Large|
|Table of Contents||Appendices|
1. Executive Summary|
2. Company Overview
3. Products and Services
4. Market Analysis
5. Marketing Plan
6. Operations Plan
8. Financial Summary
Management Team Resumes|
Small Business Internet Use
Revenue Model and Assumptions
Pro Forma Financial Statements
Strategic Alliance Proposal
Most Wired Cities in America
|All information herein is confidential and belongs to AdGrove.com, Inc.|