BIA/Kelsey Commentary: Fratrik on Google’s Departure From Radio

BIA, which is Kelsey’s parent company, works closely with radio station groups and other traditional media players in finance, operations and strategy. Mark Fratrik has been watching Google‘s efforts in radio sales (“Google Audio Ads”) from the inside. In the aftermath of the Big G’s decision to get out of the business, we talked to Fratrik to get his take.

“Google is facing the same downturn in the economy as the rest of us. It has exited the newspaper advertising sales market, and actually laid off computer programmers,” noted Fratrik. “After three years, Google hasn’t attracted a serious number of radio stations as clients. And the ones that have signed up only want to provide remnant inventory, in less attractive time slots.” Fratrik noted there were big cultural problems to overcome.

“Radio operators were never comfortable getting in bed with Google,” he said. “Among other things, the Google model asked for information that broadcasters thought was confidential. It also required the purchase of equipment. I heard the pitch when it was first launched, and I couldn’t see how this would be successful.”

Why didn’t Google’s entry into the radio advertising market work out? “The initial read three years ago was somewhat positive — they were going to use their core strengths in Internet scalability and transactional efficiencies to attract buyers and sell inventory that local stations were unable to sell. But even with their model and their reach to many more potential advertisers, they could not sell enough to make it a profitable business line.”

Some radio sales professionals have argued that radio ad time cannot be commoditized successfully by a Google-like approach. Local radio stations are also always finding it difficult to sell advertising (BIA estimates a 10 percent revenue decrease forthcoming in 2009). Is there still value in radio sales, generally?

“It is that vital personal connection to the local ad community that may well be broadcasters’ ‘secret sauce’ in ad sales and something that Google’s mighty server farms and sophisticated algorithms haven’t been able to crack,” argued Fratrik. While Google is exiting the selling of advertising time for over-the-air radio broadcasting, it is remaining in the online streaming advertising marketplace.

What does this suggest? “Clearly, online streaming has shown remarkable growth in recent years attracting demographic groups that advertisers want,” said Fratrik. “And not restricting the advertising inventory that Google can sell during those online broadcasts also makes it viable for Google to remain.

“Remaining in online radio advertising sales while exiting over-the-air radio sales is a tremendous market indicator of where radio broadcasting is moving,” added Fratrik.  “Several over-the-air broadcasters are already improving their online presence, and this action by Google should only prompt more radio broadcasters to follow suit.”