Wells Fargo Securities

Exclusive: The investor outlook for audio is one of growth, as consumers ingest more audio than ever before across a multitude of channels, from AM/FM to podcasting to streaming. “It’s not a zero sum game, the entire audio pie is increasing,” says J. Davis Hebert, director, High Yield Media, Cable & Telecom Research, Wells Fargo Securities. “People are listening to more content, period.”

Despite all the new platforms, time spent with radio remains remarkably consistent. Americans spend an average one hour and 52 minutes a day with AM/FM, according to Nielsen's Q1 Total Audience Report, up slightly from one year earlier and second only to live TV. Radio grabs a 54% “share of ear,” per Edison Research.

Though digital platforms have made today’s advertising marketplace more crowded and complicated, mass media remains “very relevant,” Hebert says. “If you’re looking to brand something or to reach a mass amount of people, radio still makes a lot of sense,” he tells Inside Radio in an exclusive preview of the industry update he’ll present at Pillsbury’s Broadcast Finance Forecast – 2016 Leadership Breakfast, Wednesday, Sept. 21 at 8:30 am during the Radio Show in Nashville.

But with consumers more and more willing to share their personal info on public domains like Facebook, advertisers believe they can efficiently spend a portion of their budgets on the more precise targeting that mobile and digital provide. “Never before have we had as many options as we have today to reach not only specific demographics but specific people within certain age groups in a specific geographic area,” Hebert says.

Radio booked $17.373 billion in revenue in 2015, based on RAB data. Wells Fargo forecasts an infusion of political dollars will help boost that number by 1%-2% in 2016, with “flat to slightly up core ad sales growth.” Among other traditional media, core TV will grow by a similar percentage, while newspapers are expected to drop 6% and magazines by 3%. Outdoor is forecast to grow 3% this year.

Radio’s low single-digit growth this year is being driven by the medium’s stability, both in terms of reach and time spent. “Advertisers looking to tap into a mass medium at a cheap CPM still view radio as a viable medium,” Hebert says. Automotive, radio’s largest ad category, remains stable. And although car sales are tapering, that’s expected to lead to fierce competition for market share among auto brands, which is good news for radio. Wells Fargo, meanwhile, is keeping a close eye on the retail category, which is under increasing pressure from online retailer Amazon.

Since the Great Recession, radio has slightly underperformed overall ad spending. AM/FM is forecast to capture 8% of the $200 billion that Magna Global anticipates will be spent on U.S. advertising in 2016, with a modest decline to 7% through 2019. The slight share decline is due to mobile, which is growing “far faster” than any other ad channel right now, taking share from radio, TV and especially print. Even desktop-based digital channels like search and banner ads aren’t immune to the mobile juggernaut. “Dollars aren’t shifting only out of radio but from everywhere across the traditional media landscape,” Hebert says.