Total digital ad spending is growing at a rapid clip and many radio companies are adapting their strategies around these dramatic shifts. With second quarter earnings season now complete, Inside Radio took a deep dive into how radio’s publicly traded companies are growing digital dollars, the sector driving most of the industry’s growth.
The numbers say it all—with double digit increases in digital revenue prevalent in Q2, including radio companies Beasley (+16%), Urban One (+17%), Entercom (+19%), Townsquare Media (+20%) and iHeartMedia (+33%).
The results suggest broadcasters are pursuing the digital opportunity with both barrels blazing. “People have always told me to watch out for radio if it gets the digital bug, and this year's numbers certainly indicate that it's happening,” says Borrell Associates CEO Gordon Borrell. “I'm glad to see CEOs driving this initiative, and glad they're seeing the internet as an opportunity, not a threat.”
At Urban One, that involves overhauling the company’s digital sales strategy while cutting costs to drive cash flow. “Our digital division has been a big first half outperformance positive surprise,” CEO Alfred Liggins said on the company’s Q2 call with investors. After losing about $3 million on digital in the first half of 2018, the African American media specialist turned $900,000 in digital profit in the first half of 2019.
At Entercom, digital audio ad revenues “are growing strongly,” CEO David Field said, pointing to 82% year-over-year growth in monthly active users for its Radio.com streaming audio platform. The company also used its quarterly call to pull off the shrink wrap from a pair of podcast company acquisitions.
Beasley continues to invest in digital assets, launching 62 new websites in Q2, each integrated with the Beasley experience engine, which personalizes the experience for those who have opted in and registered. The broadcaster also developed new smart speaker skills for the Amazon and Google platforms, which started rolling out in late July. These and other efforts helped pump up digital users 45% year-over-year while page views increased 28%. All told, Beasley invested $600,000 on digital in the quarter and $1.2 million in the preceding 12 months.
On the sales end, the company set up digital support teams to help local sellers generate leads, fashion presentations and proposals, activate campaigns and compile campaign recaps. That helped improve the other critical growth metric – the percentage of total company revenues that come from digital. It grew to 7.4% in second quarter at Beasley, up from 6.5% one year earlier.
A Bigger Revenue Contributor
When it comes to the portion of revenues derived from digital, Townsquare Media appears to be leading the industry. Billings from its digital advertising and marketing solutions now contribute more than one third of total company revenue. The two main drivers are Townsquare Ignite, its programmatic digital ad buying platform; and Townsquare Interactive, which provides online marketing solutions to small-to-medium businesses. The former is the fastest growing revenue generator within the company; the latter posted a 31% revenue increase during the quarter. All in, digital revenue jumped 20% at Townsquare during Q2.
Digital has also become a major growth driver for iHeartMedia. The company added $22.5 million in digital dollars, up 32.8% year over year, to $91 million in Q2. Podcasting plays a starring role in the growth. Podcasting listening on the iHeartRadio app tripled in the past year, as the platform loaded up on podcasts, driven in part by its acquisition of Stuff Media. The growth strategy involves using radio’s reach and engagement to expose people who have never heard a podcast to the burgeoning medium. Meanwhile, digital streaming via the iHeart app in June posted a 12th consecutive month of year-over-year growth in listening hours and now boasts 130 million registered users.
Digital revenues from the Cumulus Media station group and Westwood One grew a combined 69%, year-over-year, albeit from a relatively small base. Streaming, the company’s highest-margin digital business, grew 30%. Digital now makes up just over 7% of Cumulus revenues, up from less than 5% one year ago.
Entravision’s goal is to grow its digital business to 30% of total revenue. “We're certainly headed in that direction,” CEO Walter Ulloa said during the Hispanic media’s company’s Q2 investor call. But Entravision has a way to go: Digital revenue fell 18% in Q2, mainly due to the growing trend of advertisers moving their investments to programmatic buying, which hurt some of Entravision's top digital products. That has the company concentrating on demand-side buying platform Smadex so it can catch some of the programmatic wave that’s sweeping the ad industry. Smadex, which Entravision acquired in June 2018, is already generating 30% of Entravision’s digital ad revenue. Another focus is digital audio business AudioEngage, which has seen an 82% revenue increase over Q1 2019.
Meanwhile, for Salem Media Group, digital continues to be a mixed bag. Total digital dollars declined 2.9% to $10 million—but still accounted for 15% of total revenue. And local digital from the Christian broadcaster’s Salem Surround multimedia ad agency shot up 51% to $3.7 million.
From Borrell’s perspective, digital growth for radio has only just begun. “Once the industry realizes that the available digital dollars are far bigger than just what other radio stations in their market are making, they'll be in the big game,” he contends. But that requires opening eyes to the digital opportunity that exists beyond audio. For example, in a market like Boston, Miller Kaplan might peg the digital opportunity at $25 million, but in reality Boston businesses are spending $272 million on digital advertising with all local media companies in the market. “Radio has rights to pursue all those dollars,” Borrell says. “You only see that when you realize that your sales reps now have digital products that help you compete with newspapers, TV stations, cable companies and anybody else in your market.”
While radio’s digital crusade is impressive, Borrell sees a more interesting story developing in the “tornado” that radio’s efforts are creating with addressable digital revenue at the market level, meaning the total amount of digital ad revenue available to local media companies in a market. “Local digital advertising is growing by about 9% this year, but a number of radio stations are selling at three times that rate. So somebody has to be losing share,” he postulates. The firm’s research shows radio is stealing digital dollars from print media. Digital sales for newspapers and yellow pages are either flat or in decline. For instance, yellow page giant DexYP sold more digital advertising last year than the entire radio industry generated – nearly $1 billion. But it posted a 23% decline for the past four quarters. Meanwhile, big newspaper companies like McClatchy and Gannett are posting digital revenue declines of roughly 5% this year.
“The movement has been so sudden,” Borrell says, that his firm plans to re-cast its 2019 market forecasts for addressable digital revenue in each of 511 markets. “Radio is gaining the most share, TV and cable are gaining a lesser amount, and much of the print industry is flat or losing digital market share,” Borrell says. – Paul Heine