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Natalie Swed Stone, OMD US Director, National Radio Investment, on the State of Radio

July 7, 2008

By Carl Marcucci

Natalie Swed Stone, US Director, National Radio Investment, OMD, always insightful and helpful to the radio industry, spent some time with RBR last week to discuss solutions-based issues and problems for the radio medium—everything from what happens to radio when and if Sirius and XM offer a free, ad-supported option; PPM; posting; networking HD-2 formats; How radio needs to package itself in sales presentations; Why a one-stop research shop is sorely needed; how the economy is affecting spend and the media business; how radio can make money in the digital world; and what happens when all cars have Internet in the dash.

How are things looking from your desk with the economy as it relates to radio and radio buying and national radio?

Well, the way it looks is that clients will now need their money to work harder than ever. So they may be spending less but expecting the same as what they had. Or, spending less and changing the plan-- trying to get more vehicles that are targeted and more ROI or changing the media mix. It’s where we’d be anyway without the economy suffering because of the competitiveness, challenges, the new tools (analytics and research) and the new media. So we’d be there anyway but now because of the economy we are doubly affected. It’s at mega speed.

So you are working harder than ever probably for your clients?

Well we’re working hard but the budgets have to work very hard right now, that’s correct. So there is much more analytics involved in everything we do and the plans and the buys are going to change because of that.

How does radio fit into that change?

The way radio fits into the change is this: we have to be smarter about the audio piece. All of the research we see illustrates that the more you mix it up, the more you put more elements in the mix--whether it’s radio, television, print -- the better the campaign is going to do. We’re seeing research prove what we knew intuitively.

One medium alone doesn’t really do it -- so the mix is important. Obviously radio has to continue to get their piece of the mix. On another level within audio, we need to think of the audio mix -- the idea that terrestrial radio needs to pair up with HD, satellite, online, mobile. The more audio pieces we use the more successful the campaign. We could think of some of these other elements of audio, as cross platform if you will -- a little microcosm of what we’re talking about with the macro multimedia mix. We’ve got to get the audio piece right and then get it into the mix even on a larger scale with other media.

Is there a higher demand now for more effective creative in radio? Is there more of a push for that than ever?

Part of the ROI is that the creative has to be right also. The creative has to work. So right now when we find out something didn’t work it’s because of a whole host of things. It’s because of the clutter. It could be because of the relevance. It could be because of the message itself. So all of that has to be just right and advertisers are discussing this in all media. So right now television is talking about addressability with cable and the set top box being able to target exactly who you want. So again that’s more ROI, less waste. Once you are able to do that, once you define your target and you can go narrower you can create a message for them-- and they are doing that online too. A lot of the people who come in to see us from digital and online radio are encouraging us to tailor the audio creative to speak to consumers where they are--at desk/computer, etc. Previously, they could have been anywhere. They could be at work, they could be in their car or home ,etc. But with online audio I know they’re at the computer when I’m talking to them online, streaming. Why don’t you create a message for them right now such as “I know you’re at the computer, click on this –take a break etc.” We need to start doing more of that --talking to specific people and then speaking to them in the right way.

When you have a mass medium you can’t do that. The more niche you get, the more you can do it and then the more you need to do it and hopefully your creative will be more impactful. Right now we have a lot of things going on. We have irrelevant ads airing to everybody. You have a beer ad talking to people who don’t drink beer. You have shaving to people who don’t shave. You have all kinds of things going on. So it’s irrelevant, people switch out etc. Then obviously there is the clutter issue and the programming issue there is a whole host of things going on.

Well there’s something that I keep having hope on and it’s the HD-2 formats. They are definitely more niche. ESPN has formed a network out of them. I’m hearing Verizon ads on Hot 99.5 HD-2 so there are some ads coming.

That part of it is going to get there more quickly. For example ESPN is targeted just right off the bat right? They are not going after females-- their ads are going to be more targeted to start with. Already you’ve got something that’s working in a vertical way but it’s limited. HD-2 is small. There are little pieces like that that are exactly the model we’re talking about or can be the model but we’ve got to get it into the mainstream. It has to migrate so that it’s happening everywhere. You know where big money and the big audiences are so that piece has to be right. You’re right, though, Carl that’s where we need to get to a place where you have a targeted channel with targeted ads and then they have to get the number of commercials right which they are doing on HD.

Right, fewer commercials.

Yes and satellite also started that process and discussion, niche channels, limited ads etc. The thing is it can’t be a sideline; it can’t be a piece of the discussion --everybody has to go there. The whole medium has to go there.

Yes, absolutely. We had someone write a column for us that the next generation of chipsets for HD radio will be addressable. If you’re a listener to an HD station your radio will have a certain code attached to it and advertisers will be able to send targeted messages. So when more people are listening to HD Radios in the future, would that be more attractive for you to buy?

Here’s what I think is going to happen. I was fortunate years ago to be privy to something that I never forgot and that I’ve been waiting to happen. It’s definitely the future and that is permission advertising—that in exchange for subscription or paying, the consumer has the ability to choose what commercials they want to hear. We need to get there quickly. We need to get to a place where a supplier, a programmer, a broadcaster doesn’t just take any commercial and doesn’t just broadcast any commercial to everyone. It even takes Google a step further—takes the education and guesswork out of it, eliminates the push of advertising completely to a self-selected, personalized contract with consumer. For example, I choose which commercials I want to have and maybe it starts with online or satellite radio because they could do it more quickly and maybe it goes to HD and the addressability you’re talking about but I get to choose which commercials I want to hear. For example I click a box that says serve me Nissan ads, Coty, JC Penney --those are the things I click because they are important to me and I want to know rather then giving me everything because you want to. That day is coming and that is going to change everything.

For the better.

For the better, absolutely, because then I’m not tuning out, you don’t have to worry about me tuning out because I said that I wanted them and then we agree there is a contract--basically a soft contract which says I’ll take those commercials. And the other side is guess what I’m only going to give you--three minutes an hour. So I know I have three minutes an hour and they are targeted to me and I chose them. Not only are they targeted (meaning JC Penney Women 18-49) but I asked for it, I asked for that ad because I want to go shopping and I want to know when the sales are and I care about that. That’s going to change everything also because then you’re going to want to get to the place where you are motivating the subscriber or the listener to choose you. How do I get them to choose me?

Some other campaign.

Some other campaigns somewhere else—all of it working together. I think that’s where we are going and the sooner broadcasters learn that or hear that and get that then we’re going to be in a better place because right now you’re just throwing it out there. You can push out anything and you can guess and you can say I want that person-- but that person may not want you. They are not going to be receptive they are going to tune out anyway. Maybe part of the deal is 80% of what I want and 20% other. I’ll allow you to check some stuff on me and then if I don’t like it I’ll tell you—kind of like what’s happening with personalized music sites.

…and maybe there’ll be an incentive for you to do those check boxes. Maybe you’ll get some discount on the radio or something, who knows.

Something, exactly, because right now the satellite/subscription model of pay, pay, pay, people can’t afford that. All of these pay things people can’t afford so eventually I think that that model is going to change. The reason we had a pay model is because clutter was so bad. The minute clutter changes and you get the commercial piece right because really satellite was built on commercial free radio--the minute that piece is right where it’s fewer commercials and they are targeted and I choose them you don’t need that pay model anymore.

When and if Sirius and XM merge they are likely going to have a few extra satellites to play with for that one service and I do think they are going to offer a free service that will have the same formats or similar formats as the standard and they are going to have limited commercials. Maybe three commercials an hour and you don’t have to pay anything. Everyone will have it in the car whether they like it or not it’s going to be there. How might that change things?

Well that makes a lot of sense because that’s the only place they can go. People are not going to pay for this not when they can get HD and not when they can go online and the subscribers have already leveled off --what else are they going to do? I agree with you. I have felt that because of the economy and of all the technology that satellite radio should have changed its model the way AOL changed its model: make it free, build up the subscriptions, get the audience and then go sell to advertising that that’s the only way for them to survive.

That’s a lot of formats they offer.

You’re absolutely right and they already have the programming right so if they start to offer that and then still have something high-end for people who can afford it and some premium service--that’s fine--but they’ve got to go to the masses.