This is another of those “really important moments” for the radio business. I’m not in the “radio biz” and not part of the “club”, so I’m a little slow on the uptake at times.
Since many of the visitors here are not in “the biz”, I’m going to overexplain this, and probably get some facts wrong – corrections are welcome.
When a big national advertiser wants to run a national radio campaign, they frequently want to deal with what is called an “Ad Representation Agency”. The client says what they want to accomplish and their budget and the Ad Rep firm handles the details.
Starbucks (hypothetical example) doesn’t have the time or understanding of the radio business to go out and contact individual radio stations and buy ads, so they hire an expert. The Ad Rep firm decides which radio stations are the best match for the campaign, arranges for the ad placement, negotiates the pricing and monitors the campaign. The Ad Rep firm then pays the radio station for the ads, and if the client is satisfied with the results, they buy more ads in the future.
The Ad Rep firm carries a ton of weight and leverage on the radio stations. They’re doing all the work of finding the clients and handling the paperwork and payment. If the sales guy from WKRP calls up Starbucks national HQ on a cold call, he isn’t likely to get very far. You want to keep the ad rep firms happy if you want to keep selling ads to national advertisers.
Until last year, there were two major ad rep firms – Interep and Katz Media. Interep declared bankruptcy last April without much warning, and left radio with receivables that aren’t going to be paid – and leaving only one Ad Rep firm left for the entire radio business.
Today, Pandora announced it has a deal with Katz (which has been branching out into online advertising) – to place ads from Katz on their internet music streaming product. Katz has a ton of experience in targeting ads based on demographics. Most of the ads you testers are seeing are probably already managed by Katz behind the scenes. Pandora is of course a major threat to music radio stations.
So this is a really big deal, but not until you know the kicker….
Katz Media is a subsidiary of Clear Channel, So if you’re Cumulus or Citadel or some other radio company, if you do business with Katz, you’re negotiating with your own competitor to get business. This is stunning to me that this conflict of interest exists in the radio industry, which either I didn’t know or I didn’t realize the significance of until today.
Clear Channel has made it pretty clear they no longer consider themselves to be in the Radio Business - Clear Channel produces content, and radio is just one of the ways to distribute it. I saw an analogy today – Clear Channel is in the donut business, not in the delivery truck driving business.
Mmmm…. donuts…… back in a bit
Tags: Clear Channel, Donuts, Katz, pandora
I can understand why you might think this stunning, but it’s really not a big deal. I used to work in radio but I don’t now so I have no axe to grind. You’ve got it almost right but not quite. In your hypothetical example, Katz buys the time from radio stations but that’s not quite right. Katz facilitates the buys but the client or their agency pays the radio stations and the radio stations send a commission to Katz. Hence, when Interep went belly up, advertisers still had to pay their bills.
What’s more Katz has long been selling more than radio. It’s a media company selling radio, TV and Internet. Under the Katz Media umbrella is Katz Radio Group (including Christal Radio, Eastman Radio, and Katz Radio)
So, since Katz is a subsidiary of Clear Channel and Cumulus competes with Clear Channel in radio, they have already been repped by a company that owns their competitor.
I’ll go back and reread closer, but as I’ve been going through all the 10k statements for various publicly traded radio companaies, many of them had section about Interep’s bankrupcty and the effect it was going to have on their financials. My impression was they were talking about having to write off receivables – maybe it was only stating that by losing that relationship, the stations expected to have a decrease in national ad revenue.