RADIO PRODUCTS AND PRODUCT LINES
RADIO PRODUCTS AND PRODUCT LINES
The radio industry functions like many other media industries in that it op- erates in a dual product market, offering its content to listeners, and in turn sells access to those listeners to advertisers seeking targeted demographic groups (Albarran, 2002). This dual product market functions at both the lo- cal and national levels. At the local level, stations provide entertainment and information to audiences and advertisers, whereas at the national level, radio networks and syndication provides programming that seeks the same mix of listeners and advertisers. The most popular radio formats include country, rock, classic rock, contemporary hit radio, news and talk, and urban and hip hop. Format tastes and preferences vary by region across the United States. Cost structures also vary in the selection of a radio for- mat. Generally speaking, news, news and talk, and all-sports formats are more costly to operate and maintain than stations opting to program a mu- sic format because they require more personnel, equipment, and resources.
Applying basic principles of supply and demand to the radio industry, supply can be thought of in several different ways. First is the physical sup- ply of radio stations available to audiences and advertisers. The number of radio stations available in a market are a combination of many factors, in- cluding population, regulation, and economics. Larger markets that serve large populations usually have the most stations, whereas smaller markets often contain a limited number of stations audiences can access. In the United States, except in the most remote areas, most audience members have access to several radio stations on both the AM and FM bands.
The majority of radio stations in medium and large markets operate con- tinuously, 24 hours a day, 7 days a week, 365 days a year. This continuous operation promotes loyalty and stability among radio listeners. The audi- ence knows their favorite stations will always be on the air. Radio’s ubiqui- tous nature provides an unending supply of time available to audiences and advertisers, whenever access is desired.
Finally, stations target different demographic groups, forming another way to think about the supply of radio. Radio’s ability to reach different for- mats makes it particularly attractive to advertisers who seek particular au- dience profiles. For example, women 18 to 49 tend to listen to formats like soft rock and country whereas men 35 to 49 usually listen to rock, classic rock, country, or sports talk. There are stations that target ethnic audiences (e.g., Spanish language, rhythm and blues, hip hop), and others that appeal
10. THE ECONOMICS OF RADIO
to older audiences (news and talk, beautiful music). The ability to reach de- fined audience groups—along with the ability to reach commuters—makes radio a particularly attractive medium for advertisers. Coupled with ad- vertising in television and print, radio adds a very cost-efficient means to capture additional audiences.
Demand relationships in radio take three different forms. First is the de- mand by consumers for the various stations and the content they offer to listeners. Second is the demand by advertisers. Third is the demand for the radio stations by owners and potential owners.
Consumer demand for radio is perhaps best illustrated by statistics com- piled by the Radio Advertising Bureau that show the strength and perva- siveness of radio as a medium (see www.rab.com). Approximately 99% of all households own at least one radio receiver. In fact, the average U.S. household has an average of 5.6 radios. In a typical week, radio reaches 95% of all Americans age 12 and up, and the average American listens to the ra- dio for 3 hours each weekday and 5 hours each weekend.
Advertisers find radio particularly useful as a medium to reach target audiences. Larger and national advertisers utilize radio in conjunction with television, newspaper, direct mail, and other forms of advertising to deliver targeted demographic groups. Radio allows advertisers the opportunity to reach commuters going to work and school, a unique capability offered by the medium. Finally, radio advertising is often less expensive than other forms of advertising, especially television and newspapers. With its ability to reach so much of the population, radio represents an efficient advertising medium when used in a mix of media advertising vehicles.
Since the passage of the 1996 Telecommunications Act, demand for radio stations mushroomed as consolidation lead to the formation of radio clus- ters in many larger and medium markets. In 1995, the average price of an AM station was just under $500,000, whereas an FM station averaged $2.1 million. Five years later, the average prices for AM and FM stations surged to $3.0 million and $8.5 million respectively (Albarran, 2002). The pace of radio station transactions slowed in 2001 and 2002 due to a sluggish econ- omy, the aftermath of September 11, 2001, and increasing consolidation (many groups had reached their desired goals of local ownership). Future relaxation of ownership limits at the local level would no doubt result in an- other wave of ownership changes. However, the FCC continues to show no indications of modifying radio ownership limits.