#DigitalSkeptic: Nobody Knows How To Make Money In Local Online Radio
NEW YORK (TheStreet) – The way Jason Finkelberg sees it, online streaming services such as Pandora (P) , Spotify and Songza have opened an advertiser’s pandora box.
âWe compete with Pandora every day,â Finkelberg told me over the phone last week. “And I absolutely assure you that it has not yet been determined how to make money selling local advertising with online radio.”
Finkelberg has the cold choreography for both ad-funded and radio-funded song and dance. He is Managing Director at Pamal Diffusion, an Albany-based independent radio station group with approximately $ 40 million in revenue from a few dozen AM and FM stations in lower and central New York, Vermont and western Florida.
And over the course of his 20-year-old radio career, Finkelberg has been able to evolve with the changing environment of digital radio without the shackles of short-term, cost-averse, and rated radio station groups. purse such as Clear communications Where Cumulus Media (CMLS) – Get the Class A report from Cumulus Media, Inc..
For Finkelberg, there was never any tension over whether his stations would switch to digital platforms. Rather, it was when and how.
âWe understand that digital is the future,â he said. “We will follow our listeners on any platform.” It takes pride in the fact that its stations support a full range of modern web offerings, including a sophisticated website, online feed, complex social media links, and ad inventory for airwaves and online. But even after six or seven years of trying to make digital radio bigger, he still struggles to make web radio as profitable as his parents on the air.
âAt least on air, you are serving a local community,â he said, âAudiences and profits soar if you start doing web radio.â
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The high cost of selling âfreeâ radios
The profit margins of traditional on-air radio spots still reach the same 50% they always have, he said, but online streaming radio is a profitable business at best.
âWe have made money on the radio side for eight of the last ten years,â he said. “And although we cover the costs of our digital products, the digital side of the business is not something we have figured out.”
Finkelberg’s white list of margin killers includes richer rights and royalties for web music programming and higher costs for staffing and managing online content. But the biggest hidden cost is the major expense of mobilizing its sales force to get local advertisers to pay for online inventory.
âIt’s just as much work to sell a web ad as a traditional ad,â he explained. “And what we can charge for these ads is a fraction of what we get for the airwaves.”
As an example, Finkelberg cites a station he runs in the Lower Hudson Valley, WXPK, as The Peak, which rivals Pandora for streaming radio advertising dollars. Both prey on top local media buyers – mostly suburban car dealerships such as New York-based Cortlandt Manor Automotive Curry. Even as Finkelberg continues with Curry’s significant online media buys, including dollars spent on Pandora, he still finds more profit by sticking to traditional radio advertising.
âLocal events and connections are where the public and the money always are,â he says.
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Humans are what humans pay
Remarkably, the idea that when it comes to local advertising, a cutting edge web streaming radio such as Pandora struggles to compete with independent and nimble local radio stations such as WXPK is confirmed by buying customers of Finkelberg media.
âThe idea that local radio can compete on the web with Pandora is hanging on to straws,â says Ray Lahey, president of Market Masters Media Group, a regional advertising and media buying service in Whippany, NJ, which counts Curry Automotive as a customer.
Lahey says that while he is very happy with what Pandora offers in terms of targeting and efficiency on the web, he still pays for modern live radio events. For example, to get the attention of a new Curry Toyota dealership, Lahey hosted a live remote for The Peak where the first 100 people in attendance received a free music CD – a CD owner walked out with a new car. free.
âWhat will never go away is how local radio can engage an audience with live remotes and promotions,â he said.
For the foreseeable future, this is fine for Finkelberg.
âOn the road, that can change,â he said. “And I hope to be there, but so far no one has figured out how to make digital pay off. People serving others are always our business.”
This commentary is from an independent investor or market observer as part of TheStreet’s guest contributor program. The opinions expressed are those of the author and do not necessarily represent those of TheStreet or its management.