What I’ve Learned From Radio Advertising

Reflections of a year of building product @ Pandora

It’s been 15 months since I started dipping into the world of radio advertising after building my knowledge around the digital space for many years prior. It’s been fascinating to see how different the foundation of digital marketing is when compared against the way radio advertising is bought. At times, it’s been shocking to see what radio gets right that digital misses, though overall the opportunity to disrupt this medium continues to be an exciting challenge.

Some interesting takeaways I’ve learned from the radio advertising business in the past year:

1) Drive Time = Prime Time

This was the least surprising lesson, but the first thing to note when it comes to radio advertising is that the local dayparts of 6-10am and 3-7pm are the highest demand periods for buying time. Rates for ads during this time are significantly higher than during the rest of the day (as is listening).

This daypart is a proxy for attention. Commute hours capture the most captive audience: people with nothing better to do than have audio serve as their companion through a tedious portion of their day.

Advertising is a game of earning a consumer’s attention and the radio market is set up to capture it by default. It’s a refreshing change of pace from digital, where capturing user intent is often antithetical to the banner ad pitch.

2) Buyers are Set to Think Local First, National Second

In digital advertising, local targeting is a feature of your product. In radio advertising, local targeting *is* the product.

The vast majority of terrestrial buying is set up to allocate a specific budget for each metro area that the buy is set to take place in. This is due to the variance in spot costs and populations in those areas.

This is a fun technology problem to work on when determining the best way to allocate and manage inventory, since most large digital buys tend to have predominantly national targeting.

3) Programmatic is Old News

A lot is being made of the “programmatic revolution” in the banner ad space, but terrestrial radio has had human disintermediation at its core for several years. The main drivers of this are Mediaocean and STRATA: planning tools that terrestrial buyers use to understand the landscape of the tens of markets that they are allocating budgets into.

Building in feeds into these platforms were Pandora’s actual first foray into programmatic advertising last year. It was fun to be a part of catching the introduction of this simplified form of campaign planning and buying for internet radio among terrestrial buyers.

Digital programmatic should take note how to actually make a buying process efficient by learning more about how radio has done it. A good place to start: Proposal XML.

4) 5 of 15 Minutes is Considered as Full Attention

Ratings are set in 15 minute increments known as Average Quarter Hour Persons (AQH). It is defined as the average number of persons listening to a particular station for at least 5 minutes during a 15 minute period.

This is the biggest head scratcher, but allows advertising to remain consistent in the radio space. The entire pricing mechanism is built around paying for attention, but there is an inherent tune out discount into the pricing that the true reach of a given ad may be only ⅓ of the audience.

5) CPP Pricing Makes More Sense than CPM

Radio buyers typically do not buy on CPM pricing. Digital advertising loves CPMs, but it really is a relic of print advertising.

CPP means cost per rating point. To understand the pricing, first look to the rating point: which is a measure of 1% of the total population of a given metro area. The radio stations in that metro area then fight for share of attention of that population, getting a rating from Nielsen/Arbitron that measures what percentage of listeners in the metro area tuned in during each 15 minute window of the day.

For example, if you are KDKA Radio, and 3% of the Pittsburgh metropolitan area tunes in between 09:15 and 09:30, let’s say the going CPP rate during drive time is $500, then the cost of buying a spot would be $1,500.

Radio advertising inherently has its focus in the right place: the amount you pay for your campaigns is a function of the attention the media property is able to garner. What a refreshing concept in contrast to the world of digital CPMs, which focus on page view enhancers like slideshows and open themselves up to perverse incentives that create bot traffic.

Overall Takeaway

The radio landscape is an incredibly fun one to build disruptive technology against. The items that make the space unique still have a long way to go in terms of driving efficiency for advertisers: more refined targeting beyond a metropolitan area (which is still massive), increased measures of attention and ultimately greater visibility into ROI.

It makes going to work every day pretty damn exciting. Can’t wait to share the new products we’re working on to drive radio into its next volume.