Advertising Agency (Market Analysis)
Market Analysis
Market
BlueIsland.com's market intersects two industries: the $17 billion business-to-business electronic commerce industry and the $190 billion advertising industry. Although BlueIsland.com's vision is to become the small business hub for online advertising buying and selling, BlueIsland.com will initially just represent the transactions of the $17 billion radio industry. The competitive space we have defined for BlueIsland.com overlaps that of one direct competitor, AllMedia.com, and a number of indirect competitor groups. Our markets, customers, and competitors are further defined below.
Business-To-Business E-Commerce Market
Business-to-business e-commerce revenues for 1998 were $17 billion and are projected to grow to $1.7 trillion in 2003. It is projected that by the year 2002 almost one-third of all business-to-business transactions will be performed via e-commerce (1998). In 1998, 41 percent of small businesses used the Internet; this was double the use in 1996. According to a survey conducted by IBM and the U.S. Chamber of Commerce, 63 percent of small businesses (less than 100 employees) use the Internet for research, 37 percent use the Internet for online ordering, 30 percent use it for promotion/advertising, and 9 percent pay suppliers. Small businesses have been slow adopters in the e-commerce industry.
Radio Industry Analysis
Radio Stations
The radio industry includes 12,275 radio stations in more than 238 major markets. Although there has been consolidation since the Telecommunications Act of 1996, the radio industry is still highly fragmented and managed by many small mom-and-pop operations. Radio stations derive 75-100 percent of their revenues from advertising. In 1999, the U.S. radio advertising market represents a $17.7 billion industry with expected 8.5 percent continued annual growth. This growth had been fueled by radio industry marketing campaigns, the growth of the Internet, and the use of radio as a primary communication medium to drive consumers to the web.
Radio & Technology
Radio stations have been slow to adopt the use of the Internet as a broadcast, advertising, or e-commerce medium. Realizing the lack of development of an Internet strategy among radio stations, CEO Gary Fries called on radio stations to be "E-Born" at the September 9, 1999 Annual Radio Advertising Bureau (RAB) conference. However, even Mr. Fries, like many radio station managers, is not seizing the power of the Internet as a channel to automate traditional sales and expand the market reach and size.
Radio Advertising Process
Approximately 75 percent of radio advertising is purchased at the local level. Buyers of radio advertising space include national advertising agencies, local advertising agencies, businesses, and media brokers (representative firms). Most radio stations have their own personnel to manage sales within their respective markets. However, national media representatives or "rep firms" are contracted to sell to national clients. There are currently two major radio "rep firms," Ray Communications and Anderson Radio Store.
Radio advertising can be purchased on a national network and individual local market spot basis either directly or through advertising agencies. Spot radio programming formats vary widely from market to market, from talk shows to music. Prices also vary depending on the size of the market, from $601 cost per thousand in New York City to $58 in San Francisco, California.
Radio Listeners
In 1996, 99 percent of all households owned a radio. Ninety-five percent of all adults not only listen to radio each week, they listen for more than 3 1/4 hours per day. One third of people surveyed indicate they listen to radio at work. Radio reaches over 80 percent of professionals and managers each day. Radio is also one of the only mediums that can reach the increasingly mobile American at home, from their commute to and from work, as well as throughout the day at the office.
Radio Listeners: Research
Consolidation
The 15 largest radio broadcasters, which own about 11 percent of all U.S. stations, accounted for about 42 percent of all industry advertising revenues in 1997, up from six percent of stations and 34 percent of revenues in 1996. With the relaxation of federal station ownership regulation, a radio station operator can own as many as eight stations in one market, but no more than five of one kind (AM or FM). The ensuing consolidation has allowed for the centralization of back-office functions such as sales, billing, and marketing, and investment in new product and sales efforts. The concentration of ownership across markets appeals to advertisers who can make one station "block" ad buy then negotiate on a station-by-station basis. This one-stop shopping concept boosts the attractiveness of radio as an advertising medium, no matter whether the advertiser is a local merchant or national advertiser.
Advertising Agencies
In 1998, there were approximately 30,000 advertising agencies in the United States, representing $21.9 billion in annual revenues. A majority of these firms are headquartered in major cities such as New York, Chicago, and Los Angeles. Although traditionally dominated by large, public corporations, most advertising agencies average only 11 employees. Advertising agencies vary greatly in size and scope. Smaller agency personnel are responsible for a variety of tasks, while those in larger agencies find their job duties to be more defined.
Advertising agencies are responsible for two main functions: the production of advertising materials (writing copy, graphics, audio, video, art) and strategic placements of the finished product in various media outlets (periodicals, newspapers, radio, television). The activities of ad agencies are divided into four broad groups: account management, the creative department, media buying, and research. Agencies generally receive compensation for production costs from the client, plus a standard 15 percent commission from the media source for the ad placement. However, this pricing structure is changing from a flat fee to a cost plus contract structure.
