There have been numerous changes during the past few years, some driven by digital while others are an outgrowth of the pandemic. One of those that has created a potential opportunity for local radio is the creation of millions of new businesses. The federal government says there were nearly 5.4 million applications filed to form new businesses during 2021, which is the most of any year on record. As managers finalize their 2023 budgets, Borrell Associates CEO Gordon Borrell says that shows the most promise for the coming year.
“If your business is tied to businesses that buy advertising, you should absolutely be looking at that as you're doing your forecast,” Borrell said. Speaking on the firm’s Local Marketing Trends Podcast, he said the challenge for sales reps will be sniffing them out. “There's probably a lot more business available to media companies and agencies as potential clients, than they're actually saying because they haven't really popped their head up yet because they're not really advertising. They're invisible. They're not on billboards, they're not on TV, they might be doing some targeted advertising that you don't even see so it’s good to know that they're out there,” he said.
Borrell Associates expects local advertising overall will grow 3.2% next year thanks to bigger investment in digital. Among traditional media, radio is forecast to have one of the smallest year-over-year ad declines, with a forecasted two percent decline in 2023.
Borrell said that not only are there big differences among markets, but also macro trends impacting advertising. “We saw a big movement out of large, particularly northern markets, but also San Francisco, Chicago, New York, and Philadelphia, into rural and suburban markets. So you have this big movement in people and consumers that's changing the economy and the economies of local markets,” he said. That has opened the door for local media in some cases to capitalize on the growth of new businesses.
Corey Elliott, Borrell’s Executive VP of Local Market Intelligence, cautions that sheer size does not drive local ad spending, however. That is because many of the new businesses are more micro than small, sometimes with a single employee. “That doesn't necessarily mean that an influx of advertising is going to happen, although it will go online first, if anywhere,” he said.
The good news is that the small businesses with fewer than ten employees typically allocate more to ad spending as a percentage of gross revenues than big companies. Borrell said they average around 6% compared to 4.5% for big businesses.
Also working in radio’s favor is that these overworked entrepreneurs are probably more open to the digital products local radio sales reps are selling. “They're more likely to buy digital advertising from a traditional media company, because they got to talk to somebody in the local market and can't talk to somebody at Google or Facebook,” Borrell said.
Shari Bower, an executive with the Federal Reserve Bank of Atlanta, said the Federal Reserve has also been tracking changes in the economic picture in different parts of the country. “Rural areas and smaller cities have really been impacted by structural and economic shifts in recent decades in the U.S. economy, especially as we transition away from producing goods to providing more services. And this really favors more populated areas,” she said on the podcast. “Jobs recovery from the Great Recession has been uneven, especially with the decline and things like rural manufacturing employment,” she added.
The pandemic also brought other changes. For instance, she said that the Southeast has had “significantly higher” housing price inflation compared to the national average as people relocated from the Northeast and West Coast during the pandemic.
Elliott said the Federal Reserve’s outlook shows big differences city-to-city, and that is in line with how Borrell Associates sees things. He said it also offers a good reason for why media companies need to remove their “business blinders” where salespeople become overly accustomed to the clients that they have had in the past, and miss out on emerging opportunities.
“Very rarely do you get this influx of new business,” Elliott said. “And so if you start to have this illusion that your universe is this one tight little bowl, you're missing all this creation outside of it, and that's where a lot of opportunity is.”