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Google positioning for move into U.S. radio

Reuters | November 7, 2006
Sue Zeidler

Web search leader Google Inc. is hiring scores of radio sales people and is spending heavily in a bid to expand its position in the $20 billion radio industry.

Google spokesman Michael Mayzel said this week that the company will begin a public test of Google Audio Ads by the end of the year. Advertisers will be able to go online and sign up for targeted radio ads using the same AdWords system they use to buy Web search ads.

Google is generally testing its ability to move into offline media, this week saying it would help customers buy advertisements in 50 U.S. newspapers.

It made a clear move into radio in January when it agreed to pay more than $1 billion, depending on performance, for dMarc Broadcasting Inc., which connects advertisers to radio stations through an automated advertising system.

It's all part of what Google Chief Executive Eric Schmidt has said is an investment in radio advertising that could grow over time to include up to 1,000 Google employees -- not just in ad sales, but also in engineering and operations.

The fast-growing Silicon Valley Internet company had 9,378 employees in September.

"Google is hiring salespeople in most major markets and they're hiring sales people to sell radio. They're paying about 50 percent more than a typical radio sales person might make," said Bill Figenshu, chief operating officer of Softwave Media Exchange Inc, a unit of SWMX Inc.

Figenshu said three people he had spoken with believed Google was in talks to buy about $1 billion in radio advertising inventory from Clear Channel Communications Inc.. Softwave Media Exchange sells radio ads online and competes with Google's dMarc.

Google declined to elaborate on its plans.

Google's move into radio comes at a time when Clear Channel, the biggest radio station operator, is weighing a possible sale of the company.

Clear Channel, which controls an estimated 20 percent of local radio industry revenues, declined to comment on recent reports that Google could take a stake in the radio company, perhaps as part of a buyout led by private equity firms.

In a recent research report, RBC Capital Markets analyst David Bank said he was perplexed by Google's hirings, since they are being made before it has significant radio advertising inventory to sell.

"While there are other possibilities, we believe there's a reasonable chance Google Audio is establishing critical mass in anticipation of a major acquisition of prime inventory. Our sense from recent discussions with industry players has been most radio operators are reluctant to offer prime inventory to Google Audio," he said.

Bank said Clear Channel's size and potential sale make it a likely source of inventory for Google, either through Google taking a modest investment in a leveraged buyout or by taking a stake in the company's current incarnation.

Two private equity consortia are looking into making bids for Clear Channel, sources familiar with the matter said late last month. Analysts estimated an offer could approach $40 per share, valuing the company at just under $20 billion.

Other industry sources said Google had been approaching all the radio operators in recent weeks.

"They've been going around to all the radio groups, trying to do deals. It seems like a good time to be doing this because business is so slow, There's a lot of inventory," said one industry executive.

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