Google to Buy Radio Ad Company
Google Inc. said Tuesday that it would pay as much as $1.1 billion to acquire a company that brokers radio airtime, in the clearest sign yet that the search giant wants to extend its online dominance to the wider world of advertising.
The purchase of Newport Beach-based DMarc Broadcasting Inc. would add radio to the portfolio of media that Google is seeking to pepper with ads. The company has experimented with reselling magazine and newspaper ads, and it recently launched an online video store that many analysts believe will include TV-like commercials.
Taken together, Google’s recent efforts hint at the company’s aspirations to tap a larger portion of the nearly $300 billion spent on advertising annually in the United States.
Google rules the $12-billion online ad market, with $4.2 billion in revenue during the first nine months of 2005.
But that’s a fraction of the nearly $20 billion that national advertisers spent on local radio spots in 2005, according to Universal McCann, a major ad-buying agency.
“This reflects a move into other traditional media where there’s a lot more money circulating,” said Greg Sterling, an analyst with Kelsey Group. “It moves them closer to this goal of being a comprehensive, one-stop ad-buying platform for any media.”
Google’s moves are sure to raise anxiety among traditional ad agencies, given the company’s record of success.
“If they can bring the same efficiencies to radio ad buying that they’ve shown in the search space, they’ll be able to provide a cheaper alternative to more antiquated means of being able to buy ad space on radio networks,” said Andy Beal, chief executive of online ad agency Fortune Interactive.
Some analysts, though, were less sanguine about Google’s prospects, saying the company faced a major challenge in expanding its method of targeted online advertising into less efficient forms of media such as broadcast radio.
“It is definitely a head scratcher when they get into all these areas that are not in their sweet spot,” said David Cohen, interactive media director at Universal McCann. “I think they are trying to do too many things too quickly.”
DMarc, founded by brothers Chad and Ryan Steelberg, said it had contracts with more than 4,600 radio stations to provide services such as filling ad spots with targeted advertising. Advertisers can purchase commercials to play alongside specific songs or to specific audiences. The company also sells systems that automate accounting reports.
Those traits -- “accountability, efficiency, scale and immediate results” -- sound quite similar to what Google tries to do, said Patrick Keane, Google’s head of advertising sales strategy.
Google, based in Mountain View, Calif., has flourished by selling online advertising that is tightly targeted to users searching for specific terms.
For instance, a Google search for the phrase “wedding cake recipes” brings up advertisements for recipe books and weight-loss programs. Translating that to radio may be difficult.
“At any given time, thousands of people are listening to a given radio station,” said Jim Kerr, an analyst with Pollack Media Group. “How can you bring micro-focused advertising to radio? Stations can’t listen to what people are talking about in their cars. It’s not useful to sell a restaurant ad just because a song includes a reference to food. Radio advertising is antithetical to what Google does well.”
Keane said Google had not figured out exactly how the system would work. But he said it was clear that “the media landscape is changing quite a bit,” adding that Google was seeking ways to capitalize on those changes by placing ads before audiences even when they were not online.
As the biggest broker of Internet ads, Google is in the enviable position of having marketers wanting to buy more ads than the Internet is capable of handling, said Ben Schachter, a senior analyst with UBS Investment Research.
“Advertisers want to spend more money with them, and Google is looking for ways to answer that call,” he said.
The deal for DMarc is expected to close in the first quarter. Google said it agreed to pay $102 million in cash upfront, plus performance bonuses over the next three years that could bring the value of the deal to $1.13 billion.
Google shares gained 86 cents to $467.11.
