Yuichiro Chino
Source: www.insideradio.com, November 2023

Growing digital revenue has been a top radio industry priority for years. And while those efforts are paying topline dividends, there has been no significant research to date into the profitability of digital revenue. A new survey conducted by Borrell Associates with the Media Financial Management Association shines a light into the digital profitability abyss.

Survey respondents, about half (48%) of which were from radio and TV companies, reported robust digital profit margins. The average EBIDTA margin clocked in at 32.8% while the gross margin was 41.5%.

As digital continues to grow in importance, local media companies are getting more serious about tracking its profits. Just over seven in ten (71%) say they have a dedicated financial model or framework for evaluating the profitability of digital products. And nearly half (49%) say their digital profitability measurements are very accurate while more than a third (36%) peg them as moderately accurate. Moreover, 38% says their company’s profitability calculations for digital products are very useful and 30% say they are extremely useful.

The survey solicited via email and fielded online from Oct 24-Nov. 2 yielded 58 respondents, from what Borrell CEO Gordon Borrell called “fairly large companies.” Importantly 71% of survey takers had companywide focus and 97% were C-suite execs.

Heading into 2024, roughly one in three revenue dollars (28.7%) at local media companies surveyed are attributable to digital products or services. The Borrell canvas of local media execs found the largest slice (29%) said 10% to 19% of their revenues come from digital, 19% indicated 20% to 29%, 19% said less than 10% and another 19% indicated 30% to 59%. About 12% said 60% or more of their revenues came from digital.

The wide range isn’t surprising since some local media companies only recently boarded the digital train while others have been riding it for years. Among those in the latter group is Hubbard Radio, where 26% of gross revenues emanate from digital. “We have a little bit better profit margin in our digital services space than we do in our radio space,” said Dave Bestler, CFO of Hubbard Radio, who joined Gordon Borrell on the fast-paced 30-minute webinar.

As an early adopter that launched 2060 Digital in 2015, Hubbard Radio now pays its sellers different commission rates for different digital products. “When we first started, it was the same commission for everything we sold in the digital services space,” Bestler explained. “Now we have varied rates, based on profitability… We’re leap years ahead of where we were in 2015 and it’s really helped us drive our margins.”

Separately from the survey, Borrell tracked the digital operating margins of publicly traded companies based on their third quarter 2023 filings. Topping the list are Townsquare Media (31.8%) and iHeartMedia (30.9%). Beasley Media Group reported a 19.5% profit margin on its digital products/services, Salem Media came in at 15.3%.

But those are just a handful of publicly traded companies. Based on tracking revenue derived from digital at 7,000-8,000 locally based media companies, Borrell says the averages looks like this: 43% for newspapers, 31% for Yellow Pages, broadcast TV, radio, and cable. Specifically, the average radio digital revenue percentage is 21%. “A lot of private companies are doing a lot better than average,” Borrell said. “We see these growing pretty significantly since the pandemic, mainly because digital has grown but also because linear or core revenues have dropped.”

Display (banner) advertising and targeted banner advertising topped the list of digital sources that respondents derive revenue from and most of them track them for P&L.

While the survey found some digital products are more profitable than others, the webinar hosts cautioned against companies pushing their most profitable products on clients. “We really don’t do that, we try to do what fits the client’s need,” Bestler said. “When you start pushing your initiative, and not your client’s initiative, I don’t think that’s the key to success.”

Instead, Hubbard works to keep expenses down (including sales commissions) for its least profitable digital products. While things like search engine marketing don’t generate high profits, they help bring new customers in the door who may later be open to purchasing more profitable products.

Tracking profitability for digital sales comes with its challenges. “If you sell digital, a lot of profit goes out the window because you have to pay others to execute,” said one respondent. Added another, “Our software is for the core product and not adjusted to our current business models.”