L.A. radio poised to surpass $1 billion in advertising revenue.

Buoyed by growth in several key categories, the Los Angeles radio market is poised to break $1 billion in sales this year--the highest total ever reached by an individual market.

Among the reasons cited for the increase are stations' ability to command higher ad rates as a result of ever-longer commute times and the subsequent increase in listening at the expense of other media, such as newspapers and television. Few outlets are actually putting more ads on the air.

"No U.S. market has ever surpassed $1 billion in revenue, and L.A. is growing at a faster rate than any of the other Top 10 markets" said George Nadel Rivin, a partner in the broadcast services division for Miller Kaplan Arase & Co., which tracks advertising spending for radio and television.

Radio can provide an important gauge of a market's overall economic health because nearly 80 percent of its ad revenues come from local businesses--unlike television and magazines that attract national advertisers looking to increase overall market share.

"L.A. is a largely misunderstood major market compared to the rest of the country," said David Miller, an analyst with Sanders Morris Harris Inc.

"Image-wise, L.A. tends to be thought of as a media and entertainment town. The truth is L.A. has one of the largest bases of small- and middle-market companies (in the country). They want to advertise where their customers are," he said.

The sharp increase in ad revenues has been seen in all formats and station sizes--not just major station groups like Clear Channel Communications Inc., Wait Disney Co.-owned Radio ABC and Viacom Inc.'s Infinity Broadcasting Corp. Together, those companies own more than 20 local stations.

Andrew Mars, vice president of Los Angeles-based Liberman Broadcasting Co., which owns a handful of Spanish-language stations in Los Angeles, also reports a strong year.

"Phone cards have been strong and entertainment has been up, not just studios but theater chains," Mars said. "We're less impacted by national media decisions and much more by local businesses."

Although the New York metropolitan area leads the nation in the number of radio listeners, L.A. has become the nation's most lucrative market.

BIA Financial Network Inc., which releases an annual report on individual radio station revenues, anticipates that spending on Los Angeles airwaves will reach $1.03 billion in 2003, a 9 percent gain over the record $950 million in 2002.

The Southern California Broadcasters Association, a local trade group, went even further, projecting that overall market revenue this year could increase from 10 percent to 12 percent.

Station executives were reticent to discuss actual rates, but they indicated that ad prices were up by about 10 percent this year, roughly even with the revenue gains in the market.

New York is on track to increase its advertising revenues to $824 million from $777.3 million, according to BIA. Chicago, the third-largest radio market, is expected to reach $590 million this year from $559 million in 2002.

"We are fortunate in Southern California that the malaise in the advertising industry has not taken hold here," said Charlie Rahilly, senior vice president West Coast for Clear Channel, which owns eight stations in the Los Angeles market. Several sectors show particular strength.

Through July, auto manufacturers, dealers and rental car companies had spent more than $85 million, a jump of 16 percent from the like period in 2002.

Telecommunications advertising totaled $39.5 million through July, up 40 percent over the like 2002 period, while television advertising (mainly promotions for upcoming network programs) was roughly $41 million through July, up more than 17 percent from 2002.

"We are really outpacing the market. Our growth this year has been closer to 15 percent," said Bob Koontz, director of sales for Radio ABC Los Angeles, which has four local stations, including KABC-AM (790) and KLOS-FM (95.5). "Our rates are up significantly from last year. If our revenues are up 15 percent our rates have probably grown right along with that."

Miller agreed that automotive, telecommunications and television have been the principal categories driving growth this year, but other areas have also been strong compared to 2002.

Advertising by banks and other financial services providers increased by 28 percent through the first seven months of the year, to $26.4 million, according to Miller Kaplan. Entertainment, including concerts, theaters and movies, was up more than 5 percent to $24 million, and retail, including department stores and shopping centers, was up more than 10 percent, to $14.6 million.

Of the Top 10 advertising categories, just two--beverages and restaurants--saw a decline through the first seven months.

One category that did not have the impact many anticipated was the California recall election. Most of the advertising dollars spent on the recall went to television as opposed to radio, several station executives said.

For next year, BIA Vice President Mark Fratrik said ad spending in Los Angeles is anticipated to be $1.1 billion and $1.2 billion in 2005, gains of 6.4 percent and 8.4 percent respectively. That's slightly higher than national radio growth, which is expected to be closer to 6 percent.

Fratrik said the 2004 Summer Olympics and next year's presidential election are expected to have a modest impact on radio ad sales.

Radio Growth
L.A. outpaces nation. *

              (millions)

Los Angeles     $1,038
New York           824
Chicago            590

* Estimated

Source: BIA Financial Network

Note: Table made from bar graph.