Traffic jams become Westwood One's bread and butter.

The Los Angeles lifestyle means a lot of time in traffic, and for Westwood One Inc., that means a lot of money. The radio content company provides traffic information to 72 radio stations and nearly all the TV stations in the Los Angeles area. Now, as consumers branch out from traditional broadcasting to new media platforms, Westwood One plans to move with them.

Chief Executive Peter Kosann assumed leadership of the company in January with a mission to digitize its content. He inherited a gigantic programming machine that serves 5,000 radio stations around the nation. More than 192 million people hear Westwood One's content every week.

The company's Metro Network Division compiles more than 15 million traffic reports every year, thanks to the largest private car-tracking system in the world. It has more than 70 local operation centers, 1,800 traffic journalists, and more than 100 helicopters and airplanes. In the Los Angeles market, 130 anchors work out of a traffic center in Culver City, supplemented by six aircraft, 60 video cameras and computerized data from Caltrans and the Highway Patrol.

"The appetite for traffic among commercial broadcasters is only getting more acute," said Kosann. "The audience wants more live coverage. In a marketplace like Los Angeles, it's off the charts."

Kosann has a two-pronged strategy to extend Westwood's presence into new media. First, he plans to share up-to-the-minute coverage with his current broadcast clients for use on their Web sites. Second, a host of non-broadcast platforms--mobile phone carriers, e-mail services and in-car navigation systems--will allow consumers to customize information in exchange for subscription fees. The goal is to make traffic news "ubiquitous and easy," in Kosann's words.

As for the money, Metro Network currently delivers news, traffic and weather to about 2,500 radio and 200 TV stations nationwide, but few of them pay for the service. Instead, they give up advertising time which Westwood One sells to regional or national advertisers. Kosann sees the same model working in cyberspace. "Over time, we're going to end up with an inventory of digital media advertising," he predicts.

Tough market

Westwood One's traffic project comes at a time of struggle for the radio industry. In an Oct. 5 note to investors, analyst Anthony DiClemente at Lehman Bros. reported that aggregate terrestrial radio listenership had declined 6 percent in the last five years and 15 percent in the last decade. He predicted that iPod usage, satellite radio and Internet radio would "continue to contribute to deteriorating listenership, while growing options for local advertisers leave room for further market share shifts."

DiClemente also noted that radio stocks had declined almost 21 percent since the beginning of 2006. Publicly traded Westwood One has fared even worse with a 53 percent drop. Of the 13 analysts who cover the company, two advocate selling it, while one rates it as a buy and 10 rate it as neutral or hold.

For the third quarter 2006, New

York-based Westwood One had revenues of $129 million, slightly beating the estimates of JP Morgan analysts John Blackledge and Aaron Chew. "Despite the recent weakness in the stock, due to limited margin expansion in the near term driven by top-line weakness and continued investment in programming content and technology at Metro Networks, we think potential valuation upside is limited over the next 12 months and maintain our neutral rating," they wrote in a report dated Aug. 9.

On the upside, Westwood One is a pure play content company, meaning it doesn't actually own radio or TV stations.

The emergence of automobile navigation systems such as OnStar, Magellan and TomTom could open a subscription-based revenue stream for Westwood One. That would help compensate for the tough radio advertising market, which has been nearly flat this year. But "as with most advertising-centric business models, if there is a material change in the economy, this could lead to upside or downside to our estimates for Westwood One," according to Blackledge and Chew.

Ad factors

Traffic-based advertising differs from standard 30-second spots in that the ad message surrounds the content. A typical traffic report starts with the sponsor's name, followed by the traffic information and ending with a 10-second blurb read by the on-air announcer. At a time when broadcasters are scrambling to keep listeners tuned in during regular commercials, the traffic report format makes it impossible for them to ignore the ads.

"Traffic as content is the most relevant, timely and intrusive piece of information on the air," Kosann said. "When we sell sponsors, what they like is that listeners are attentively listening, or with TV they're standing in front of the screen during the traffic report."

Moreover, demographics will continue to make traffic top-of-mind for consumers. Kosann points to two recent studies that show inner-city congestion increasing and commute times lengthening. The run-up of urban home prices in recent years has forced people to live farther away from city centers without a commensurate increase in freeway capacity.

Westwood One has sold packages of report sponsorships on its affiliates, but to help advertisers reach narrower audiences, the company plans to sub-divide its audience into three groups based on listener demographics. Starting in January 2007, it will offer advertisers rotations on all its affiliate stations, or sponsorship on the Mobile Male Network, the Active Female Network and the Opinion Leader Network. The networks consist of stations that reach the respective demos.