Love him or hate him, Rush Limbaugh, who “reaches an unparalleled audience of nearly 20 million in an average week” and who has a “$50 million a year paycheck” from Clear Channel, is a force to be reckoned with. Last Friday on his radio show, in response to a phone call from an ad-man thanking him for being “a driver of this economy” who makes “more wealth for people in one segment than Congress does in, well, decades,” Limbaugh briefly discussed the business model behind the success of his program.
“The business model of this program has never really been fully explored, which is fine with us. Of all the curiosity there has been about this radio program, the business aspect of it has really never been looked at. People are quite understandably fascinated by the content side, and they assume that the content side explains the revenue side. And while it does, in a way, that doesn’t quite cover it all. There is a precise business model.”
After explaining the traditional “cost per thousand” (CPM) radio advertising strategy, which focuses on getting the ad out to a certain number of people, he discussed how necessity forced him to try a different approach.
“[Major advertisers] wouldn’t touch us because of the so-called controversial nature of the program, and they didn’t want complaint letters, which are always fake anyway, from activist listeners trying to have a negative impact on the business side of our program...So, of course, we had to sit here and devise a different strategy if we were to make it, because while the content, of course, is crucial, without business side success, any content’s academic...We had to find a way to get sponsors and advertisers who had never used radio before, national radio. We went out and we found people who were in the same situation we were, startups, who were willing to take risks and go outside the conventional wisdom and the bounds of how it was always done, ’cause this radio show blew those boundaries away anyway, why not do it on the advertising side, and it did.”
While Limbaugh ended his discussion at this point, not wanting to divulge trade secrets, he implied that, rather than follow the CPM model, he adopted the “cost per acquisition” (CPA) model or “direct response radio,” which focuses on driving a measurable response to the ad that includes revenue.
According to Jeff Small, one of the pioneers of direct response radio, the new model developed in the mid-90s as a combination of “the sophisticated database techniques used by traditional direct marketers with the low cost, far reach and efficient targetability of radio advertising,” making Rush Limbaugh one of the early adopters of the new strategy.