Fitch Ratings Sees Radio Revs Declining 1-2%
March 9, 2012 at 4:11 AM (PT)
According to its report 'Broadcast Radio Industry Assessment: Near-Term Declines, Digital Potential,' FITCH RATINGS expects radio advertising revenue (excluding digital) to decline 1%-2% annually. FITCH believes reduced time spent listening will be partially offset by modest pricing growth. Advertiser demand will remain, given the large core audience, the medium's local reach, its targeted nature, and its low cost.
FITCH expects Internet radio streaming services will continue to grow audiences, particularly via increased mobile penetration. However, FITCH sees significant hurdles to these services obtaining the size, scale, and subscription or advertising dollars necessary to present a severe threat to terrestrial radio.
Further, FITCH believes digital initiatives by terrestrial broadcasters, although in early stages, could provide an opportunity to capture a sizeable portion of digital listening over the next few years. Whether this will translate into incremental revenue will depend on advertising demand and pricing.
Terrestrial broadcasters' established, high-margin businesses will allow them to fund digital initiatives and provide room to absorb near-term revenue declines before any digital revenue becomes material. However, in the event of ongoing top-line pressures without a meaningful digital offset, lenders to radio broadcasters could be increasingly exposed to risks of more aggressive financial policies as companies attempt to boost their equity to the detriment of bondholders.
FITCH assesses other risks and opportunities for terrestrial broadcasters, including performance royalties, station formats, HD RADIO, satellite radio, in-car listening, and market and distressed valuations.
The report is available on the FITCH web site.