Would Google Buy Into Clear Channel?
November 2, 2006 at 2:18 PM (PT)
RBC CAPITAL MARKETS analyst DAVID BANK said in a recent research note that GOOGLE has been "dramatically ramping up its radio sales force" for its GOOGLE AUDIO (dMARC) and that GOOGLE has hired "high-profile" radio salespeople in NEW YORK; LOS ANGELES; CHICAGO; WASHINGTON, DC; BALTIMORE; and ATLANTA, though, BANK says, "Our sense is the new hires aren't finding themselves very busy" because GOOGLE has "virtually no inventory of any real significance right now."
What does it all mean? BANK believes GOOGLE might be "looking to move in on the very addressable and very large local prime inventory radio market but needs a means to acquire quality inventory" -- and that a likely scenario would be an investment in CLEAR CHANNEL.
BANK says, "With an estimated $15.6 billion in local spot revenue in 2005, we think GOOGLE is looking to move in on the very large local radio market both as a complement to its nascent efforts in local search, as well as an extension into a more diversified revenue stream. A deal with CLEAR CHANNEL would have the potential to be very good for CLEAR CHANNEL and very bad for everyone else in the near term. We think GOOGLE would be willing to purchase inventory from CLEAR CHANNEL at attractive prices and then essentially drop the floor out from everyone else in the pricing environment. A scenario such as this would have serious negative implications for the rest of the terrestrial broadcasting industry."
However, BANK says, "All that said, GOOGLE might have something completely different in mind. The next major leg of growth for paid search is local, which has been difficult for GOOGLE to penetrate in scale. Thus far, GOOGLE's efforts to sign up local advertisers has been through partnerships with aggregators and self sign-up. So hiring radio salespeople could simply be GOOGLE moving aggressively ahead of competitors to lock in what might be the most valuable relationships at the local level and leverage these relationships across all its products over time, including search, radio, display, video and others."
Meanwhile, BUSINESSWEEK's STEVE ROSENBUSH says GOOGLE could take part a buyout without having to pay much cash: "CLEAR CHANNEL has an enterprise value of about $25 billion, suggesting that a 'club' of private equity firms and other investors might put in a total of $5 billion to $6 billion in equity. Any one of them could get a small but strategically important stake of, say, 5% or so, by investing $250 million in cash."