Radio Stocks Might Be Dead, But The Industry Isn't
February 12, 2009 at 5:04 AM (PT)
Terrestrial radio still reaches 90% of AMERICANS weekly, STANFORD analysts noted recently. That number has remained steady despite the introduction of satellite radio, iPODS and other competitors, reports REUTERS citing a HOLLYWOOD REPORTER article. And a recent report from SNL KAGAN predicts that, just as has happened on several occasions, radio will meet its challenges and emerge a stronger medium.
Those challenges, though, are not trivial: Radio companies have taken on too much debt at exactly the wrong time given the credit crunch and a U.S. recession. Plus, WALL STREET seems to think that radio never will recover from the advertising slump that has hurt all media, including online. But given the horrendous way pure-play radio stocks performed last year, with the best of them being cut in half and the worst of them down to mere pennies, WALL STREET might be too pessimistic.
Although some press recently has called for the eventual extinction of broadcast radio as old media, the industry still reaches more than 235 million listeners and will likely remain a viable business in the long term.
The pessimism might last another year to 18 months, SNL KAGAN says, but then radio will "again attract private-equity and debt players ready to take advantage of the industry's ability to throw off copious amounts of free cash flow." SNL KAGAN says that investors have pushed down the average radio stock to just 8 times 2008 cash flow, from multiples of about 23 a decade ago.
That's an opinion not universally shared, however. STANFORD analysts, for example, wrote that "pressured cash flow and heavy debt burdens could render the equity value of many radio stocks worthless."
Radio also has a few technological improvements on its side, including the rollout of HD, which will get a boost as more carmakers make it a factory-installed option, as FORD will do this year. The bigger opportunity is the Internet. Last year, SNL KAGAN estimated that online advertising at radio station websites amounted to only 2.2% of overall radio ad revenue, but the research firm sees that growing to 4.5% and more than $1 billion by 2012.
SNL KAGAN sums up its relatively bullish analysis this way: "Although some press recently has called for the eventual extinction of broadcast radio as old media, the industry still reaches more than 235 million listeners and will likely remain a viable business in the long term."