Radio Show Opens With Broadcast Finance Session

Opening

The RADIO SHOW 2019, presented by the NAB and RAB, got underway with a limited schedule on TUESDAY, featuring the annual Broadcast Finance session.

PILLSBURY WINTHROP SHAW PITTMAN LLP Partner SCOTT FLICK and PERRY PUBLISHING AND BROADCASTING CO. Pres./CEO KEVIN PERRY served as hosts for the session, which included analyst J. DAVIS HEBERT of WELLS FARGO SECURITIES with an overview of the broadcast industry and a panel moderated by FLICK and comprised of PATRICK COMMUNICATIONS Managing Partner SUSAN PATRICK, COX MEDIA GROUP EVP BILL HENDRICH, NEUHOFF MEDIA Pres./CEO BETH NEUHOFF, and SALEM President/Radio Division DAVE SANTRELLA, joined by US BANK SVP/Media & Communications Division GARRETT KOMJATHY.

HEBERT offered a rundown of the general U.S. economy's growth and red flags, including slowing growth and international issues, and asserted that the green flags outweigh the red flags. Likewise, he said strong growth is expected for ad spending, with 2019 projected to reach a record $220 billion, but he added that digital is outpacing traditional media  Radio is projected as flat to 1% growth for 2020, but political revenues, HEBERT said, should be strong, and while the automotive category may be impacted by declining sales, better news may be coming from retail, tech, and the potentially huge sports betting category, possibly a more than $1 billion ad category in the future. As for time spent listning, radio is seen is slightly off but digital is taking its share primarily from video; traditional media is getting hurt the most in the 18-34 demographic.

HEBERT also aggregated data about podcasting, smart speakers, radio's ad revenue underperformance since the recession, and the cyclical nature of radio revenue, leading to his conclusion that deleveraging is the radio industry's most important task for now, using iHEARTMEDIA's paying down debt and CUMULUS using asset sales to deleverage as examples, and praising TOWNSQUARE MEDIA for growing digital revenue and RADIO ONE for paying down debt. Debt reduction is important, he noted, as radio stocks continue to underperform the market, while debt markets are showing confidence in the radio industry.

The average EBITDA multiple for station sales in 2019 has been 8.0x, HEBERT said, but he demurred on commenting on yesterday's court ruling vacating and remanding the FCC's loosened ownership rules, leaving the issue for the following panel to ponder.

On that panel, SANTRELLA said he was encouraged by radio's resilience, while NEUHOFF said she was struck by the need for radio to develop more and bigger revenue streams outside of advertising. HENDRICH said that the collapse of the newspaper business opened up a large amount of money in the market that digital has seized upon and which radio needs to do a better job of taking; PATRICK's focus was on smart speakers bringing radio back to the home, and KOMJATHY emphasized that radio needs to do much more with digital and agreed with HEBERT about the importance of deleveraging now before a possible recession hits. On ownership caps, NEUHOFF contended that her company "isn't iHEART" and isn't looking to be a huge company but will now face an uncertain 18 months waiting to see how the rule issue plays out before it can move forward with acquisitions.

SANTRELLA, asked about SALEM's plans, said that paying down debt is the company's priority but "radio stations still make a lot of sense" in the right situation, although SALEM is also investing in its digital operations. On the changes in main studio rules, HENDRICH stressed the need for radio to maintain its local programming and service while SANTRELLA agreed that while the options are interesting, radio remains a local business and magical: "It's still show business and it's still cool."

HENDRICH pointed to small- and medium-market managers as the industry's "main lobbyists," noting that "they know their Congressmen, they know their Senators" and can advocate for radio. PATRICK made the case for consolidation in smaller markets, telling the story of FCC Commissioner BRENDAN CARR visiting her company's stations in the YELLOWSTONE area and seeing their operation, then seeing a competitor running automated with doors locked; PATRICK said her company could operate more stations in the market effectively but can't do so under current ownership restrictions. She added that the current market for AM stations is "not great," even with translators, but while she would buy more FMs, she would not sell her AMs if allowed to own as many stations in those markets as she wants. And the discussion led to talk about podcasting, with FLICK downplaying the category as unprofitable, SANTRELLA claiming that SALEM's "been doing podcasts for 20 years, and we've been making money on them since day one," and NEUHOFF saying that "it's too soon to tell" whether podcasts will become profitable. HENDRICH noted that one of the most appealing elements of podcasting for listeners is that they have few commercials, yet if radio invests in the medium, a primary way to recover the investment will be to add spots.

The session was preceded by Country singer/songwriter JOHN BAUMANN in a brief acoustic performance presented by BMI.

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