Key Analyst Paints Dark Picture For Radio Industry

Marcy Ryvicker

DICKSTEIN SHAPIRO's annual financial session at the NAB RADIO SHOW in WASHINGTON kicked off TODAY (9/29) with a panel of investment firm partners discussing the state of radio's financial performance, led by the painting of a very dark picture for the industry by WELLS FARGO SECURITIES Dir./Equity Research MARCY RYVICKER.

Radio lost $5 billion during the recession, RYVICKER pointed out, but she noted that the entire advertising sector fell and all traditional media was down a combined 23%.  "What worries me isn't what we've just been through," RYVICKER warned, pointing out that "the trend for most traditional media has been down" even before the recession.  She suggested that radio's buying spree led to problems, and that radio "went after the wrong party" by targeting newspaper revenues, which went instead to the Internet.  She also blamed increasing inventory and excessive leverage for radio's woes, saying that radio's leverage is "at nosebleed levels." 

Radio's market cap, RYVICKER noted, has dropped from $26 billion in 2000 to $724 million in 2010; Investors appear to "hate radio," she said, blaming a "complete lack of trust" in radio operators after promises of growth went unmet and a failure to acknowledge the mistakes.  Available capital is down, but she said there is "way too much leverage to make the numbers work."  An ominous sign, she said, is that her own household went from being a radio household to a PANDORA household after purchase of an Internet-ready television.

RYVICKER suggested that radio needs to "embrace change," collaborate, maintain pricing and inventory integrity, recapitalize, take share from other media, invest in the core local product, use free cash flow wisely, be accountable, and plan ahead.

GE CAPITAL's RAY SHU said that most of radio's rebound growth lately has been on the national rather than local side, making the recovery in the industry "choppy at best."  He expected that the credit market will not come back to radio until investors regain confidence in the industry, which he projected as likely to take 12 to 18 months.  BMO CAPITAL MARKETS' LEE WESTERFIELD said that financing is available in the high-yield markets at progressively more favorable rates, and the institutional term-loan market in the $150-$180 million range is also open, but mostly to the largest operators, while banks are "still, as a rule, are reluctant to be involved in new credits in the radio space."

On refinancing, ATALAYA CAPITAL MANAGEMENT's MICHAEL BOGDAN said that capital is available if leverage is not too high.  "The world that we live in," he said, "is not a 10-times world."  ARLINGTON CAPITAL PARTNERS' PERRY STEINER said that "there is a very limited amount of equity" available for radio deals.  "What private equity firms like to see is stability and predictability," STEINER said, noting that the radio industry has not offered those attributes but saying that his own firm is "bullish" on radio in the long term as a "great free cash-flow business."

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