Posted: November 24, 2008 at 8:00 am
Lew Dickey Jr., CEO of Atlanta-based Cumulus Media Inc., said sputtering advertising plus the upheaval in the stock market will cause a major shakeup in the land scape of broadcast radio over the next several years.
“I think there’s going to be a pretty big shakeout and I think that half the companies in business today will be gone within 36 months,” Dickey said. Cumulus is the nation’s second-largest broadcaster with 344 stations owned and operated.
Atlanta is the nation’s seventh-largest radio market, according to Arbitron.
Many radio companies are steeped in debt following the consolidation rush of the late 1990s and early 2000s and are witnessing precipitous declines in advertising as the economy falls toward recession.
The radio industry was down 11 percent in August and 8 percent in September, according to radio analysts C.L. King & Associates Inc. of New York. The fourth quarter will be just as bad, if not worse.
Ad revenues from car dealers, automakers, the housing industry and the financial sector are down sharply for broadcasters across the country, Dickey said. The Atlanta market — which enjoyed years of housing boom — has been especially hard hit by the fallout of the mortgage industry, radio executives said.
Stock values of radio broadcasting companies have plummeted in the past year as investors pulled money out of the stock market. The downturn, however, only accelerated after Wall Street’s collapse.
Stock in Cumulus Media (Nasdaq: CMLS) broke a buck Nov. 11 and rested at 54 cents a share Nov. 18. Its 52-week high had been $9.42.
Atlanta-based Cox Radio Inc. (NYSE: CXR) has seen its stock slide from a 52-week high of $13.09 to around $4.
Las Vegas-based Citadel Broadcast Corp. (NYSE: CDL) and Washington, D.C.-based Radio One Inc. (Nasdaq: ROIA) now sell for about a quarter a share. Some have fallen even lower. Many companies, including Cumulus Media, now have market capitalizations of around $20 million or less.
Ad revenues — the lifeblood of media companies — and earnings overall are down industrywide, which could trigger weaker companies’ covenants with creditors.
Cox saw its third-quarter net income slip 21 percent, with stations in Atlanta, Orland o, Miami, southern Connecticut and Jacksonville, Fla., posting revenue drops. Cox has $415 million in debt but has a $185 million credit facility and isn’t in danger of triggering covenants, according to its earnings reports.
Cumulus turned a $6 million profit in the third quarter after posting a $70 million loss a year ago — mainly due to non-cash charges — but revenues were off about 5 percent. Dickey said the company projects the fourth quarter will be down 9 percent to 11 percent.
Dickey said Cumulus, which has $717 million in long-term indebtedness, is current on all its covenants and has flexible agreements with its creditors. Cumulus also has nearly $75 million in liquidity and a half-billion dollars it can borrow.
Dickey said his family is confident in the fidelity of the business. His father, Lew Dickey Sr., has purchased tens of thousand s of shares in recent weeks, according to Securities and Exchange Commission filings.
Cumulus, which went on a station-buying spree through 2005, plans to be a buyer again, despite the current market conditions, Lew Dickey Jr. said. “We continue to be a buyer and we plan to grow our business,” Dickey said. “The largest impediment to consolidation right now is the brutally difficult financing markets.”
Radio has an enormous audience — roughly 9.4 out of 10 people listen to local radio each week — but broadcasters have done a poor job capitalizing on the market. IPods, Internet radio and satellite radio haven’t killed broadcast radio and never will, Dickey said.
“The radio industry has been its own worst enemy in terms of commoditizing its product,” Dickey said.
Speaking to analysts on Nov. 6, Dickey said the radio industry has been “myopic” when it comes to prospecting and targeting both local and national advertisers, “thereby allowing the market to be defined by a hand ful of gatekeepers who have consolidated media buying for the major accounts. As a result, price integrity and value-based selling have been replaced by often vicious rate-cutting to take share from competitors.”
The most serious affliction facing the industry is rooted in its sales culture, he told analysts. “I believe the cure for this affliction is to revitalize our sales staffs and transform them into organized teams of demand creators, not demand responders.”
The industry must do a better job of pricing for what advertisers truly get, Dickey told Atlanta Business Chronicle. But when advertisers are slashing their ad spending, that’s a tall order.
“In my judgment, [advertisers] are always looking for value, and if you’re effectively promoting value, price is secondary,” Dickey said.
The industry is placing its bets on emerging technology such as high-definition radio to offer more to consumers. Still, saturation is still five to 10 years away.
Despite what could be an ugly near future for radio, he said, “Fundamentally this is still a very sound business.” [