Summary
Radio Groups who are under profit operating pressure and lenders who are very nervous should think hard about how to go about turning the tide. Manage for the long term while making short term costs cutting decisions or your asset may lose more value than necessary.
Analysis
Times are difficult for radio groups now with advertising revenues dropping dramatically. However all groups face the same economic realities. Covenants are being broken and lenders are getting nervous and more involved in putting pressure on operators to cut costs to preserve dollars. It's how each group handles this crisis that will help or hurt asset value as the economy regains strength. Boarder Media and Riviera Broadcast Group, have recently been taken over by their lenders and more will follow. This may have been necessary but how they act during this period will determine their ultimate exit price.
Watch out that the baby isn't thrown out with the bath water. Radio has problems but most due to the poor economy. Yes, Radio must embrace the digital world and develop their internet position and their online and on mobile interaction with their audience. Over 92% of Americans 12+ rely on radio for information and entertainment and in medium to small markets it is an essential link to their community. Radio is a major force and if operators and lenders don't properly address the longer term effects of expense cutting they could easily lose a franchise asset. Radio has an asset value as a low cost advertising mass medium and a value due to its limited entry. However competition is fierce for audiences and advertisers and one station's/group's cost cutting could change local perception in favor of another station/group who cut costs in a not so publicly noticeable manner thereby elevating its relative value to audiences and advertisers.
The economy will recover and Radio will get its arms around the digital world and hopefully your group or station will not have given up a market position that leaves its value below water.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
