Investment Interest in Radio 'Tepid' but Industry Holding Steady, Show Attendees Hear
ATLANTA -- A false perception that radio isn't doing well and has a relatively slow rate of return are making it difficult for the industry to attract investors, said radio licensees and investment analysts at the NAB Radio Show Tuesday. Recent Nielsen studies show that radio stations are doing better than potential investors think, and that webcasting competitors such as Spotify and Pandora aren't doing as well, said Entercom CEO David Field. “We're not telling the story of radio nearly well enough,” said Connoisseur Media CEO Jeff Warshaw.
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The radio industry's financial well being is holding relatively steady compared with the less consistent TV industry, said Wells Fargo analyst Davis Hebert. Despite “fears” of digital competitors eating into radio's effectiveness, it still accounts for three hours of listening time per day for most listeners, Hebert said, adding that investors and advertisers see listenership declines as being much sharper than it really is. Radio advertising revenue is expected to stay largely steady in coming years, with a small decline through 2019, Hebert said. Radio is expected to get about 5 percent of the estimated $4.5 billion in political advertising projected for the 2016 campaign season, and could see more through "spillover” if TV ad rates get too high, Hebert said.
Though analysts on the panel conceded that radio is a business that generates regular profits, Analyst Anish Aswani of investment bank Moelis & Company said interest in the industry from private equity investors is “tepid.” Though radio is attractive to long-term investors, private equity investors typically want bigger returns faster than radio can provide, Connoisseur's Warshaw said.
Aswani and U.S. Bank analyst Garret Komjathy said foreign investors are similarly cool toward radio. The FCC's recent approval of Pandora's buy of a radio station despite questions about Pandora's level of foreign ownership doesn't indicate an influx of foreign investment is on the way, the analysts said. Foreign investors look at radio “through the same lens” as private equity investors, Aswani said.
One possibility for attracting investment to radio is a “catalyst” such as consolidation, Hebert said. But an increase in mergers and acquisitions in radio is unlikely anytime soon, Komjathy said. The “inventory” for potential transactions is low, he said. Companies looking to buy are looking for specific assets, and those assets are unavailable, he said.
Field disagreed about the negative investor perception of radio. “We're not a lagger,” he said. With the “evisceration” of the TV industry and the troubles in the print industry, radio is in a position to grow, he said. Field pointed to recent Nielsen studies on the returns on radio ad spending as providing ammunition for enticing investors. Nielsen said telecom companies generated $14 in sales for every dollar spent on radio advertising, and department stores generated $17 for every dollar spent, said Nielsen Senior Vice President-Media Analytics Carol Edwards.
Radio could also compete better by offering advertisers the same data and statistics about impact that online competitors like Pandora are able to, said several industry analysts and officials. “We need to provide advertisers with what they're used to getting from others,” said Beasley Broadcast CFO Carol Beasley. Marketers are saying they need proof, said Pierre Bouvard, Cumulus/Westwood One chief marketing officer. “Every other media is coming in with proof.”