Smaller Proves Better For Radio Biz
Story from the Wall Street Journal

For much of the 1990s, the radio industry threw a party for investors, fueled by deregulation and mergers. Then came the hangover.

Acquisitions have burdened numerous broadcasters with heavy debt, including half of the 10 biggest such as Clear Channel's parent CC Media and Citadel Broadcasting.

At the same time, intensifying competition for listeners, from satellite radio and the Internet, helped slow growth in advertising. The recession sent revenues off a cliff. Station ad revenues fell 7.8% in 2008 and are expected to drop a further 15% this year, estimates consultant BIA Financial Network.

That has highlighted an excess of capacity. The number of commercial stations rose 2% to 11,213 from 2004 to 2008, according to the Federal Communications Commission.

One solution is an industry restructuring involving the closure of stations. That could happen if there are some bankruptcy filings.

In the near term, however, the best positioned broadcasters may be those exposed to smaller markets, where competition for ad dollars is less. Average revenue at stations in markets below the top 50 fell 6.6% last year compared with around 9% for bigger stations, BIA estimates. It projects smaller stations will continue outperforming through 2013.

That's not great for No. 2 broadcaster CBS, which has been selling stations in smaller markets. But it could be good for companies like Saga Communications, many of whose 89 stations are in small markets. Saga is trading at a lowly 3.6 times Wachovia Capital's projected 2009 earnings.

Investors tuning into radio now will have to endure a lot of static. But for those willing to leave the big city, the signal may be clearer.