Forecast: Growth for Radio Sales, with Station Values Holding Firm

Radio’s annual revenue growth will average 3.2 percent, reaching $28.7 billion by 2016, according to projections in “Radio Station Deals & Finance,” a new study from SNL Kagan, reports MarketingCharts.

Although revenue growth is slow, radio station values have held relatively firm - largely due to higher margins and ample free cash flow, SNL Kagan said. While the industry has seen intense competition, it’s still attracting investment capital.

However, three major factors are contributing to a decline in the short term, according to Kagan: Internet ads’ siphoning of agency dollars, last-minute booking of air time and static ad rates. According to SNL Kagan estimates:

• In the near term, radio stations will finish 2007 with a 1.5 percent drop in revenue excluding nonspot sales.
• Radio sales will drop to less than $20 billion in 2007, compared with $20.1 billion in 2006, again excluding nonspot sales.
• A revenue total including nonspot slightly mitigates the decline to a projected 0.8 percent for 2007.

“Wall Street’s sell-off of radio shares pushed the average radio public trading multiple to 9.5x at the end of Q3 2007, with many TV stations now trading higher than radio shares, in an historic switch,” according to the report (see table of historic performance of radio and TV station averages). “That’s vs. an average public trading multiple in the region of 23x at year-end 1999.”

Deal volume decreased in 2007 versus 2006, while deal multiples softened due to the credit crunch and smaller average station size, as well as the presence of more properties on the market with few large-cap buyers, according to the report.

Through Sept. 30, $3.52 billion of radio properties changed hands at an average 12.1x cash flow multiple, SNL Kagan said.

“The operators and financial community will continue to invest and support radio going forward, because radio still turns out cash,” said Robin Flynn, senior analyst for SNL Kagan. “Many ad dollars are migrating to the internet, but radio is working to get a piece of that pie. While radio is not media’s highest growth industry, it still enjoys media-leading cash flow margins.”

The recent bright spots in the revenue picture have been nontraditional revenues and initiatives, including HD channels and incremental growth in internet dollars: The internet generally makes up 3 percent to 5 percent of overall revenues for operators, who are hoping for growth of 7 percent next year and growth of up to 15 percent in 2016, according to the report.

In addition, many stations are converting to HD, and significant revenue associated with the new technology is expected to emerge next year.