2018 a Transition Year for Radio, Says CEO Panel
ORLANDO -- The radio industry is looking forward to 2019 for possible ownership deregulation and the emergence from bankruptcy of industry leaders Cumulus and iHeartMedia, said the CEOs of Beasley Media, Townsquare Media and Hubbard Radio on a Wednesday finance panel with Wells Fargo analyst Davis Hebert at the NAB Radio Show. Outside investors have “a wait and see mentality” towards radio, Beasley CEO Caroline Beasley said. This is a “a major transition year,” Hebert said.
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Radio has seen increased competition from digital sources for ad dollars and little financial growth, Hebert said. “Radio has slightly underperformed” in grabbing its share of ad spending since the recession, Hebert said: “The reality is digital is taking its share.” Radio could perform better going forward because media consumption and consumer use of audio through podcasts and smart speakers are on the rise, he said. “The audio pie is growing,“ he said.
If the 2018 quadrennial review leads to relaxing AM/FM subcaps, 2019 is when it would likely happen, panelists said. That would allow radio groups to grow within their existing markets, improve their positions and offer diverse formats, said Beasley and Townsquare CEO Dhruv Prasad. The local ownership rules were intended to prevent any one company from having undue influence over information, a concern that no longer applies to radio stations in the internet age, Prasad said.
The likely first result of relaxed subcaps would be a flurry of station swaps, with groups exiting their weak markets and consolidating in their strong ones, said Hubbard CEO Ginny Morris. “I'm sure there are people already making plans,” Morris said. Such swaps likely would lead to complex dealmaking, since those sorts of deals are constructed to involve minimal cash, a broadcast attorney told us.
Morris isn't convinced ownership deregulation is needed in radio's top markets, and cited iHeart and Cumulus as cautionary tales. “I'd hate to see us fall into the same trap again,” she said. “We won't get out a second time.” DOJ constraints and a lack of access to capital would likely act as checks on expansion even after deregulation, Beasley said. Though Prasad supports the elimination of the caps, he said it wouldn't be “a disaster scenario” if the FCC doesn't act.
Deregulation is unlikely to immediately lead to more outside investment in radio, Hebert said. The relaxed rules won't draw outside investment on their own, but industry growth could, Prasad said.
If the subcaps are relaxed along the lines proposed by NAB (see 1806180056), it wouldn't necessarily spell the death of AM, Beasley said in an interview. The NAB proposal removes all ownership limits on AM, said Beasley, who supports the plan. She said Beasley could potentially buy AM stations that have FM translators even after ownership rules are relaxed. Ownership regulations shouldn't remain in place to protect an industry, Prasad told us. He said individual circumstances would dictate Townsquare's interest in AM if subcaps were relaxed.
Next year is also when iHeart and Cumulus likely will both have completed their bankruptcy proceedings, Hebert said. With those companies viable and holding less debt, the radio industry will be larger and healthier, he said. The radio CEOs said without the bankruptcy proceedings weighing them down, iHeart and Cumulus are likely to become more competitive. The two companies becoming viable again could lead to “more disciplined” ad pricing for the entire industry, Morris said.
The poor financial straits of the two biggest companies in radio have been a deterrent to outside capital, speakers said. “A lot of investors didn't look past No. 1 and 2,” Prasad said. “Highly leveraged companies” are not attractive investment targets, Hebert said. The stock market's sentiment could change in 2019 after Cumulus and iHeart emerge from bankruptcy, he said.
One complication for industry health could be the Cumulus' and iHeart's current shareholders, who were likely more interested in buying up debt than in being equity shareholders in radio groups, the CEOs said. It will be “tough” for the companies to rid themselves of such “accidental” shareholders, Beasley said. Industry watchers are focused on whether the two giants will get involved in industry dealmaking either through selling or buying, Hebert said.
All the CEOs noted the growing use of smart speakers and podcast listenership as important opportunities for radio. Smart speakers are “the new battleground,” Prasad said. Morris said Hubbard is investing “deeply” in podcasting and said radio should gain a foothold in smart speakers now to prepare for the migration of smart speakers to car dashboards. Fewer people are buying radios, Prasad said. “We've got to win and make sure our content cuts through the noise.”