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Analyst: New Media Profits Still A Long Way Off

NEW YORK -- April 4, 2008: New media and digital are still a focus for broadcasters, says Wachovia analyst Marci Ryvicker in her roundup of "Takeaways From SNL/Kagan Radio/TV Summit," but, she notes, "There is still no consensus on the appropriate revenue/profit model, which leads us to believe that we are at least five (if not 10) years away before new media/digital opportunities have any financial significance in the broadcast space."

On the mergers and acquisitions side, Ryvicker said Lagan panelists believed the market will pick up once the debt markets recover -- though that will be true for television more than radio. "Based on comments from several panelists," she writes, "it sounds like radio operators would jump at the chance to go private should the opportunity arise. However, two hurdles may remain -- the industry's significant amount of leverage and its weak fundamentals."

And that debt leverage, she says, is "of particular concern given the state of the credit markets, the lack of M&A (which precludes the ability for some of these [radio and TV] groups to repay debt, and the declining core revenue trends." Ryvicker would prefer to see cash flow go to repaying debt rather than dividends or stock buybacks, "as there is no evidence that either of these actions have helped the stocks in the past three years."

Ryvicker says she heard from small, private radio operators at the summit who said "they are doing significantly better than what the RAB reports -- in fact, many are up double digits year-to-date." The reasons? Ryvicker cites small-market operators' "hyper-focus on maintaining and creating local relationships" and "long-term (i.e., greater than three-month) approach to running the business."

Looking at the HD Radio initiative, Ryvicker says that several things are still "amazing" to her: "i) it is still not in cars (please tell us who would actually buy a radio in the store when there are 'sexier' technological gadgets out there, ii) radio groups still plan to use the spectrum for programming rather than datacasting or on-demand alternatives, and iii) no one can figure out what the revenue model will be." Ryvicker says radio "does not need more formats or more inventory" and should use the HD spectrum "for something else" and "get it in the car (as a non-pay option) ASAP."

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