December 1, 2015

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First Mediaworks

The View From The Street (12/04/06)

RI: Radio seems to have fallen out of favor on Wall Street. Do you feel that this turn is warranted, or is the industry just working through a down cycle right now?
With so many competitors trying to gain a foothold, there is a lot of uncertainty about where the industry is going. That is the primary reason some of the stocks are trading down. With uncertainty, people will often sell first and think later. But the fact is that the radio industry has tremendous opportunity and potential. Radio offers things that television and newspapers don't. If youíre doing something outdoors and you want to keep in touch with things going on, radio allows you to do that. Radio still has a very, very strong place in popular culture, and in our media industry overall. But, with uncertainty comes selling, and that happens typically in any situation where people are not sure about the playing field.

RI: Yours is arguably the minority opinion on Wall Street. Radio was a Wall Street darling in the early part of this century, and now itís taking a beating due to slow growth. What can radio do to improve its image among investors?
Right now, the entire media industry is trying to figure out how it is going to change as a result of the digital age. Thatís not just radio, but also television and newspapers, and youíre seeing investor reaction to that. The radio industry will have to figure out how it is going to play in this digital age, in which people are getting their information and entertainment from a lot of different avenues. At some point, I think we will see more radio companies come up with digital arms or some kind of interactive component. People want content flowing from a lot of different avenues. That is one of the main cruxes, and itís not just pressuring radio. This is an industry-wide situation.

RI: Some media companies have completed mergers as a way to gain a foothold in emerging media, but many of these deals haven't worked out as well as hoped. Why do companies find it hard to synergize these new assets with their core business?
Well, thatís not always the solution. In radio, I think there are complementary players that may get together, but at the same time, it could actually take away from the business. I donít know if bigger is necessarily better. I couldnít say why specific mergers didnít work ó oftentimes thatís a function of that specific story ó but I do think radio has a tremendous opportunity. No matter how many times you look at the stock prices of these companies or think about the pressure that theyíre under, when you look at the numbers, you're talking about a business with a very broad audience and terrific potential. Once people see through the clutter and noise ó and there is a lot of noise out there ó I suspect we're going to see growth again. In every industry where fundamental, big changes are going on, youíre going to see some disruption. But, we will see fundamental changes throughout the industry. Podcasting is an interesting alternative, and youíre seeing radio and media companies across the board trying to make sure they have their foot in the door and have that business under their purview. But youíre not seeing the numbers in terms of users yet.

RI: Publicly traded broadcasting companies have to serve many constituencies; they must meet FCC mandates for public-interest obligations, and address Wall Street pressure for growth. Still others must deal with pressure from equity investors looking for a fast return. How can companies balance these sometimes opposing forces?
The truth is these things have been going on for years. The FCC has constantly and consistently been there, forcing certain regulations to be met. Youíve seen a competitive industry only get more competitive over the years, so this is not new. Youíve got a lot of critics of radio out there, just the way you had critics of traditional media back in 2000. Then we saw the dot.com area plummet, and watched the real gems rise to the top. I suspect that a similar situation will happen this time around. Letís face it, there are over 1 billion radio receivers in this country; it's truly a valuable source of information and entertainment. That won't go away anytime soon; peoples' habits donít change overnight. Yes, weíre going to have a lot of competitive pressures coming in, and opposing views, but radio has been looking at this for a year. So, I donít necessarily see all these opposing forces as the issue here.

Private equity is the newest element, but if the shareholders of a company would do better with private equity, then so be it. Private equity is hot right now, and is on the lookout for companies with steady cash flow and great growth potential. Thereís an enormous amount of money moving into private equity; investors are getting their returns for private equity, theyíre pouring in more and more dollars, and that is enabling private equity firms to do bigger and bigger deals. Weíll see. Right now, weíre hearing some people say the situation with private equity is a bubble. Some of the deals theyíre making and bidding for are almost too big. Just because weíre seeing this trend happening, I don't think it's necessarily a game changer.

RI: Are the challenges that radio is facing today tougher than previous challenges the industry has faced?
No, things are as competitive and tough today as they have ever been, because we're seeing fragmentation throughout the industry due to the digital age. But, it's still a cash-flow business; the margins and the cash are very appealing, so when you actually focus just on the fundamentals of this business, it has very strong cash flow and good margins. That is obviously better than some of the Internet companies. At the same time, we're seeing the wind shift; weíre seeing consumers want information from a lot of different venues, not just one. So this industry will shift as well.

On my radio show, Your Money Matters, I give financial tips. I could be giving those tips on radio, I could be giving those tips on television. The tips are there in all of those different venues, and that is a reflection of whatís happening today. People want their information any way they can get it. The personalities and the content providers need to be in all areas, which is definitely putting pressure on radio, TV, and newspapers. You canít wait for the winds to change, you have to change with them. I think the entire media industry is trying to embrace the changes, radio included. Everybody is scrambling to find a way to make sure they can offer a lot of different information flows. Mobility is a major theme, right? When youíre in your car or away from home, the only alternative you really have right now is radio. Sure, youíve got an iPod and you can bring music with you when you're walking, but youíre not only going to be doing that. Weíre seeing things change right now, but itís really the growth going forward that people are worried about. Thatís why these companies are trying to ensure that they can answer to all of these different constituents and have revenue sources in so many different venues.

RI: Some believe that radio has an image problem, that people take it for granted. Unless the lights go out and they need a battery-operated radio, they don't think about radio. What should the industry do to improve its image?
People probably do take it for granted. It's this old stalwart, reliable, resource that's always been there, and that will continue. Thatís why Iím really not worried. Radio companies have steady businesses, steady cash, good margins, and they are going to be there. They need to find growth initiatives to make Wall Street happy, but from a human side of things, away from Wall Street, the content that youíre getting from radio is reliable, steady, and valuable.

RI: Should the industry be making that case to consumers?
Maybe. Better marketing is something radio could consider.

RI: What are your thoughts on HD Radio? Is there a business case? A consumer case?
I think there are a lot of options. Itís hard for the average consumer to recognize the difference between all of these technologies, so in order for HD Radio to really gain traction, we need to understand why itís better, and what itís going to cost. There is so much information about some of these products that it gets muddled. Right now, I donít feel thereís enough information and enough marketing power behind HD to make consumers recognize why they need to trade up for it.

RI: What advice do you have for radio CEOs?
Keep doing what youíre doing in terms of generating strong cash flow and keeping margins strong. Diversify as much as possible in terms of looking for new revenue sources so that Wall Street is satisfied that there are growth opportunities ahead. But don't change your strategy in terms of traditional content, because that is really where the value lies.

RI: You make a strong case for sticking to the basics. However, you also stress the importance of finding new revenue streams. Which area is more important?
You need to be focused on both. The traditional radio business needs to stay the way it is, because people rely on it, and itís still a huge market. At the same time, the world is changing around us. We are seeing customers today demanding information from lots of sources, and it is important to look at every opportunity in terms of creating new revenue growth opportunity.

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