03-31-06 | Printable Version

Radio Merger Mirrors Newspaper Industry

BIA Financial Network Report

Like the newspaper industry, radio saw two of the largest operators merge in the first quarter of 2006, creating a new No. 3 player -- Citadel Communications.

Citadel acquired 24 stations from Disney/ABC Radio, which generate about as much revenue as Citadel’s own 224 stations.

The combination allows Citadel to move into much larger markets. Eight of the ABC stations merging with Citadel are in the top 10 Arbitron markets. Prior to the acquisition, the largest market in which Citadel had a station was Salt Lake City, market rank 31.

Similarly, McClatchy will have a new presence in several larger markets, including Miami, Fort Worth and Kansas City. (Coincidentally, the Fort Worth and Kansas City newspapers had been owned previously by Disney/ABC).

In total, Citadel will now reach into more than 50 markets, as the map to the right shows. Citadel owns other stations in close proximity to their new markets, which creates a good geographic distribution of the combined company.

The merger makes Citadel the third largest radio group in the U.S in terms of advertising revenues generated, as determined by BIAfn.

Kagan Media Values estimated that the ABC Radio deal, at $2.7 billion, represented 12.3 times forward cash flow. Kagan said investors had expected the radio assets to trade around 15 times cash flow.

The stations merging with Citadel Broadcasting generate about 90% of ABC Radio’s revenue, or about $404.3 million based on BIAfn estimates. Citadel’s own 224 stations brought in $412.5 million in 2004. The estimated revenues for the new Citadel Communications in 2004 was $816.7 million.

ABC/Disney is planning to still hold on to 45 stations -- five ESPN Radio sports stations and 40 Disney outlets. The 45 stations Disney/ABC plans to keep brought in $50.45 million in revenue for 2004, per BIAfn data, with $30.9 million attributed to ESPN Radio stations and $19.6 million to the 40 Radio Disney stations.

Holding on to the ESPN stations and the ESPN radio network makes a lot of sense as there are tremendous synergies with running a sports radio network and a sports cable network.

It is also very instructive that ABC/Disney is trying to expand the reach of its ESPN brand through the mobile ESPN service that it recently introduced and advertised heavily during the Super Bowl, one day before announcing that it was partially leaving the radio industry.

As for holding on to the Radio Disney stations, this has more to do with promoting the overall Disney company image than with staying in the radio industry.

By owning single AM radio Disney stations in these markets, ABC will be challenged to make them profitable operations. However, these stations may be good promotional vehicles for the overall Disney brand.

While ABC Disney was partially exiting the radio industry, Citadel with its strong financial backing was making a further commitment to the radio industry.

Like McClatchy, senior management at Citadel has considerable experience in these larger markets. Synergies involving sharing of programming between stations of this larger group will also result.