Radio Transaction Marketplace
by Thomas J. Buono, BIA Financial Network
Cross-ownership rules restricting the ownership of newspapers in combination with either television or radio stations in the same market currently are under review at the FCC and are expected to be relaxed or eliminated in early 2003. With this in mind, BIAfn, a leading media investment bank and consulting firm, will be writing a series of articles for Newspaper Acquisitions about the electronic marketplace.
In the prior issue, Tom Buono provided some insight on the television industry. In this article he provides a similar overview on radio. The radio industry is much larger and more fragmented than the television industry. There are more than 11,300 commercial radio stations, compared with 1,240 full power commercial television stations. While the television industry is similar in size to the daily newspaper industry, the number of radio stations is approximately double the size of the number of daily and weekly newspapers combined.
Although there is an industry size difference, radio stations are more comparable to newspapers than television in terms of their market orientation. Radio, like newspaper, is a more local medium, focused on serving smaller geographic areas. There are more than 280 Arbitron-rated radio markets and more than 4,800 stations serving un-rated areas. Radio is a more likely candidate for cross-ownership with newspaper in many smaller and medium sized markets.
Consolidation in the radio industry has been rapid and substantial due primarily to ownership rule changes enacted with the Telecom Act of 1996. Limited to ownership of no more than one AM and one FM station per market until the early 1990s, today radio groups can own as many as eight stations (five in one band) in the larger markets. It is not uncommon to see three or four radio companies accounting for the majority of listening and radio advertising in most markets. Despite this, there are still more than 3,500 different owners.
As shown in the chart below, the number of radio station sales in 2002 was down more than 20% in 2002, representing the lowest level of transaction activity of the past decade. However, while the dollar amount of television transactions was down more than 50% in 2002, radio transactions topped $5 billion in 2002, an increase of more than 34%. We believe that television activity was primarily depressed by the delays in the proposed television ownership rule changes.
We expect to see a significant amount of radio/newspaper cross-ownership over the next few years. The price of radio stations are a fraction of the cost of TV stations and their cost structure is much more attractive. The ability to utilize newspaper’s news-gathering ability on news-oriented radio stations would be quite synergistic. In addition, in many smaller markets a radio/newspaper combination would represent a very attractive way to serve the community, especially local advertisers. We see the anticipated cross-ownership rule changes as a key opportunity to solidify newspaper companies’ position in many markets.
BIAfn has an active merger-and-acquisition operation and provides mezzanine funding to media and telecom companies. Since 1985, BIAfn has been publishing ratings, technical info, ownership and transaction information on the television and radio industries.