In our series on how to deal with the challenges of 2009, RBR/TVBR elicited comments from many broadcasters. Today, though, we hear from some people who are not actually broadcasters themselves, but deal directly with the industry and follow it very closely. What do they think broadcasters need to do to cope with the realities of 2009?
Today we hear from Marci Ryvicker, James Lewis and Lee Westerfield
1. What should broadcasters be doing differently from the past to deal with the challenges of 2009?
Marci L. Ryvicker
Vice President, Equity Research
Wachovia Capital Markets, LLC
I do not think that the first question is a fair one. Given the economy and the stock market, both of which seem to deteriorate daily, the best the broadcasters can do is what they have been doing – trying to survive. There is no room for “change” in such a challenging environment. There is no magic solution — if there were, I would be selling it and no longer working at a firm that will cease to exist come year-end (or sooner). The best these guys can do in 2009 is conserve cash, manage expenses, and collaborate on ideas that will generate revenue once we are out of this mess.
James C. Lewis (Jamie)
Specialty Finance / Media & Com Finance
Wells Fargo Foothill
– Manage expenses very very aggressively. It will be a delicate balance not to cut away meat when you are going for every ounce of fat. There may need to be a new definition of what is fat and what is meat relative to former cycles.
– The broadcast industry is facing secular change, each in their respect ways. Radio/TV are not going away in their current form. However, both need to explore additional rev streams, and make any internet/digital/wireless enhancements a reality rather than talking a good game. Developing NTR is absolutely critical.
– The financial markets have changed so dramatically over the last years, there are and will continue to be new paradigms when the markets stabilize and return eventually. Stay very close to your financial sources with the bad news and the good news…when there is some. If you have any of, or a blend of commercial banks, finance companies, hedge funds, and insurance companies in your capitalization stew, make sure you fully understand the motivations and behavior patterns to expect from each. Talk with your CFO/CEO colleagues and share info. Most financiers are sophisticated enough not to force grossly uneconomic sales of companies that are doing the right things, and are managing to extract every last bit of cash flow from their companies. However, financiers will not care about you if they themselves are in survival mode
– Keep the faith, and move on…we have seen amazing rebounds over the years, and when sometimes it seems the darkest, things give you upside surprises.
– Focus on the positives in your life, like family and friends…don’t let the BS grind you down. Life is too short.
Lee Westerfield
Managing Director
BMO Capital Markets
These are uneasy times, with no ready-made answers. The interesting question is how to manage the dynamics of 2009 and even 2010 in way that will set stage for systematically healthier radio industry that can grow reliably (yes, grow) in 2011-2015. I tell investors that I believe that radio retains three inherent advantages it can exploit: one, its universally distributed, two, its free, and three, its cash flow can self-fund new initiatives – if unencumbered from heavy debt and if managed with the mindset that technology will change the medium.
For 2009, I see the challenges as cyclical, pegged to Auto and Retail economies; for that reason, the 2009 issues are frustrating because in practice the solutions are not directly in the control of radio operators. That said, in 2009 there are a few things that radio operators can do, if possible, that would sustain the value of radio media franchises across cycles even if margins would suffer in the near-term: namely, maintaining ad rate and commercial spotload discipline, sustaining programming innovation budgets, investing in digitalization, and working down debt. Debt leverage is the riddle – it is high, it also remedial – and depending on how this riddle is answered by the industry leaders, the remedies can pave the way for a period of strategic re-investment in radio digitialization that offers the best chance for revival of growth in the 2011-2015 timeframe. I could be more specific about what debt leverage, but in a general way, one approach would be to work through debt in a fashion that repositions the capital structures to lighter debt of about half the current levels. In turn, less indebtedness would provide management teams with enough flexibility to invest more aggressively in new digital spectrum applications and interoperable measurement systems, the kinds of systems that would rejuvenate listenership with ranges of quality programming choice, open up new revenue streams using the existing radio spectrum, and position radio to acount for its audiences on a more level field with internet media. Its a lot to consider under these uneasy times, I know. All these ideas will require new tech investment and new staffing skillsets – the kinds of things that would be more easily done during the early stages of economic expansion (and there WILL be an expansion stage after this downturn) and more easily down with more equity in cap structures. These are some ideas that Boards might consider in the months ahead.
2. What indicator is most important to you for heralding the beginning of a real turnaround?
Marci Ryvicker
This is an unprecedented time. I do not think that there is one “indicator” that we can look to for a turnaround. The recession started with the bursting of the housing bubble, but there are many other contributors. I would like to see housing prices stabilize, a meaningful increase in corporate investment, a decline in unemployment and a sustainable increase in consumer sentiment. Now, those are indicators for the economy. Specifically for radio and television broadcasters – I would look to media that do not face secular challenges, such as outdoor and the internet. Once we see declines stabilize in those sectors, the broadcasters should follow.
Jamie Lewis
– I see the landscaper trucks back in my neighborhood
– Unemployment stabilizes
– There is one positive story in the WSJ (not including gas prices going down)
– The financial mkts stabilize and we are no longer reading about the “failure of the day” in the news
– The stock market bottoms out and stabilizes for a couple quarters, folks can fully assess the damages, and get on with rebuilding their financial lives
Lee Westerfield
What to look for to know when advertising has troughed? Advertising lags GDP cycles during recoveries. So, before we see a pick up in radio monthly pacings, we’ll have a good sense that its coming from other leading cyclicals – like an uptick in business investment and uptick in inventory levels. Now, if you’re not a fan of reading the dry US Commerce Department data (and I hope that includes nearly everyone), then I’d be listening for reports that consumer credit is being restored, ranging from Auto loans to Mortgages to Unsecured plastic. And bear in mind, this is (wretched) cycle. Ultimately, I am hopeful for radio media franchises – and while as an analyst I must call it as I see it for clients – I too would look forward to better times in the years ahead.
