Poor November numbers worry Wall Street


RAB’s report of a 6% drop in November radio revenues (1/3/08 RBR #2) has Wall Street analysts predicting that many public companies will miss their Q4 guidance and even more worried about what’s coming in 2008. What will it take to get ad sales back on track?

Jonathan Jacoby at Bank of America and Jim Boyle at CL King had been among the most pessimistic analysts on Wall Street, expecting the RAB tally to be down as much at 5%, but even the pessimists proved to be to rosy in their expectations. Jacoby has now dropped his December estimate from a 1% decline, which is the Wall Street consensus, to a whopping 4% decline. He sees a high probability that most public radio groups will miss their Q4 radio guidance, with Clear channel and Citadel having the highest risk and Cox Radio the least. “Our checks continue to indicate that business was sluggish through the end of ’07, and will continue into early ’08.  We are estimating Q1 ’08 revenues to decline 3% year-over-year, facing the toughest comp in 2008 of a 1% revenue increase in Q1 ’07. Upside potential to our estimates is from political – BUT – political has yet to be a factor for radio,” Jacoby said in his latest research piece.
With easier comps in December, Boyle has not changed his expectation of a 1% decline and sees Q4 coming in down 3%. Looking at the November numbers, Boyle notes that the top 25 markets were hardest hit, down 6%, while mid markets averaged a 4% decline and smaller markets were down only 1%. “What this strongly implies is that the unwieldy ‘giant platforms’ and near-sighted public groups that dominate the big markets are generally not a positive for the management-intensive, local-centric industry, we believe,” Boyle told clients.

At Wachovia, analyst Marci Ryvicker has also cut her estimate for full year 2007 radio revenues, to a drop of 2.3% from her previous minus-1.9%. She is sticking with her forecast that 2008 will be flat, but concedes that may be aggressive. “We currently expect that 2008 will be flat for the radio industry. This estimate assumes that core ad declines will be offset by nontraditional revenue (+10%) and political revenue (roughly 275 million).  Should core ad revenue be weaker-than-expected, there is risk to our industry and company estimates in 2008,” Ryvicker wrote.

RBR observation: What will fix radio’s problems? Hard work. Really hard work. It’s really about getting back to basics and building the business instead of cutting costs and diving for share – which have been the hallmarks of the consolidation era. We’ve seen how well that worked out. We like what Boyle has to say in answer to his own question – when does radio revenue rebound? “The radio groups that are the lead clusters in a market have to drive prices up, not cut rates, to grab share. That requires time and pain to get the gain. Plus, the top ad category, auto, has to start spending its considerable ad budgets again, which a recent Kelsey Group survey suggested was unlikely. Indeed, that survey suggests auto ad spend will at best be flat and could be down. But, radio was identified by Kelsey Group as an auto ad spend share loser like newspapers, magazines, TV and Direct Mail, while Internet and Outdoor will gain auto ad share. More investment in on-air programming and more promotion spending to market that improved locally-differentiated content to listeners is also part of it. Thus, there are no simple solutions or quick answers.” Amen, Jim.