Radio yesterday and today: The dollars

By the editors of Media Life

This is one in a number of stories on radio in Media Life’s ongoing series “The new face of radio in America,” examining all the changes taking place in the medium. Click here for earlier stories.

These days the radio marketplace is in a roil, and some wonder if traditional radio will even survive in its current form. Pandora looms, among other digital competitors for listeners and ad dollars.

Profits and revenues are off, and radio’s hold on local markets would seem at risk with the waves of budget cuts that axed local on-air talent for syndicated content in so many markets.

Yet looking back, for all these changes, what’s most interesting about the U.S. radio industry is how little it has actually changed this past decade, at least in its broad footprint.

While media buyers blame consolidation for so much of radio’s problems of these past several years, consolidation actually came much earlier, in the ’90s, notes Mark Fratrik, chief economist at BIA/Kelsey, which tracks the local ad economy.

“In 1992 we had some deregulation, and in ’96 the telecommunications act really deregulated radio, much more than TV,” says Fratrik.

That set off a wave of acquisitions, and from it emerged a handful of giants. But then it was pretty much over.

In the past decade, the market share of the top 10 radio groups is actually down slightly, to 48.5 percent of total over-the-air ad revenues in 2014 from 49.9 percent in 2004, according to BIA/Kelsey (See charts below).

Also down is the number of stations owned by the top groups by revenue. Clear Channel, now iHeartMedia, is down from 1,192 in 2004 to 858 in 2014 and CBS has shrunk from 181 to 117.

But the actual ranks of the top 10 have changed little; eight of the top 10 in 2004 were on the 2014 list.

The number of radio stations remains at around 11,800, says Fratrik.

And for all the complaints about consolidation, radio is less consolidated than other media. In out of home, just a half dozen groups account for 70 percent of all revenue. Broadcast TV has long been dominated by CBS, NBC, Fox and ABC.

What has changed for radio is the revenue picture.

Riding on the wave of consolidation, total U.S. radio revenues shot up from $19.6 billion in 2003 to $21.2 billion in 2007, according to ZenithOptimedia. Then began the fall, down to $19.2 billion in 2008 with the collapse of the U.S. economy, then to $16.5 billion in 2009 and $16 billion in 2010.

But then revenues began a slow climb back, to $17 billion in 2013 and $17.4 billion in 2014. Zenith is forecasting $17.6 billion for this year and the two years after.

While that’s well below revenues before the economic collapse, that is improvement, and that sets radio apart from other media, such as newspapers and magazines, which tumbled at the same time, and continue tumbling.

Newspapers, for example, went from a high of $51.5 billion in 2006 t0 an estimated $20 billion this year. They’ll be at $17 billion in 2017, predicts Zenith.

Radio profit figures are harder to come by, but by all estimates they were once quite lush, in the range of 25 percent to 30 percent, on a par with newspapers before the bottom fell out.

“The consolidation in the late ’90s led to significant increases in revenues and profitability,” says Fratrik. “They became more efficient. They were more efficient selling and controlling costs, they could purchase in bulk.”

Profit levels are probably at half that now. Fratrik has no exact figures but estimates they’ve fallen 5 percent to 7 percent a year over recent years. What’s driven profits down, he says, is increased competition from all the new players like Pandora.

“Remember that it’s such a high fixed-cost business,” he says. “So any decrease or non-increase in revenues have a profound effect on profitability.”

Yet Fratrik makes the point that whatever radio’s problems, it remains a vital medium.

“In 2016 we think over-the-air ad revenues will be an even 10 percent of the total local media marketplace,” he says. “So it’s still an important part, and for some advertisers it’s very important. It’s not to be overlooked, even with the onslaught of new competitive media.”

The big question going forward is whether the giants of the industry can hold it together operating with slimmer margins.

Some may not make it, and tops on the watch list is No. 2 Cumulus, which recently tossed out founder Lew Dickey after its stock tanked, falling more than 80 percent.

It sags under a huge debt load, $2.5 billion, and critics charge it with  mismanagement and incompetence in how it operates its stations.

If Cumulus should fail, many in radio, including a lot of media buyers, think that would be a good thing. The stations could then be sold off to radio companies that could then manage them properly.

Cumulus’s creditors would take a bath on the debt, freeing the new owners to start with a clean slate.

As one Media Life reader put it recently, “An operator of those signals can actually have financial room to build good stations with good talent and still make a profit.”

Tags: big radio, radio, radio consolidation, radio profits, radio revenue, the new face of radio, the new face of radio in america