RADIO’S DEATH Amanda Andrews – Times Online According to The Buggles in 1979, video killed the radio star. Almost 30 years later, radio is still alive, despite some industry figures sounding its death knell as advertisers flock to the internet.
While it has been a difficult time for radio, what with money from advertisers going online and competition between key stations greater than ever, the medium has proved to be a survivor in the cutthroat world of advertising.
Radio is not going anywhere. According to key figures in the advertising industry, a wave of positive sentiment has passed over the industry in recent weeks.
It is not to say that now is the time to rush out and buy radio stocks - in fact, far from it. Some key stocks are still expensive, their futures bathed in uncertainty. It is just that, for the first time in years, the feeling in the industry is that this traditional medium is not as old and outdated as once thought and there is still a place for it in the new world of advertising.
According to senior radio buyers at ZenithOptimedia, sentiment in the commercial radio sector is on the up and more money is pouring into radio advertising than has done for years. Media buyers say that in recent weeks they have seen less availability for last-minute advertising slots on key radio stations – a rarity just a few months ago.
The feeling among media buyers is that radio works well with the internet, so much so that advertising space on the radio and internet could be sold together. More and more people are now using the internet and listening to online radio simultaneously. Many radio stations, such as the SMG-owned Virgin Radio, are now reliant on a successful marriage between show and website.
And online operations are generating profits. For example, GCap revealed in May 2007 that it had 1.5 million unique monthly internet users and had made £1.6 million in profits in 2006-07.
Also positive is the likely consolidation of the radio sector, as seen by Global Radio’s recent acquisition of Chrysalis Radio, Emap’s pending sale of its radio division and the possible sale of Virgin Radio by SMG.
The general feeling in the industry is that British radio eventually will merge into two main players – something that has been welcomed by leading advertising groups. One said that it would be happy with a shake-up of the industry, saying that it would lead to fresh ideas and an injection of talent, while another said the industry is too fragmented and consolidation would create a couple of one-stop shops for advertisers.
Two commercial competitors to the BBC would also be welcomed by the sector. Commercial radio bosses have long complained about the high salaries offered to some BBC presenters and bigger companies could mean greater financial power to attract the likes of Chris Moyles and Jonathan Ross.
Ofcom, the industry regulator, which is conducting a review into the future of radio, is widely expected to be sympathetic to a possible merger in the commercial sector in the light of the BBC’s dominant position.
A merger of two industry players would also create obvious synergies. GCap estimated that the merger of GWR and Capital Radio would lead to £7.5 million of merger synergies. However, the final figure was almost £20 million more than that.
The appetite to create enlarged radio groups and the present state of the credit markets mean that trade players are more likely than private equity funds to bid for the likes of Emap Radio.
Despite the positive vibes, the industry is still plagued with uncertainty and caution is needed. There are still a lot of unanswered questions. To begin with, if the industry consolidates into two major players, what is to say that bigger will be better? This may make life easier for advertisers, but the bringing together of two corporate cultures in radio has historically proved problematic.
Take the “merger of equals” of GWR and Capital Radio, for example, which created Britain’s largest commercial radio player. Industry analysts and insiders pushed for the merger for years. However, it was a matter of months before the fusion of the two radio players led to boardroom unrest and a difficult merger, despite the obvious cost savings, was blamed later by Ralph Bernard, the GCap chief executive, for problems at the group.
Enlarged groups could work in favour of the radio industry, making it a more attractive proposition to advertisers, but size is not always the answer.
While sentiment in radio is more positive than it has been, it is not as if growth predictions for 2008 will be monumental. The industry is just looking better than it has done for a while. ZenithOptimedia told The Times yesterday that it predicts that the industry will grow by 2 per cent in 2008, up from between zero and 2 per cent in 2007.
Commerical radio is still expensive. The pure radio player GCap Media is valued at 24 times historic operating profit. If SMG’s Virgin Radio floats, the mooted £80 to £100 million valuation is very high considering that operating profits at Virgin Radio were £2.3 million in the year to December 31, 2006.
However, the potential of consolidation is enough to make certain stocks, like Emap, SMG and UTV, worth holding on to. While an improvement in sentiment is encouraging, caution is needed as some stocks are still highly valued. |