Lehman sees satellite threat to radio stocks
Terrestrial radio owners may dismiss satellite radio as inconsequential, but Lehman Brothers analyst Bill Meyers isn't buying it. With both Sirius and XM pushing their receivers through deals with automakers, Meyers' colleague at Lehman, satellite analyst Vijay Jayant, is forecasting that the two companies will have nearly 35 million subscribers by the end of 2010.
"We are integrating the prospective impact of in-car satellite radio listening into our long-term terrestrial radio forecasts. Looking beyond 2006, we now forecast: 1) just 2.5% industry revenue growth (previously 4%), and 2) flattish margins (previously anticipate expansion). Given the short-term nature of the Street with respect to radio names, we do not believe that these expectations are yet fully factored into equity prices," Meyers said in a note to clients. While he admits that may seem "bearish," Meyers notes that he hasn't yet factored in the impact of such things as iPods, MP3 players, out-of-car listening to satellite radio and advertising competition from cable and Internet.
By his figuring, satellite radio will reduce terrestrial radio listening by about 0.5% per year through 2013. But since the impact will be greatest in-car and during peak drive-time dayparts, Meyers figures the revenue drag will be about 0.8%. Thus, while he's sticking with a 2% revenue growth projection for radio in 2005, he's cut his 2006 projections from 4% to 3.5% and he's looking for only 2% growth in 2007. For 2008 through 2013, he's projecting 2.5% annual growth.
Here's Meyers' near-term outlook adjustments for individual companies.
Radio revenue forecast by company
|
General market
|
Old
|
New
|
Old
|
New
|
|
Radio company
|
2005
|
2005
|
2006
|
2006
|
|
Clear Channel Radio
|
-1.7%
|
-1.7%
|
5.5%
|
5.1%
|
|
Cox Radio
|
2.5%
|
2.5%
|
4.0%
|
3.7%
|
|
Cumulus
|
3.8%
|
3.8%
|
5.0%
|
4.8%
|
|
Emmis (US radio)
|
3.6%
|
3.6%
|
4.5%
|
3.8%
|
|
Entercom
|
4.9%
|
4.9%
|
4.6%
|
4.2%
|
|
Radio One
|
20.1%
|
20.1%
|
7.2%
|
6.8%
|
|
Gen. market average
|
5.5%
|
5.5%
|
5.1%
|
4.7%
|
|
Spanish language
|
|
|
|
|
|
Radio company
|
|
|
|
|
|
Entravision Radio
|
7.5%
|
7.5%
|
7.5%
|
7.5%
|
|
SBS
|
11.2%
|
11.2%
|
9.4%
|
9.4%
|
|
Univision Radio
|
8.0%
|
8.0%
|
9.0%
|
8.6%
|
|
Spanish average
|
8.9%
|
8.9%
|
8.6%
|
8.5%
|
|
Source: Lehman Bros.
|
|
|
|
|
RBR observation:
What no one on Wall Street seems to get is that the deals which Sirius and XM have cut with the automakers are going to turn around and bite them in the butt. That's where their dramatic escalation in churn rates is going to come from in a couple of years. Many people are out there now buying a new car equipped with a satellite radio, not because they have any interest in having a satellite radio, but because they want a particular model in blue - - and the only blue one on the dealer's lot happens to have a satellite radio in the dash. The cost of that receiver and the first year subscription is wrapped up in the price, likely with 0% financing, so it's virtually unnoticed. But once that one-year subscription expires, that car buyer who never really wanted a satellite radio in the first place isn't going to pay a monthly charge to keep it operating. Churn, churn, churn.
Are you reading this from a forwarded email?
