Crystal ball gazers see a less hazy 2010

By all reports, advertising sales for both radio and television have finally begun to show signs of improvement. With 2009 about to go into the history books – and none too soon for many broadcasters – we take a look at what the forecasters are expecting for the year ahead.

At Wells Fargo Securities, analyst Marci Ryvicker sees several reasons to be positive about 2010 (and even the current Q4 of 2009) after hearing the various broadcast companies report their Q3 results. “Based on various earnings calls and follow-up conversations with private and public companies, we gleaned more information into current trends. 1) Auto advertising continues to improve – with increasing commitments from dealership associations and OEMs. 2) In television and radio, ad rates are starting to firm in small and mid-size markets although they are still at very depressed levels. 3) Advertisers are talking about increased ad budgets for next year but are waiting to see consumer spending levels this holiday season. 4) Advertisers use the stock market as a gauge of consumer confidence given that equities tend to be a leading economic indicator,” Ryvicker said in a recent report.

Given those positive trends, she is forecasting that radio revenues will rise 2% in 2010. That breaks down to a 1% gain in local spot, up 2% for national spot, up 3% for network radio and up 4% for non-traditional revenue (NTR). Those are small gains, to be sure, but all positive numbers after a double-digit decline for radio in 2009.

For television, Ryvicker is expecting 2010 revenues to rise 4%. The biggest gain, given that it is an election year, is in national spot, which she forecasts ro rise 17%. Her forecast is for local spot to be up 3%, network TV 2% and syndication 2%.

At Gilford Securities, analyst Jim Boyle is looking for radio revenues to rise 4% in 2010. “There are signs of the recession fading. Radio’s low cost and short schedules are useful for ad clients coming out of a recession that are apprehensive about the rebound,” the veteran analyst noted. Boyle does not currently have any TV companies on his coverage list, so he did not provide a TV outlook.

“There are many reasons we believe that radio will rebound this coming year, especially in the second half, and hold its own in the coming years. Among them, radio has strong brand equity in local markets, the economy is slowly coming out of recession, the industry continues to show strong listenership levels with teens and younger adults, and the possible introduction of FM radio receiving chips in cellular phones will generate both a positive image effect on radio and an increase in radio listening,” said Mark Fratrik of BIA/Kelsey.

His radio forecast for 2010 is for radio station spot revenues to rise 1.5% in 2010. Revenues from new media operations associated with radio stations are seen as rising 20%, although those NTR dollars are still small (projected at $482 million) compared to spot ($13.5 billion).

Fratrik’s most recent forecast for television stations is for revenues to grow by less than 1% in 2010. That forecast, however, has not been updated as recently as his radio outlook.


The Television Bureau of Advertising (TVB) looks at a wide range of forecasts each year and produces its own forecast based on a consensus view. That view is pretty positive for the year ahead. Outgoing TVB President, Chris Rohrs, was able to go out on a high note, presenting a forecast that local spot is expected to be up 1-3% in 2010 and national 6-12% for a total of 3.6-6.1% growth. TVB is also forecasting that station revenues from their websites should grow 18% and revenues from the nascent mobile television business by 50%.

There is a contrarian view. Magna Global forecaster Brian Wieser is not so optimistic about radio and is forecasting not only another down year in 2010, but even a slight decline in 2011 as well. He combines local, network and satellite radio ad revenues into one pie and sees that pie shrinking by 4.4% in 2010. Wieser forecasts a fifth straight decline in 2011, of 0.2%, followed by very modest growth for a five-year consolidated annual growth rate (CAGR) of 0.0% – zero, flat, no growth.

Wieser is more in agreement with his peers on television. Lumping together local, national, network and cable, he forecasts TV to grow revenues 5.6% in 2010, with a CAGR of 2.5% for the next five years balancing out the election and non-election years.

Brokers see a rebound
With advertising revenues for broadcasting finally stabilizing, would-be station buyers can at last forecast with some certainty what to expect from a property in the future. More importantly, they can give lenders more confidence in their business plans. So, M&A in radio and television could finally pick up.

“I think that there are a few companies still facing some problems going forward but that the deal market is starting to thaw just a bit.  No big turn-around yet for the economy but some cautious optimism,” said station broker Larry Patrick of Patrick Communications. “Many lenders have provided some covenant relief to provide a year or two of breathing room for the borrowers. Other borrowers have been able to find public bond money or restructure things to buy them some relief. I see a slow but steady recovery for 2010 with some markets benefiting from political spending. Better, but not great, is my prediction for 2010,” said Patrick

One veteran broker (whose son happens to have been cited earlier in this article) has seen it all before.

“Having personally worked and lived thru at least three earlier depressions [in station trading], I predict that 2010 will see the ‘global warming’ of bankers/lenders and station owners. That means the recent ice that's stifling transactions to date will really start breaking up – about Memorial Day,” said Frank Boyle of Frank Boyle & Company. “The green eye shade guys will be done in by 2010 1st and 2nd quarter results,” he said of the financial players who are managing overleveraged broadcast portfolios.
 
“There won't be the jumbo dollar deals we saw in 1996-1999. Sellers and their lenders are now making grudgingly encouraging sounds that huge compromises have to be made to get their properties moving. There are plenty of well-funded buyers out in the Wings waiting for the 3X to 5X trailing BCF (broadcast cash flow) to become the ‘new normal’ sales multiple range,” Boyle suggested. He added that buyers will also realize that a 25% BCF margin may be the ceiling. “Wal-Mart'd kill for that,” he noted.

Boyle says the alternatives facing many would-be sellers now are to either become employees and have their lenders hold onto their struggling groups as owners or take the necessary haircuts to motivate buyers. “Many sellers seem to have forgotten how buyers have to eventually pay back the unrealistically high prices sellers still demand today,” Boyle said of the price impasse.

“But the ice is cracking on both sides of the glacier. It has to. The solution will be when buyers start operating stations with live people not automation – superserving their local communities and making relationship selling a lifetime pattern,” according to Boyle, who disparaged the idea of running stations via six-month trials of ideas from corporate.

You might get the idea that Frank Boyle doesn’t think much of the way some stations are being run these days. Legendary stations didn't get that way doing voice-overs after morning drive,” Boyle concluded.

Another well-seasoned veteran also checked in with evidence that the market is turning (for the better).

“After 40+ years in broadcasting, it seems to me that the worst might be past with a revival in the movement to sell radio and TV stations for reasonable prices. 2010 looks better to me. I could not have made up the following recent phone call that I actually received: ‘Mr. Rosenblum, my associates and I have $40 million to invest in radio and television stations.’ Another recent phone caller said: ‘My bank will lend me $200,000 to buy that small radio station if the seller includes in the package the station’s real estate.’ That real estate was a modest tower site,” said media broker Ray H. Rosenblum.

“From these and other conversations I have concluded that the marketplace for the sale of radio and TV is getting busier at last with some brave lenders entering the picture,” Rosenblum assured us.

“My two cents, from a broker who has historically specialized in small-market acquisitions: We will see more robust transaction activity during 2010 for essentially the following reasons: 1) (and most importantly) sellers will begin to accept the reality of ‘value’ when pricing their properties, 2) in order to improve balance sheets, more owners will be pressured into selling by their financial partners, 3) a growing number of long-time entrepreneurs are becoming weary of the business and somewhat disillusioned with the enormous changes their industry has experienced lately and, 4) there will be a moderate relaxation of available funding,” said Jim Hoffman of Explorer Communications in explaining why he expects station trading activity to pick up in 2010.

“I believe the ‘available funding’ will apply more to large and medium market deals. Small-market bankers and investors who are willing to play the game, are going to be ultra cautious providing funds only after buyers make substantial personal financial commitments; and only after said buyers provide a comfortable level of collateral along with personal guarantees,” Hoffman noted.  

Prices that are already shrinking, he noted, adding that they “will continue to tumble as 1) perceived values ebb and, 2) the multiples – to BCF – continue their decline to more realistic levels.”

“To summarize, during 2010 multiples to BCF will drop 20% to 30% from those of the recent heydays. The number of station transactions during 2010 will increase by as much as 100% over 2009 levels. And, finally, the stock market will remain lukewarm in valuing broadcast companies,” Hoffman told RBR-TVBR.

Getting into the spirit of the season, George Reed of Media Services Group told us:

“‘Tis the season for crystal ball gazing. Here’s what mine suggests for 2010:
1)  More bankruptcies and bank workouts:  I predict a couple of major bankruptcies, likely pre-arranged, and more than a couple from smaller broadcasting companies. Banks will continue to try to work with good company management groups, but will move to take over companies perceived to be burdened with weak management.
2) Prices will hover in the 6x to 8x BCF range (with occasional outliers both above and below).
3) Seller financing will return to small market deals.  Banks will remain on the sidelines relative to new lending.”

--Jack Messmer

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