Wall Street seeks a bottom

As bad as the first half of 2008 was for broadcasting stocks - and stocks in general - things just got worse in Q3. And as the quarter was ending, both Capitol Hill and Wall Street were coming to grips with a financial crisis that has resulted in an emergency bill to inject $700 billion to try to clean up the mortgage securities mess and subsequent efforts by the Fed and FDIC to inject capital into the markets and rescue failing banks.

Will the market finally bottom out in Q4? Or will that not come until sometime in 2009?

Meanwhile, all sorts of businesses, including broadcasting companies, face deadlines to refinance debt in a credit market where money remains hard to come by and is often expensive. Already battered stock prices may well be less important for CEOs and CFOs to worry about than tripping loan covenants, renegotiating with lenders and keeping a tight rein on expenses.

Two broadcasting stocks actually posted price improvements in Q3, turning positive for the year to date after falling in the first half. Both are, not surprisingly, special situations.

Fisher Communications is under increasing pressure from major investors to improve shareholder value. The Fisher heirs hold a lot of stock, but don't have voting control, so those investors putting pressure on the board of directors and CEO Colleen Brown have plenty of clout. Fisher filled its coffers with cash when its large stake in Safeco Insurance was bought out and the company has been investigating a possible sale of its remaining major real estate holding, Fisher Plaza in Seattle.

Hearst-Argyle Television does have a single majority shareholder, Hearst Corporation, and Hearst Corp. has been very active in buying more and more of Hearst-Argyle's public stock. The stock price remains below the $23.50 that Hearst Corp. offered to other shareholders last year to take the broadcasting company private, but moved back into positive territory for 2008 stock trading in Q3. Hearst Corp. now owns nearly 82% of the outstanding stock of Hearst-Argyle.

Fisher owns both radio and TV stations. Hearst-Argyle is overwhelmingly a TV station owner, but also operates a Baltimore radio combo long owned by Hearst Broadcasting, a subsidiary of Hearst Corp. - so the two companies appear in both of our RBR/TVBR quarterly stock lists. Both are primarily TV companies and are components of the TVBR Television Index.

The third company whose stock price was up through the first three quarters of this year was Arbitron, due to the rollout of its Portable People Meter system to more markets. However, the company is now involved in legal wrangling over the PPM rollout and its stock price has lately fallen to below where it began the year.

21 of the 26 stocks in our list of radio stocks reported by RBR had fallen by double-digit percentages through the first three quarters of the year. Worst of all was Sirius XM. What were once competing satellite radio companies won regulatory approval to merge, but the stock price of the combined company has continued to fall and was down over 81% year-to-date at the end of Q3. Close behind was Salem Communications, as it became clear that even the Religious radio specialist is not immune to a major advertising market decline.

In television, the stock price of Young Broadcasting took an even bigger hit, falling over 95%. The company has been trying to sell its biggest station, KRON-TV San Francisco, but with station prices in decline, Moody's Investors Service recently questioned whether there is enough asset value in the entire group to cover its debt, should Young be forced to sell everything.

Equity Media, which has sold some assets to try to avoid a cash crisis, saw its stock price fall 83% through the first three quarters of 2008. Those two are the worst performers, but 24 of the 28 stocks on our TV list were down double digits through Q3.

The nearly 12-year-old RBR Radio Index has repeatedly hit record lows this year. It had fallen 42% at the end of Q3, but has hit even lower lows since. Likewise for the TVBR Television Index, which we launched at the beginning of this year. It was down 53% at the end of Q3 and has also hit new lows already this month.

How does that compare to the broader market? The Dow Jones Industrial average was down 18% for 2008 at the end of Q3. But at that time it was still well above the 10,000 level. No more. Stock prices have been falling sharply amid global financial turmoil. We wait to see where the bottom is. Then, how quickly will a recovery come and how strong will it be? Advertising has been severely impacted this year. The story is worst for newspapers, but undeniably bad for radio and television. Moody's recently began a broad re-evaluation of broadcast company credit ratings and its analysts expressed concerns that broadcast ad revenues could decline 15-20% in 2009.

The charts below tell the dismal tale of 2008 through the end of Q3.

Radio stock performance, first three quarters of 2008

*began trading 8/1/08
© 2008 Radio Business Report, Inc.

Television stock performance, first three quarters of 2008

*adjusted for 2/8 spin-off of newspapers
**adjusted for 6/30 spin-off of Scripps Networks Interactive
© 2008 Radio Business Report, Inc.