George Beasley: Radio vet keeps the faith by moving forward

Beasley Broadcast Group, Inc. Founder, Chairman and CEO, George G. Beasley

The interview below with Beasley Broadcast Group, Inc. Founder, Chairman and CEO, George G. Beasley, was conducted in April 2007 and preceded the economic downturn which has impacted the radio industry.
With more than four decades in the radio broadcasting industry, Beasley Broadcast Group remains confident in the value of radio advertising as a proven, powerful platform for advertisers to reach targeted demographic audiences.  Notwithstanding the current economic and industry environment Beasley remains committed to its station portfolio, delivering free, local entertainment to listeners, the diversification of its revenue sources through its interactive initiatives and investments in HD Radio and the eventual rebound of radio advertising.

The roster of radio groups that have gone by the wayside just since the 1992 duopoly rules kicked in is impressive, and in a lot of ways, depressing. Before then, each station had to be treated like gold because it was literally a core piece of the business. At most, it was one of only two local stations and if it was part of a group, that group’s size was capped by very restrictive national limits. A radio station could not be treated as a pawn or a tactical asset.

In that environment, the national groups could only operate in a certain number of markets. A lot of smaller groups had a distinct regional focus, and there were a lot of owners who were strictly local.

The vast majority of the 1992 group ownership roster has disappeared, and the executives at the top of the surviving companies often wind up having to explain themselves to Wall Street rather than Main Street.
All of which makes the story of Beasley Broadcast Group even more amazing. How many groups still standing can trace their roots back 45 years to a high school principal who built a small AM daytimer in a small North Carolina town in an unrated portion of the I-95 corridor?

George Beasley was that educator, and he’s still an educator today. In these two pages you’ll learn, from a roots radio executive, where we’ve been, where we are, and most importantly, where we’re going.

What are the short-term prospects for the radio business in general and Beasley in particular, through the end of the year?

Analysts who cover the radio are projecting a 1.5% decline to a 2% rise in industry revenue in 2007. Our goal is to exceed the growth of the industry. While we haven’t issued guidance for the full year, we believe we operate in some of the healthiest radio markets at this time and that we’ve made appropriate programming and personnel changes in several of our markets that will enable us to achieve this goal. We recorded significant revenue gains in the fourth quarter of 2006 including same station revenue results that exceeded the 3% achieved in the industry in 4Q as reported by the RAB. In the fourth quarter of 2006,  our markets were up 3.8% while our revenues in these markets rose 7.0%. We think this is relevant as it demonstrates overall strength in radio in our markets and again highlights our ability to outperform even a healthy marketplace.

We’ve heard for that last few years that the larger markets having been hurting the most. Beasley, with its unique portfolio, is better positioned than most to comment on this. And your comments are?

We generate about 60% of our revenue from three large markets — Philadelphia, Miami and Las Vegas. We are very competitive and have strong clusters in these important markets. We have been consistently out-performing the Philly market which has been challenging and, based on our focus on programming and sales, we have good upside ahead of us in Las Vegas and Miami, two of the industry’s fastest growing markets at this time.

How long do you think it will be before radio gets back to its tradition of steady mid-single digit year-in, year-out revenue growth? Along those lines, do you think Internet sampling by advertisers has had a negative
effect on radio revenue?

Again, our goal is to exceed the growth of the industry and our markets and we work actively toward this goal each and every day. While I don’t think we can put our finger on a time when radio consistently grows by mid-single digits, I remain very confident in the viability of the medium and the very stable consistent cash flows that well-run stations can deliver. According to a study released in September by Arbitron and research firms Media Monitors and Coleman, radio broadcasters hold more than 92% of their audience during an average commercial break. That’s an impressive retention rate considering how easy it is to switch stations. In addition, radio is a business that benefits in a world where more companies are focusing on local, targeted ads. Local is a big buzzword in online search marketing as well as the upstart business of advertising on cell phones.

We recognize that some people are listening to satellite radio or music from their iPods or other devices. But free radio is still the best way for people stuck in rush-hour drives to get updates on local news, weather and traffic and it’s the best medium for local advertisers to promote their businesses.

Is there another advertising medium on the horizon that you think may become a competitive factor?

Any of the other forms of advertising could be considered competitive but we are prepared to compete and in some cases — such as through our Beasley Interactive initiative — participate in new forms of advertising that are logical extensions of our core operations. We also continue to look beyond spot ad sales for new non-traditional revenue sources. Operators have been both creative and successful with NTR and this supplemental revenue channel is an important component of our broader strategies to drive revenue growth.

Where does Beasley stand on: PPM?

Beasley is a progressive company committed to utilizing the most advanced technologies available to the radio industry to enhance our platform for both listeners and advertisers. For that reason alone, we have been a big supporter of Arbitron’s Portable People Meter (PPM) audience measurement services and have agreed to use it in Philadelphia. We feel it provides additional integrity to our ratings results, which we believe will be embraced by our advertising clients. We also feel that in the long run, this critical tool will support the radio industry’s growth and enhance this medium’s credibility among its valuable advertisers.

Use of the HD?

With an installed base that exceeds 90+% of all US households, radio is, in some respects a mature industry. But this enormous base also presents tremendous opportunities for the industry, particularly in this digital age. HD Radio™ is certainly one path that we are pursuing to attract more listeners and advertisers. And we are also looking inward at our programming and other aspects of operations to ensure that we are leveraging our assets while delivering the best listening experience to our audiences and the strongest platform for our advertisers. With the HD2 channels, the industry has more opportunities than ever to offer niche programming to listeners and we are only in the very early stages of demonstrating our capabilities.

As of now we have 23 stations or 53% of the portfolio converted to HD broadcasting. Listener response has been good and the HD Radio Alliance has been effective in the last year in promoting the benefits of the technology, increasing retail penetration — such as the recent announcement of Wal-Mart being added as a distributor — and ultimately raising consumer adoption. We plan to convert our Coastal Carolina and Fayetteville clusters in 2007, the Augusta cluster in 2008 and the entire group should be done by the end of ’08.

Use of radio Internet websites?

Beasley Interactive is positioning the company to compete effectively in an increasingly Internet-centric marketplace. WPOW-FM in Miami has been our company test bed to determine the best means of generating new revenue from these sources and the station derived more than 5% of its total revenue from interactive initiatives in the last quarter. We are now implementing a range of web-based activities, including Internet advertising and sales, streaming content on the Internet, and coordinating sales and programming opportunities. We’ve identified Interactive Sales Managers for each of our markets and these individuals have been trained to sell new media both on a standalone basis and as part of an up-sell with traditional spot buys, and to establish each station and market’s interactive budget. Company-wide interactive sourced revenue accounted for about 1.8% of revenue in the fourth quarter of 2006 and 1.4% for the full year 2006 and we think this should grow to 5% of revenue over the next several years. We now have all of our stations streaming.

The XM/Sirius merger?

It should not occur. Most broadcasters with whom I have spoken feel it represents a true monopoly and should be denied. However, the FCC and the Justice Department will ultimately make that decision.

Where did Beasley get its start 45 years ago and does it still have the same station[s]?

Beasley Broadcast Group was founded in 1961. I was a high school principal at the time and I applied for and secured an FCC license to build WPYB-AM, a daytime-only 500 watt station, in Benson, North Carolina. At the time, I was part of a small group of radio pioneers who were bringing smaller U.S. towns previously unavailable technology.

We sold this first station at a profit re-investing the proceeds into the purchase of WFMC-AM in nearby Goldsboro, which brought a more powerful signal and a larger market. This cycle would repeat itself over the next four decades and would become a cornerstone of the Company’s strategy to acquire under-performing radio stations in growth markets.

Beasley does not have any of the same stations it acquired originally in the 60’s as a result of the fact that during the 60’s and early 70’s, we broadened our geographic reach, purchasing stations in Virginia, Kentucky, Georgia, South Carolina, Alabama, Indiana and Ohio. The Company sold its first station, WPYB-AM and purchased WFMC-AM, by leveraging its proven strategy of acquiring stations at reasonable prices, applying its operating prowess to build value, and if the time was right, selling stations to reinvest in larger and more advantageous markets.

Over 45 years later, we are the 18th largest radio broadcasting company in the nation when ranked by revenue and now hold 43 stations in eleven large-mid sized markets.

What are the biggest changes to the business since then?

Through the late 1970’s and into the 1980’s, BBGI continued its disciplined expansion. At one point in the late 80’s, we owned KRTH-FM in Los Angeles.

After the inception of duopoly, we sold KRTH and used the proceeds to retire debt and buy additional FM’s in several of our markets. The growth of FM radio during this period was a major catalyst for both Beasley and for the radio broadcasting industry at-large. During this last decade, the HD Radio boom hit the industry, and since we are a big believer in finding new and innovative ways to strengthen ourselves in the industry, we wholeheartedly embraced HD Radio. Anticipating the dramatic benefits HD Radio technology offered, we were the first to broadcast in HD in Philadelphia and Las Vegas. Additionally, Beasley was also first to publicly demonstrate HD Radio’s multicasting capabilities and offers multicasting channels in its Miami, Philadelphia and Las Vegas markets.

Does BBGI have any expansion plans?

We regularly evaluate our portfolio, the market of stations that may be available and the public and private market valuations for stations to determine if there are opportunities to enhance the overall value of BBGI through some type of transaction. Our market focus has and will continue to be on mid and large-sized markets and we remain attracted to these markets as we can operate more efficiently in a market that has significant revenue as opposed to some of the very small radio markets. We don’t telegraph our intentions as they relate to any proposed transactions or stations that we are looking for, but we have a 45+ year track record of success in building value by managing our station portfolio and I remain very active on this front.

What do you expect Beasley to look like on its 50th birthday in 2011?

We may want to add an additional cluster or two in top 100 markets over the next five years. However, our focus for now is on the operation of our present portfolio. We expect to get better performances from some of our existing stations and further develop many of our HD channels.

Is there any question I neglected to ask which you’d like to answer, or are there any general comments you’d like to make?

I remain both optimistic and passionate for radio and its growth. We have always adapted to competition for ad dollars as a result of new media and we will continue to do so. Our primary objectives are to operate great radio stations in the public interest and create value for shareholders.