Analyst still on duty


Following last week’s pink slipping of yet another broadcast analyst as Citi cut staff, Lee Westerfield touched base with RBR/TVBR to state that he is still on duty at BMO Capital analyzing radio and television stocks. “BMO takes the long view,” he said. And the analyst shared some thoughts on what is ahead for broadcasting companies.

Noting that the radio industry continues to be profitable, despite the current advertising downturn, “it is not going away,” Westerfield said. But there will be changes to the industry landscape.

Equity to debt has gotten out of balance, with the analyst noting that the current debt-to-equity ratio is around three times for the industry, rather than the traditional six times. So, he says, over time radio will “recapitalize to right size” that relationship between debt and equity. That could come from injections of new capital, mergers of companies to create stronger balance sheets or improved performance from an economic rebound – or all of the above.

“No one, not I, says it will be easy and it may yet require intervention from Washington,” said Westerfield.

The picture is a little better for television, although TV stocks have also taken a severe beating this year. “Television broadcasters have a sustainable model,” Westerfield said. He takes issue with anyone who thinks that content producers will want to pass up local stations to distribute programming directly to consumers. The reason is simple. Broadcast station distribution of studio produced product “is more profitable than linear distribution via the Internet,” the analyst said.

As the number of analysts following pure-play broadcasting companies declines on Wall Street – and some of those remaining pare their lists to add companies from other media sectors – Westerfield is still publishing research on 14 radio and television companies: Beasley, CC Media, Citadel, Cox Radio, Emmis, Entercom, Regent and Salem in radio; Belo, Hearst-Argyle and Sinclair in television; and CBS, Entravision and Saga across both.

Broadcasting is under pressure today, but Westerfield says “it is not a question of whether operations will continue.” So, he intends to keep analyzing radio and TV companies as their industries go through yet another transformation.