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Boyle: Big radio groups are underperformers

Consolidation wasn't all it was cracked up to be. Wachovia Securities analyst Jim Boyle is out with a new report which concludes that big radio clusters are underperformers - - in revenue growth, ad market share and audience share. "Bigger has not been better in radio for two years and this should persist," he warned investors this week.

"Although scale confers advantages in many industries, the radio sector has been and still is a management-intensive business. That's due to the variety of its local audience tastes, advertiser needs, and the demands of supervising its local sales force. The giant radio platforms, whose execs are spread too thing and are more distant from the local setting, have been under-performers by several operational metrics," Boyle wrote. "We believe that this underperformance should likely persist. So, investors should look to more nimble groups of less than 25 clusters and under 125 stations for superior growth prospect, in our view."

Although Clear Channel and Infinity used to be industry leaders in revenue growth prior to the 1996 law which unleashed consolidation, Boyle's analysis of recent years shows those two giant platforms, plus Cumulus, a post-'96 creation, underperforming the RAB's industry figures quarter after quarter. Of the giant radio groups, only Citadel runs counter to the trend, a group which Boyle says has "capably handled its mostly cluster acquisitions and fewer turnarounds, and that is staffed by well-regarded, skilled management in the trenches."

The analyst suggests that radio's biggest companies have gotten so large that there are too many layers of management "too far removed from local circumstances and local pricing." While thing may be running well in many markets, Boyle says each of the giant platforms will invariably have several markets, perhaps dozens, where there are problems to be fixed - - and that as soon as those are fixed other problem markets will arise. He compares it to a juggler who, while skilled, simply has "too many different-sized and multiple shaped balls, knives, and dishes in the air."

According to Boyle, "If bigger is truly better, then scale should aid rather than inhibit the smooth operation of dozens of local clusters. It implies as well that most stations should readily lend themselves to a cookie-cutter approach and yet operate interdependently, seamlessly in larger combination." He doesn't rule that out, but so far the evidence weighs on the side of radio being a management-intensive business that needs lots of local attention to detail. If that's the case, smaller, more nimble competitors will be able to eat the lunch of the big guys, so Boyle is telling investors that's where they should be putting their money these days.

RBR observation:

Bravo! Boyle has hit the nail on the head. Eight years into consolidation, management is spread too thin in the major companies to be effective at the local, regional or national levels - - and yet the companies continue to make revenue-raising and cost-cutting demands on those overstretched managers which are laughable. It's not likely that the genie is going to be put back into the bottle - - consolidation is here to stay. And there are only two companies which can lead the way on resolving these problems which are hurting the entire industry. Mark? Joel? We wait to see how you are going to get your companies back on track. We trust you're both too young for Naples to be calling.