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Another analyst weighs in on "more is less"

"Reading between the lines of management comments, we believe inventory reduction heavily involves inventory unit sales shift from 60 second units to 30 second units without significant unit price discount," RBC Capital Markets analyst David Bank told clients as he digested what Clear Channel management had to say in Friday's conference call (7/26/04 RBR Daily Epaper #144). But he says details of just how that will be accomplished remain "elusive."

Bank noted how Clear Channel Radio CEO John Hogan emphasized that the company will reduce commercial minutes, not units, by 19% and that Clear Channel President Mark Mays had said that 29% of on-air units during June were "non-revenue generating," such as PSAs and promos. "From this 'raw data' - - 29% excess inventory/20% inventory reduction, it would seem intuitive CCU could reduce inventory without reducing revenue," the analyst said.

"However, management didn't elaborate on many details we believe necessary to fully evaluate the impact of the initiative on revenue. The details include how much currently non-revenue generating inventory currently resides in less impactful day-parts. Cutting spots in overnights might reduce clutter and even increase average unit prices, but if nobody's listening, does it matter? On the other hand, it is hard to see how CCU can cut inventory in its most important day-parts (drive times, for instance) and see no lag time between ratings/rate increases and inventory reductions. It is also unclear exactly how much of the currently 'unsold' inventory is being 'packaged' with other high-priced inventory," Banks said.

Thus, while he reads between the lines to conclude that Clear Channel is going to try to shift advertisers to :30s from :60s, the analyst says he still needs more information on just how this is going to be done and how the shorter spots will be priced.

In any case, given management's guidance that Q3 is pacing flat, Banks is reducing his near-term number. He thinks management is being conservative, so he's lowering his Q3 growth estimate to 1% from the previous 2.5%.

Correction: In yesterday's story (7/27/04 RBR Daily Epaper #145), Wachovia analyst Jim Boyle was referring only to Clear Channel Radio with his lowered Q3 revenue estimate of 0.5%, down from 1.5%. He maintains his estimate that the entire radio industry will grow 2%.