Pure-play groups most impacted by dealer closings

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Wachovia Capital Markets analyst Marci Ryvicker says Citadel in radio and LIN in television are the publicly traded broadcasters with the most revenue at risk from the closing of dealerships by Chrysler. However, she notes that many of the closed dealers were struggling and not doing much advertising anyway.


“Regardless of exposure, dealership closings should NOT have a material impact on revenue going forward,” Ryvicker highlighted on the front page of her analysis piece. “While over 2,000 auto dealerships are closing, we do not anticipate a significant hit to local advertising rev. for even the most ”exposed” companies given: 1) many of these dealerships were failing or unprofitable for years and therefore had already cut ad spend significantly; 2) many of these dealerships were considered ”fringe” (i.e. non-core dealers) and did not spend on local broadcast or outdoor; and 3) all of auto had already pulled back on ad spend given the high gas prices in the summer of’08 and the recession.  In fact, total ad spend in auto (including all three tiers) was down 16% in 2008 vs. 2007. Breaking this out by local media — auto was -20% for television, -22% for radio,    -3% for outdoor and -18% for newspapers.  BOTTOM LINE – local media has already taken a significant hit from all levels of auto ad spend.  Therefore, we do not expect further material declines just because of the Chrysler/GM dealership closings.  That is not to say there won’t be an incremental impact, but it is likely small,” the analyst wrote.

She went through the dealership closing on a market-by-market basis. While Ryvicker found a large number of Chrysler dealership closings in large markets where CBS (both Radio and TV), Emmis and Radio One have stations, because of the size of the markets she expects the loss of local dealers to have less incremental impact on revenues.

Ryvicker found that 239 Chrysler dealers shut down in the mostly mid-size markets where Citadel Broadcasting has radio stations – markets that account for 83% of its revenues. Similarly, 84 dealers shut down in mid-size markets where LIN has television stations – markets that account for 97% of its revenues. The analyst also noted 151 dealer closing in mid-size markets where Hearst-Argyle has stations. Those markets account for 95% of Hearst-Argyle revenues, but the company no longer has public stock since all of the public shares were recently bought up by Hearst Corporation.

“Again,” Ryvicker noted, “ we would not expect these companies to report another 50% decline from current auto spending, but we may see some incremental weakness (versus their peers.”

The publicly traded broadcasters with the least revenue exposure from the Chrysler dealer closings, according to Ryvicker, were Gray Television, Saga’s radio group, Saga’s TV group and Nexstar, also a television group owner.