Following a sharp downward revision in December, BAIfn VP Mark Fratrik has lowered his forecast for radio revenues yet again. He’s looking for 2009 to be even a little worse than previously forecast, with no positive number until 2011, rather than 2010. The one bright spot? Digital ad revenues.
Rather than a 10% decline in radio revenues this year, Fratrik is now predicting a 10.6% decline. That’s not such a big revision. But for 2010, instead of a tiny 1.5% improvement, he’s now forecasting a 4.1% decline in radio revenues.
RBR/TVBR asked what had made him even more pessimistic in such a short time. “Mainly the severity of the economic downturn – it’s much more severe than I had imagined,” Fratrik said. “I think the government is doing some things that might make it better, but I’m not fully convinced that it’s all going to blossom out, even though the stock market has been doing well the last few days,” he added.
“Unlike previous economic downturns, this one is coupled with this banking problem, so that’s going to make recovery much more difficult and take a lot longer,” Fratrick explained. In previous recessions, he noted, the Fed would simply lower interest rates, banks would start lending money and the economy would revive. “Unfortunately, the banks aren’t in that position right now” to ramp up lending.
So, he expects the recovery to take longer than with past, milder recessions. “And we know that advertising is going to be lagging,” Fratrik said. He also noted that a big contributor to the decrease in ad spending was the ailing automotive industry, which is important to radio, if not as much so as for television. In addition, there’s more competition for ad dollars. “So, the economic downturn couldn’t have come at a worse time,” he said.
Smaller markets are still tending to do better than large market radio stations, which have been more deeply impacted by national advertisers cutting back. That’s a margin of a couple of percentage points, Fratrik said. Even so, that would still make 2010 another year in negative territory even for smaller markets. That’s on average of course, and Fratrik notes that some markets have held up much better than the radio industry as a whole.
Digital revenues at radio stations continue to grow, although those dollars aren’t yet nearly big enough to offset the decline in traditional spot sales. By “digital” Fratrik is referring almost exclusively to Internet. He told RBR/TVBR that HD Radio isn’t yet having any impact on his revenue modeling.
|The chart below shows the percentage of changes in radio revenues from the past five years and BIA’s expectations for the coming five years.
|The chart below shows that online revenue for the radio industry will increase an average of $132 million a year through 2013
RBR/TVBR observation: Don’t shoot the messenger, or in this case the analyst. Hopes for a quick recovery are dimming. Radio can’t get back on track until the entire economy gets back on track.