Small markets are the big place to be

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From Citadel and other companies we have been hearing the woes of big market radio stations. But there is a very different story to be told about small markets as overall radio revenues plunged 6% in January (2/21/08 RBR #36).


“We have been banging the drum for several quarters that small-mid markets have been consistently and sometimes dramatically outpacing their top 25 market brethren. We would note that the biggest gap is actually the recently widening one between the top 25 and markets smaller than #75. In January 2008, adjusting for 300 basis points [3%] harder comps for the smaller radio markets’ revenue in January 2007, the small markets flat out thrashed the top 25 markets revenue performance by 1,300 basis points. It reminds us of the apocryphal remark that President Lincoln was claimed to have uttered when critics of General Ulysses S. Grant complained that he was a hard drinker, ignoring that he was the only Union general attacking and consistently winning, ‘Whatever He’s Drinking, I’d Like to Send a Case to My Other Generals’,” said CL King analyst Jim Boyle in a note to clients.

Boyle repeated some advice he’s been giving radio group heads – not that we’ve seen much evidence that they’ve been paying attention.

“Radio’s rebound could be selling non-musical product to listeners, onetizing the P-1 listener: Radio groups fetch about 2%-3% of revenue from rapidly growing internet initiatives, but that hasn’t stopped 2007 from being a down revenue year or halted newspapers’ erosion, whom have done it longer than radio. We would strongly recommend that radio look to the second of its two constituencies, its audience. Radio’s most loyal, engaged listeners are dubbed P-1 listeners. We believe radio should sell local audio/video/on-line content and small, branded items to its biggest fans. Consumers have become highly trained by eBay, iTunes, Amazon and others to make impulse buys or purchase planned items via the ease of well-established micro-payments. Most people forget that the cable network that allowed cable to garner non-subscription revenue from subscribers, Home Shopping Channel, started as a Florida AM radio show. We believe station personnel and younger employees are more likely to come up with successes than the older, top executives. Finally, we bet you that no P-1 would ask ‘what is the cost-per-point’ of a daily e-mail of the best jokes (on-air/off-air) of the Morning Zoo DJs? Nor would they whine about the ‘cost-per-thousand’ of a station logo baseball cap or ask the ‘AQH rating’ of a mobile flash alert of the latest club event. If they like it, they’ll buy it. Radio should establish a second revenue stream or resign itself to being the ‘new Newspapers.’ A second consumer-fee revenue stream would bolster the industry and excite investors, and it could even make radio a creative and fun business again, in our opinion,” Boyle wrote.