Predictions On The Future Of Radio
Last week I published a post which included an eMarketer stat about 2020 being the crossover year when Americans will consume more digital audio than terrestrial radio for the first time ever. With that as the backdrop, it’s fair to wonder about the long-term outlook for the $15B+ Broadcast Radio industry. To help address the topic, CNBC has published a fascinating article outlining the challenges and opportunities in Radio’s future.
First and foremost, Radio has a “real revenue” problem. In the PwC graph below you can see the radio industry’s revenue over the past five years. The blue (Nominal Rev) bars are declining just a hair every year – so let’s call it flat. But the green (Real Rev) bars factor in inflation. On that metric Broadcasters’ top-line real rev has declined 7% since just 2015. It doesn’t take a math major to figure out where that trend line is headed.
Radio’s other red flag is the market value of their stations. Over the last year we’ve seen examples of fire sale prices across the country. As an example, earlier this year Emmis Communications sold it’s 50% ownership stake in six Austin stations to Sinclair for $39.3M. That sounds like a decent chunk of change until you hear that Emmis bought their portion of the Austin cluster in 2003 for $103M. Unfortunately for the industry, this drop in value isn’t isolated to Austin. Valuations are declining across the country to their lowest levels since industry consolidation in 1990s.
If those are the problems, what are some potential solutions for Radio? One idea is diversification by investing in related industries. Right now Radio is still a profitable business, with 20-40% free cash margins at typical big-market FMs. To hedge against future erosion broadcasters can use today’s profit to buy tomorrow’s opportunity.
One example could be investing in related content like podcasts. Last month Entercom bought the portion of Cadence13 it didn’t already own, and in Sept’18 iHeart purchased podcast leader Stuff Media. Emmis CEO Jeff Smulyan is taking the idea of diversification one step further when he explained their strategy to sell off most of their radio assets. “An entrepreneurial culture is difficult to maintain in a slow growth business,” Smulyan told shareholders. “We simply believe our talents are transferrable and we want to be in businesses that are growing.”
So will Broadcast Radio stay relevant 10-20 years from now or should they be diversifying away from the medium now? Lmk what you think.