U.S. Radio Companies May Report Low Earnings

U.S. radio companies reporting earnings next week may disappoint some investors after a challenging year for the mature medium, which faces soft advertising trends and growing competition from devices like iPod portable music players and satellite radios.

"Overall, we believe most companies will deliver fourth-quarter results ... below consensus estimates. Moreover, we expect few companies to provide full-year guidance, given the current weak outlook for radio overall," CIBC World Markets analyst Jason Helfstein wrote in a recent research note.

Market leader Clear Channel Communications Inc (CCU), Cox Radio (CXR) and Citadel Broadcasting Corp (CDL), which just reached a $2.7 billion deal to merge with Walt Disney Co's (DIS) ABC Radio, are among those scheduled to report.

Advertising revenue for the industry was flat at $21.5 billion in 2005, according to the Radio Advertising Bureau (RAB). Local advertising, about 80 percent of total revenue, grew 1 percent, while national revenue fell 2 percent.

Fourth-quarter advertising fell 3 percent with local sales down 1 percent and national down 9 percent, said the RAB.

With analysts forecasting low single-digit revenue gains for 2006 and with listeners increasingly turning to other mediums like portable devices, Internet radio and satellite radio, terrestrial radio companies are seeking to reinvent themselves with high-definition digital radio technology to provide listeners with more stations and better sound.

Additionally, analysts are tracking market leader Clear Channel's "Less Is More" policy, which cut commercial ad time by an average of 20 percent across all stations to boost ad rates and stem listener complaints about ad clutter. Some other radio firms followed suit in trimming commercial spots.

When it reports fourth-quarter earnings on February 21, Clear Channel, which operates 1,200 stations, is expected to preview first-quarter 2006 pacings, a key measure of ad sales. That should give analysts the first apples-to-apples comparison for the program, which has caused a drop in radio revenues to date.

Clear Channel's radio revenues fell 7.1 percent year-over-year in first-quarter 2005, when "Less is More" got under way, and continued to drop year-over-year with each subsequent quarter through fiscal 2005.

Analysts are hoping to see an uptick. "'Less is More' will (mark its first) anniversary and is expected to comp against some lower numbers," said David Bank, analyst at RBC Capital Markets.

Clear Channel also completed a realignment during the fourth quarter, spinning off a 10 percent stake in its outdoor advertising company, Clear Channel Outdoor Holdings Inc. (CCO), and divested its entertainment company, Clear Channel Entertainment, renamed Live Nation (LYV).

While radio's stagnant growth is often contrasted with the fast-growing nascent satellite sector, most analysts do not consider satellite radio, with a collective subscriber base of 10 million, a serious threat but just one of several challenges that have emerged for radio, which draws about 100 million listeners per week.