Friday, November 17, 2006

Clear Channel Goes Private:
What Does it Say About Radio?

The announcement of Clear Channel Communications (CCU) being acquired after a very brief bidding process is a significant milestone in the radio industry history.

Transitioning from a public media company to a private one has become a serious option, as competitive conditions change. During the years after the passage of the Telecommunications Act of 1996, the advantages of having public stock to acquire additional properties was quite important.

Now, that is no longer the case as the public marketplace has registered its lack of confidence in the growth prospects of traditional media. By going private, these companies and their financial backers believe that they can grow in value over the long term without being concerned about investors' quarterly targets.

In our 25 years of monitoring and evaluating media transactions, BIA agrees that media companies are best judged over the long-term.

Also of equal importance is the announcement by CCU that it will dispose of 448 radio stations and all of its television stations. When CCU increased its size to over 1,150 radio stations and 42 television stations, it was the most striking symbol of consolidation in the radio and television industries. CCU's retrenching from those high levels indicates a shift in the strategic thinking that used to expect growth in value in all markets to now only expecting growth in certain situations. The strategic selling of certain assets is similar to the recent actions of both CBS, which sold some of its smaller market radio stations, and ABC, which sold all of its non-Disney, non-ESPN affiliated radio stations. These companies continue to believe they can increase the value of some of their radio assets.

CCU's decision to sell such a significant number of their radio stations could also be an indicator of what might be the "optimum" level of stations that any one company can effectively manage.

Many of the largest radio groups fall into the range of owning 70-300 radio stations, some having stations focused on one particular geographic area. That level of ownership allows companies to have enough scale to negotiate effectively with suppliers, while at the same time staying attune to their different local market conditions. With CCU's disposal of this many radio stations, they will move towards that level of ownership while still owning many more stations in many more markets than most other radio companies.

Interestingly, in today's announcement there is no mention in the disposal of any of CCU's Outdoor or entertainment holdings. Clearly, management still sees the benefits of outdoor advertising and live entertainment, as this segment has achieved significant growth in recent years.

So, what's next for the radio industry? We invite you to continue exploring this topic with us by downloading our new state-of-the industry report that provides a thorough examination of the first three quarters of 2006.

With all its struggles, radio still reaches over 90% of the American public. Read this report now to learn where the radio industry is going and what should we expect to see happening:

• The short run revenue prospects for the industry
• Why there has been an increase in the transaction pace the first three quarters of this year
• The continued interest in the purchase of stations
• Radio groups that are selling and groups that are buying
• The interesting opportunities created by a somewhat lackluster environment.
• How future success will require investment in what made radio successful in the past and the adoption of new distribution channels to distribute programming to additional audiences.

The report also contains charts that illustrate:

• Radio station revenue growth rates for the last 10 years and projections for the next five years.
• Radio Station Transaction Volume 1996 - 2005
• Number of Radio Stations Sold: January - September, 2005 & 2006

You are invited to download this report now.