Citadel merges with Disney/ABC and Univision
February 13, 2006

Resources Shift in Response to a Changing Media Environment

It was an interesting news week with the announcement of the merger between Citadel and Disney/ABC Radio and the potential sale of Univision Communications. BIA Financial Research (BIAfn) believes that these two deals represent companies shifting resources in response to a changing media environment. Facing new competition and seeing new opportunities brought on by technological changes, broadcasting companies are exiting some old markets and entering new markets.

Let's first examine the merger of ABC Radio to Citadel. The combination allows Citadel to move into much larger markets. Eight of the 24 ABC stations merging with Citadel are in the top 10 Arbitron markets. Prior to the acquisition, the largest market in which Citadel had a station was Salt Lake City, market rank 31.

In total, Citadel will now reach into more than 50 markets, as the map below shows. Citadel owns other stations in close proximity to their new markets, which creates a good geographic distribution of the combined company. The merger makes Citadel the third largest radio group in the U.S in terms of advertising revenues generated, as determined by BIAfn.

The stations merging with Citadel Broadcasting generate about 90% of ABC Radios revenue, or about $404.3 million based on BIAfn estimates. Citadels own 224 stations brought in $412.5 million in 2004. The estimated revenues for the new Citadel Communications in 2004 was $816.7 million.

Source: BIAfn
(For a larger image in a separate window, please click here)

ABC/Disney is planning to still hold onto 45 stations five ESPN Radio sports stations and 40 Disney Outlets. The 45 stations Disney/ABC plans to keep brought in $50.45 million in revenue for 2004, per BIAfn data, with $30.9 million attributed to ESPN Radio stations and $19.6 million to the 40 Radio Disney stations. Holding on to the ESPN stations and the ESPN radio network makes a lot of sense as there are tremendous synergies with running a sports radio network and a sports cable network. It is also very instructive that ABC/Disney is also trying to expand the reach of their ESPN brand through their mobile ESPN service that they recently introduced and advertised heavily during the Super Bowl, one day before announcing that they were partially leaving the radio industry.

As for holding on to the Radio Disney stations, this has more to do with promoting the overall Disney company image than with staying in the radio industry. By owning single AM radio Disney stations in these markets, ABC will be challenged to make them profitable operations. However, these stations may be good promotional vehicles for the overall Disney brand.

While ABC Dinsey was partially exiting the radio industry, Citadel with its strong financial backing was making a further commitment ot the radio industry. Senior management at Citadel have considerable experience in competing in these larger markets. Moreover, with a stronger and market-sized varied lineup of stations, Citadel will do well in its negotiations with program and equipment suppliers and other service companies to the radio industry. Other synergies involving sharing of programming between stations of this larger group will also result.

The second big story of the week was the announcement that Univision would be placing itself up for sale. While there has been little in the way of good news for broadcast television over the past several years, Hispanic network affiliated television stations such as Univision have been noticeable exceptions. Stations affiliated with Univision, and other Hispanic networks such as TeleFutura and Telmundo have been expanding with ever-increasing numbers of stations in both existing markets and new ones that previously had no Spanish-language television stations. These stations wield a far amount of power due to the explosive Hispanic population growth and the demand by advertisers to reach this market. In review of these stations, BIAfn reports that revenues at Spanish television stations across the country are increasing at rates faster than the overall television industry.

All of this places Univision in a strong position in the market, according to Mark Fratrik, VP of BIAfn. Its a good time to capitalize on its assets. But, Fratrik cautions that it may be hard to find a buyer from existing broadcast companies. Univision could ask for a waiver from the FCC, but that would be a tough battle.

Steven Levingston, a Washington Post Staff Writer, recently spoke with Mark Fratrik, to explore the Univision story.

These dramatic announcements in just one week may be a harbinger of things to come. All broadcast companies are surveying the new media landscape and are determining how they can fit in. Some will determine to exit in whole or in part while others will see new opportunities and make further investments.