When the largest radio broadcaster in the U.S., filed for Chapter 11 bankruptcy with $20 billion of debt in March 2018, the limits of the consolidation phase of industry growth became readily apparent.
If iHeartMedia, which owns and operates more than 860 live broadcast radio stations in 160 markets reaching 90% of the population is bumping up against the high water mark of consolidation, then other big groups are in the same boat.
After its strategic merger with CBS Radio in November 2017, created a combined entity with $1.7 billion of revenue and $1.4 billion of debt, Entercom became the second largest revenue generator in the radio business.
After the group rebranded itself as Audacy to reflect its scale and new digital capabilities, the ambitious radio owner and operator has been suffering from declining revenue and high leverage to fund its rapid expansion.
Distress Signals
Meanwhile, Cumulus Media which owns more stations than any rival except iHeartMedia actually got there first. The company filed for Chapter 11 bankruptcy in November 2017, with $2.4 billion of debt, after struggling with declining revenue and high-interest payments to fund 400 radio stations.
Since all three radio giants are maxed out on acquisitions, it is plausible, even likely, that we will see a deconsolidation wave coming to big radio groups.
Now that the benefits of scale and synergy have diminished over time, and the challenges of debt and competition have increased, it’s difficult to argue that selling off stations isn’t the most prudent course of action.
The changing media landscape has reduced the audience and advertising revenue of traditional radio stations. But despite the economic forces that oppose them, big radio isn’t going out of business anytime soon. The total revenue of these three radio groups was north of $4 billionin 2021.
That being acknowledged, the numbers have been trending down since 2020 when the pandemic wreaked havoc on advertising demand.
Overdosing On Debt
Setting aside for a moment the industry’s brilliant push into digital marketing and media solutions, the rich margins and profitability of over-the-air terrestrial radio are in jeopardy.
The sky-high debt burden that many radio groups have accumulated over the years due to aggressive acquisitions and leveraged buyouts is catching up so fast that executives have no choice but to craft an exit strategy that involves sizing down.
Debt service costs are limiting the ability of these groups to invest in new technologies, content, and talent, and have increased the risk of default or bankruptcy in case of economic downturns or disruptions.
Washington Lurks In The Shadows
As the FCC contemplates the introduction of new ownership and spectrum allocation rules that will dictate how many radio stations a single company can own in any given market, it could force operators to urgently unload radio stations possibly at firesale prices.
All of this leaves the lingering question about what companies are going to end up on the buy side of this equation. By cherry-picking the top stations in their chosen market segments, a new breed of smart, nimble operators will beef up their portfolio at exactly the same time that the big radio groups are shrinking.
Foxes Guarding The Henhouse
Sitting on the sidelines watching the action, three up-and-coming radio groups come to mind. Urban One, Saga Communications, and Townsquare Media are ready to pounce when the moment is right.
Urban One, appropriately named because it serves urban audiences and dominates smaller markets like Charlotte, Cincinnati, Columbus, Indianapolis, Raleigh-Durham, and Richmond, is a major contender.
To be fair, this is not a pure-play radio group because at least half its revenue comes from cable TV but its financial performance is legendary.
With total assets of over $1 billion on the balance sheet, it generated $101.3 million for the second quarter of 2023, a remarkable 73.4% lift from the same period in 2022 with the radio broadcasting segment contributing $46.6 million.
Meanwhile, the company landed net cash flow from operating activities of $25.4 million for the second quarter of 2023, growing 1,011% from the same period in 2022.
Sitting on $22.7 million in free cash flow, Urban One has the means to pick up sweet deals on the radio stations that become available in new markets, particularly where its footprint is lacking.
Meanwhile, rising up the ranks in small and medium-sized markets is the radio pure play Townsquare Media, reporting revenue of $121.23 million for the second quarter of 2023, an increase of 45.4% from the same period in 2022.
This data-driven radio group has been tearing up the transition to digital while keeping a firm hand on its core radio business.
Smaller Groups Biding Time
Executive leaders have been exercising restraint, and piling up cash to feed growth when the deconsolidation wave hits the industry.
Critics argue that even though smaller groups have strong balance sheets and lower debt burdens, companies like Urban One, Saga Communications, and Townsquare Media don’t have the scale to tackle complex acquisitions in an increasingly regulated environment.
But the seasoned media executives who run these successful smaller radio players are razor-sharp strategists, tacticians, and operators who have already proven that they are adaptable.
They’ve been navigating complex matters like ownership limits, spectrum allocation, and emissions standards for decades just on a smaller scale with a lot less debt.
Ready Or Not Here They Come
Take Bill Wilson, the emmy-award winning Chief Executive Officer of Townsquare Media as an example of who we’re dealing with here. He has over 25 years of experience in the media and entertainment industry, working with AOL, BMG, and Arista Records.
Erik Hellum, who runs 357 local radio stations for Townsquare Media brings over 20 years of experience in the radio industry, having played instrumental roles at Clear Channel before it rebranded as iHeartMedia and CBS Radio, now owned by Audacy.
Or look at Alfred C. Liggins the CEO of Urban One. He is considered to be one of the most influential media executives in the country, especially in the African-American and urban markets.
In the midst of all these superstars, Christopher Forgy, the CEO of Saga Communications, is busy leading the company’s strategy to acquire, develop, and operate radio stations in unique markets where Saga can impact and connect with the communities it serves.
It would be irrational to conclude that any of these top-notch leaders are operating outside their areas of expertise. They’re chomping at the bit to give the big radio groups a run for the money and beat them pound for pound on every financial metric.
SWOT Report is now Business Intelligence Weekly. The creator and journalist behind the digital publication, Andrew Ellenberg, is President & Managing Partner of Rise Integrated, an innovative studio that creates, produces, and distributes original multimedia content across digital touchpoints. To submit story ideas or ask about custom multimedia publishing, call 816-506-1257, email [email protected], or read more of his work in Forbes. To learn about his company check out this profile story.