SNL Kagan Forecasts Growth for Radio Sales with Station Values Holding Firm

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Radio operators trying to offset Internet migration of ad dollars with Web initiatives.

Many ad dollars are migrating to the Internet, but radio is working to get a piece of that pie. While radio is not media's highest growth industry, it still enjoys media-leading cash flow margins.

"Radio Station Deals & Finance," a new study from SNL Kagan, projects average annual revenue growth for radio revenues at 3.2%, reaching $28.7 billion by 2016. Although revenue growth is slow, radio station values have held relatively firm -- largely due to higher margins and ample free cash flow. While the industry has seen intense competition, it's still attracting investment capital.

In the near term, however, SNL Kagan estimates that radio stations will finish 2007 with a 1.5% drop in revenue excluding nonspot sales. Three major factors are contributing to the decline: Internet ads siphoning agency dollars, last-minute booking of air time and static ad rates. SNL Kagan also estimates that radio sales will drop to less than $20 billion in 2007 compared to $20.1 billion in 2006, again excluding nonspot sales. A revenue total including nonspot slightly mitigates the decline to a projected 0.8% for 2007.

Deal volume decreased in 2007 versus 2006, while deal multiples softened due to the credit crunch and smaller average station size, as well as the presence of more properties on the market with few large-cap buyers. Through Sept. 30, $3.52 billion of radio properties changed hands at an average 12.1x cash flow multiple.

"The operators and financial community will continue to invest and support radio going forward, because radio still turns out cash," said Robin Flynn, senior analyst for SNL Kagan. "Many ad dollars are migrating to the Internet, but radio is working to get a piece of that pie. While radio is not media's highest growth industry, it still enjoys media-leading cash flow margins."

According to SNL Kagan, the recent bright spots in the revenue picture have been nontraditional revenues and initiatives, including HD channels and incremental growth in Internet dollars. The Internet generally makes up 3% to 5% of overall revenues for operators, who are hoping for growth of 7% next year and growth of up to 15% in 2016. Additionally, many stations are converting to HD, and significant revenue associated with the new technology is expected to emerge next year.

"Radio Station Deals & Finance" is available exclusively as part of the SNL Kagan Information Service. For more information on this report and other media and communications data sets within the SNL Kagan Information Service, call 866-296-3743 or e-mail SNLKaganSales@snl.com.

About SNL Kagan
SNL Kagan is the ultimate resource for complete financial intelligence on the broad and dynamic media & communications sector, including the broadcasting, cable, entertainment, motion picture, telecom, wireless, satellite, publishing and new media industries. The SNL Kagan suite of products integrates breaking news, comprehensive data and expert analysis into an electronic database available online and updated around the clock. SNL Kagan combines the 38-year heritage of Kagan Research with parent company SNL Financial's 20 years of experience in providing essential guidance to Wall Street and to America's top corporations. For more information, visit http://www.snlkagan.com.

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