Radio Investment: Hidden Value in Plain Sight – Walter Sabo

By Thought Leaders Archives
Cover image for  article: Radio Investment: Hidden Value in Plain Sight – Walter Sabo

Radio stations are perceived to be unattractive investments. Some investors believe that radio is not sexy, not growing and has no future. But the facts indicate that radio is a very good contrarian investment.

As an investment, radio stocks have shown strong growth over the past three years.

Clear Channel + 31.54%
Entercom + 26.83
Beasley + 51.08
Cumulus + 121.58
Emmis + 160.40

Source : MSN Money July 25, 2011 -- July 25 2014

According to Neilson, radio audiences are consistent. There has been little variation in audience use of radio in decades. 92% of Americans own a radio. 65% will listen today.

Radio’s distribution system is elegant and the envy of all other media. Consider the cost of laying and maintaining cable. Cisco invests billions for Internet fiber. Major web sites are forced to continuously invest in server farms with no promise of a return. A radio station distributes its product in the air with one origination point capable of reaching millions of customers. Radio has been “streaming audio” to the car since 1930.

Radio is the model of scalability. Whether one person or one million people listen, the distribution cost and labor cost of a radio station operation is the same. When a station's audience increases, the budget item that increases is revenue.

95% of the costs are discretionary. The base cost of a radio station is electricity for the transmitter. Programming could be sourced by one iPod or microphone. It wouldn’t be great programming, but it is possible.

Protected business. Radio is a protected industry. If your neighbor tries to broadcast a station from their home, they will be shut down by the feds pretty fast.

No foreign ownership. There is no foreign money or ownership in the radio industry. Radio stations must be 80% US ownership financed and controlled. Therefore many smart corporations own a radio license to prevent foreign takeovers.

Proven. Advertisers budget for radio and understand how it works and how to buy it. Unlike many Internet based companies, there is no time wasted selling the integrity of the medium.

35% profit margins are normal. Free-fall cash flow is positive comparable to any industry.

No executive recruitment challenge. Management that chooses a career in radio is passionate and extremely knowledgeable about the medium. Jobs are filled quickly without the expense of a formal search.

Fair trade multiples. Prior to 2008, radio stations traded at cash flow multiples of 10-12x. Now they are 6-10x.

This is the right time to buy radio stocks and radio stations.

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