BIA COMPANIES Cin Information ,A. 11, I _ft fT`iik 40.3, 0 0 - i 4 rid R,------OsBIA . Inc. %,....+1 Strategy s. The BIA Family of Companies 9 #,,:; fki4 Advisers to the Media and -: 14( Telecominualcations Industries BIA Consulting-, Inc. a - .011111 BIA Capi '98 Radio 703-818-2425 www.biacompanies.ccom At last! An attorney who's been there! 15 years of programming, sales and management experience. BARRY SKIDELSKY Attorney/Consultant full -service assistance for station start-up, purchase and sale facilities improvement management and lender consultation bankruptcy trustee/receiver arbitrator expert witness FCC financial corporate employment intellectual property 655 Madison Avenue, 19th floor, New York, NY 10021(212) 832-4800 CreatiVe, cost-effective and strategic counsel for today's competitive environment. PANETH, HABER & ZIMMERMAN LLP PH CERTIFIED PUBLIC ACCOUN FAN I S Mark Levenfus, Partner Steve Ciavarella, Partner 600 Third Avenue New York, NY 10016-1938 Telephone 212/503-8800 Facsimile 212/370-3759 Evaluation of Due Diligence in connection with Acquisitions and Divest it ti res Business Planning and Projections Business Valuations including Cash Flow Analysis Facilitation of Bank Financing Audits, Reviews and Compilations Tax Preparation and Planning State of the Radio Industry Thomas J. Buono April 1998 BIA Research, Inc. 1 State of the Radio Industry 1998 Copyright© 1998, BIA Research, Inc. Thomas J. Buono, Publisher BIA Research, Inc. 15120 Enterprise Court, Suite 100 Chantilly, VA 20151 Tel.: 703-818-2425 Fax: 703-803-3299 E-mail: [email protected] Internet: www.biacompanies.corn State of the Radio Industry 1998 TABLE OFCONTENTS Introduction 5 Executive Summary 9 Radio Industry Trends 17 Station Trends Listening and Programming Trends Revenue Conversion Profitability Radio Revenue Trends 27 Economic Indicator Trends National Advertising Trends Radio Revenues Radio Revenue Growth Outlook The Impact of In -Market Consolidation 35 Duopoly Concentration Share of Listening Revenues Duopoly's Performance: Cause or Effect Radio Ownership 41 Ownership Concentration Publicly -Owned Radio Group Summary Listening Revenues Company -by -Company Profile Future Public Companies? The Radio Transaction Marketplace 109 A Historical Perspective Impact of the Public Market on the Transaction Marketplace Impact of Duopoly on Transactions Station Values The Future Transaction Marketplace Appendices 121 Duopoly Exhibits 123 Ownership Exhibits 147 Glossary 159 About BIA 165 BIA Research, Inc. 3 BIA RESEARCH 4 State of the Radio Industry 1998 BIA Research, Inc. -7, BIA RESEARCH 6 State of the Radio Industry 1998 INTRODUCTION_ General Information pelling economic advantages conveyed by Welcome to BIA's third annual overview consolidation, and the ensuing "publicization" of the radio industry. In the two short years of the industry, will form the focus of much of since our inaugural edition, the radio industry this book. Join us, now, as we navigate the has transformed itself from a slow growth, strong currents of change buffeting radio's mature enterprise into a dynamic industry that sturdy raft. has caught the eye of public and private in- vestors, alike. About BIA Radio's traditional advantages, barriers BIA has been tracking and lobbying on to entry, its portability and ambient nature, its behalf of the radio industry since 1983. Through efficient operating structure, low cost per point our consulting practice, we have examined lit- and relatively low capital requirements, have erally thousands of radio station operations and combined with the new economic benefits transactions over the past 14 years. We have conferred by the lifting of the ownership caps, worked with many of the most active broad- to spark an unprecedented wave of investor cast lenders and most of the publicly -traded interest in radio. Intrigued by the prospect of broadcasters. BIA is widely recognized as the revenue synergies, enticed by the promise of premier appraisal and reference source for the cost economies and lower risk, a new breed radio industry. As such, we are highly quali- of radio owner has emerged, the "consolida- fied to assess the state of the radio industry. tor." Consolidation fosters the critical mass BIA Research, Inc. (formerly BIA Publi- necessary to compete more effectively against cations, Inc.) offers a wide range of reference other media. Radio can now offer a cluster of books, electronic data, newsletters and indus- stations that has the potential to equal in reach try research. Although our first copy of In- the number two, three or four television sta- vesting in Radio was published in 1986, we tion in the market. Their new size and power had been compiling such data since our incep- is affording the consolidators the ability to tion. In 1994, we introduced MEDIA Access attract more listeners and advertisers, to exert ProTM (formerly MasterAccess), a Windows- greater pricing leverage with their own sup- based software package that accesses all the pliers and program syndicators, and to savor, data in our Investing in Radio and Radio Year- at least, the prospect for revenue synergies. book databases, as well as our television data- To fund their ambitious acquisition strat- bases. The power of this tool allowed us to egies, the consolidators have tapped the pub- conduct a number of the analyses presented in lic debt and equity markets. The transforma- this report as well as many customized re- tion from a mature, splintered industry, with- search studies for broadcast clients. This data out prospect of critical mass, to an industry is currently available on diskette or CD -Rom. that has captured the hearts, minds and wal- We anticipate offering an Internet -based ac- lets of the biggest equity players on Wall Street cess alternative later this year. is further transforming the industry. The ra- As part of the maintenance of our radio dio economic revolution brought by the com- databases, we survey hundreds of general man- BIA Research, Inc. 7 agers, owners and group heads each year to MasterAccess), without whose help much of ensure that our data is accurate and our esti- the analysis would not have been possible. mates and projections reasonable. Although we track the industry daily and survey the in- Rights and Limiting Conditions dustry quarterly for station data, in conjunc- It should be noted that the following re- tion with our 1997 publications we surveyed port contains estimates of revenues for markets, literally thousands of industry executives re- stations and, in some cases, transactions. Much garding market and station revenues. We re- of our analysis has also been done on a pro - ceived market revenue estimates on over 200 forma 1997 basis. This means that to better radio markets and radio revenue estimates on anticipate what will happen in 1997 and beyond, over 2,000 stations. we have reviewed 1997 assuming that all the BIA also offers a wide range of strategic acquisitions proposed or closed during the year consulting and acquisition and merger ser- occurred at the start of the year. For example, vices. These services include financial mod- the duopoly analysis for a given market treats eling, strategic business planning and related all 1997 station acquisitions as being part of activities through BIA Consulting, Inc., and the duopoly throughout the year. While this advisory and investment banking services overstates the impact in 1997, it shows us where through BIA Capital Corp. BIA Capital spe- we are as we enter 1998. The same holds for cializes in raising debt and equity for radio the public company analyses. The data on these clients, typically in need of between $5 mil- companies will not tie out to the actual finan- lion and $100 million in funding. cial statements compiled by the company, given A more detailed description of the prod- our approach to presentation. In addition, since ucts and services of the BIA Family of Com- these are only estimates, the actual performance panies is contained in Appendix C. of any station or market may vary. Our data and information should only be taken as illus- trative, rather than fact. Anyone contemplat- Acknowledgments ing taking action in any regard should contact In preparing this report, a number of dif- the actual companies directly and request cur- ferent individuals played important roles.I rent data. BIA Research, Inc. assumes no re- would like to acknowledge Pete Bowman, who sponsibility for any action taken by readers of was primarily responsible for preparation of this report and assumes no liability. this report.I'd also like to thank Donna. This report is Copyright 1998 by BIA Re- Grigsby, Leslie Kane, Suzanne Ackley, search, Inc. and may not to be copied in whole Michelle Zacofsky and Jo Krebs who assisted or part by any means, including photocopy- in much of the research and compilation, and ing, without the prior express written permis- Donna Brooking, Cheryl Patterson and Leslie sion of BIA Research, Inc. All rights reserved. On who helped in the design, layout and pro- Additional copies of this report, however, can duction of this publication. Thanks are also be purchased throughBIAResearch, Inc. for extended to Mark O'Brien, the driving force $295 by calling (703) 818-2425.Multiple behind MEDIA Access ProTM (formerly quantity discounts are also available. 8 State of the Radio Industry 1998 Executive Summary 13111 Research, Inc. BIA RESEARCH 10 State of the Radio Industry 1998 EXECUTIVE SUMMARY Introduction in the portfolio, or to protect a flank. With so 1997 was the year many of the pieces fell much at stake more than ever it is about boost- into place: the year the mosaic took shape. The ing cash flow. year the promise of the Telecom Act was real- So, radio's way of life is changing be- ized by many operators in most markets. This cause of the economic impetus lent by con- was the watershed year that placed the once solidation.