• by Frank Saxe , October 24, 2002

“The low hanging fruit is gone,” pronounced Cumulus Media CEO Lew Dickey during Wednesday’s Kagan Radio Summit in New York. Following the run-up in late 1990’s, the past several years have seen far fewer radio groups rolling-up. Deal makers blame a lagging economy and an overabundance of buyers compared to sellers as the reason. Yet consolidation, and its subsequent increase in advertising rates, may not be over. Instead, like a bear bedded down for long winter it may wake up hungry – for assets.

“I absolutely believe there will be more consolidation in the next 12 to 36 months,” predicted Westwood One CEO Joel Hollander. In fact, many in the radio industry expect two or more of the mid-sized groups to combine their assets to take on the big players like Clear Channel and Viacom’s Infinity Radio group.

As 2002 winds down, the radio industry is clearly looking for a better 2003 than it had this year. While advertising sales have strengthened throughout the year, the volatility on Wall Street hampered many group’s ability to grow. Emmis CEO Jeff Smulyan feels that situation is coming to an end “There are plenty of buyers and plenty of capital out there to gobble up stations, but prices are high,” he said.

High prices aside, a number of broadcast groups hit a brick wall built by banks tightening the reigns on credit. “The banks have been reluctant to lend money and that is why there haven’t been a lot of deals being done,” explained Regent Communications CEO Terry Jacobs. Add to that, said Jacobs, is the incorrect assumption among sellers that the high prices paid pre-recession are still available.

Media broker Peter Handy agrees 2002 has been “pretty choppy” for getting deals done. “We’ve had a half dozen clients who have been put on the shelf for the entire year. They wanted to [sell out], but there was more reason to stay; there’s just been too much uncertainty.” Yet he believes the corner has been turned, and predicts 80% of those stations will be traded in the next six months totaling $500 million.

Dickey is not so sure that many deals will be done, however. “Consolidation is going to be fairly slow in the next 12 months. It’s the smaller deals that will still be done, as the economy improves and people become more bullish.” His group, the second largest in terms of the number of stations, is often mentioned as group poised to combine with a current competitor.

The Federal Communications Commission is presently reviewing its radio and TV ownership rules, and while it looks as though it will clear further deregulation, it is not expected to have a significant impact on the number of radio stations an owner can hold in a market.

Following the passage of the 1996 Telecom Act, that is what a number of radio groups did, growing rapidly into the massive groups that we know today. It is that which Smulyan credits for radio’s increasing ability to take advertising dollars away from other media, particularly newspapers. “We’re continuing to gain share over newspaper,” said Smulyan. “In our local markets, that’s where the dollars are. We took 5% from local newspapers over the last decade and that has been the fuel for this great growth for this industry.”

Mediaedge:cia senior partner/director of radio Kim Vasey agreed consolidation has been “a good thing” for the radio industry, particularly in terms of the training its salespeople get, she is concerned that too often they are concerned about getting the buy and not building a constructive relationship with the agency.

Throughout the consolidation process there has been a fear among advertisers that the decreasing competition among owners would result in a higher rate charged to clients. While most group heads would agree that rates have risen, most would point to the more professional way radio has marketing its airtime.

Tomorrow: A look at how some stations are using inventory controls to charge advertisers more.