• by Erik Sass  @eriksass1, December 10, 2007

Numbers aren't the whole story. Several years of weak results--including a 5% drop in revenues in the third quarter of this year--don't necessarily mean that radio is trapped in a long-term slump, according to industry analysts at SNL Kagan.

While it will take another year or so to bottom out, in the long run Kagan is optimistic about radio's prospects in its study "Radio Stations Deals & Finance."

Yet the short-term outlook is admittedly negative, the Kagan study concedes--projecting a 1.5% decrease in core radio revenues in 2007 compared to last year. Kagan blames competition from the Internet and increasing use of just-in-time ad booking services, which help drive down prices for radio inventory.

But Kagan, citing the radio industry's strong fundamentals, sees a recovery beginning in 2008.

After the business stabilizes, the study projects that revenues will grow at an average annual rate of 3.2%, reaching a total of $28.7 billion in 2016. In addition to substantial free cash flow and profit margins that are still quite large, Kagan also points to Internet revenues as a key driver of future growth. Radio operators say Internet ads--which contribute 3% to 5% of current revenues--will contribute 7% in 2008, and hopefully 15% by 2016.