New Article States that Smooth Jazz Might Be In Trouble (You Think?)

[majaman78]

What about listeners that were in their mid to late 30's at that time? How old are they now? Did that demographic just vanish?

And speaking of "keeping the format younger"...how did that work out for radio in the past 10 years or so?

Very well for most formats, like AC and Urban and CHR and Country and Regional Mexican and such. Odies had to transform into Classic Hits, playing the 70s instead of the 60's.

You must be kidding.

If you can read a financial statement, take a look at Entercom, Radio One, and Citadel to name a few public companies. Take a look at the CBS Radio numbers as well, they caused CBS Corp to post a big loss.

Total disaster, red ink galore and it ain't stopping.

Too bad I can't see the putrid CC numbers since they're now private, but I've heard they're a complete disaster as well.

Beiieve what you want, but investors are abandoning this sector and I've told my clients to avoid it as well.

 

[AC Tones]

But the fact that radio has chosen to ignore listeners outside of the target demographic in their marketing and programming strategies, they in essence hung their base out to dry, and have no one to blame but themselves.

In the larger markets, most revenue comes from agenices. Agency clients specify the ages to target, and they are nearly never over 55... because client level research by companies lik P&G and McDonalds and Coke and so on show that there is a very poor ROI on advertising to that crowd as the number of impressions needed to cause a change is more costly than the profit on the sale.

This is no different than the death of Beautiful Music two decades ago... the listeners were too old to be of value to advertisers, and the format went away.

I really don't dispute your argument about "larger markets." But that's why I thought the Jones Radio Networks approach to marketing and programming was as close to the right one as this format has seen. A few months ago, I posted an old interview of former JRN MDs Cheri Marquart and Steve Hibbard (circa 1996) I came across on the Internet on my station page. JRN Smooth Jazz's vision and strategy was to target medium-sized and smaller markets, to include those in resort areas or those with a proportionately high number of retirees. It was a brilliant approach for this genre. This is not to say there aren't fans of this music in "larger markets." Folks who tuned into WQCD, WNUA, and KSSF proved that there are. But JRN, IMO, realized the format's limitations in terms of its potential audience and advertising revenue. But through sharp programming and clever marketing, JRN Smooth Jazz survived and thrived (relatively speaking) for 12+ years, and developed a passionate and loyal following in the process. And that is the point.

The comparisons made between this genre and "Beautiful Music" are both overstated and flawed. The only similarity I see is the over-reliance on covering others' tunes. The genre is not dominated by a small handful of flagship artists (Percy Faith, Eugene Ormandy, Andre Kostelanetz, and the like). Not only is the music far more diverse and far less predictable. Unlike "Beautiful Music," there is no dearth of young, emerging talent with their own unique, fresh sound. I hate to sound like a broken record, but with clever marketing, sharp programming, and REALISTIC expectations, I truly believe this format is both viable and potentially profitable.

Chris

 

[davideduardo]

You must be kidding.

If you can read a financial statement,

You have doubts? Based on what knowledge? I owned a group of a dozen stations once, and was COO of another of comparable size... my concern is you don't see the strong inherent EBITDA in radio (and CBS and clear are not pure radio plays...)

take a look at Entercom, Radio One, and Citadel to name a few public companies. Take a look at the CBS Radio numbers as well, they caused CBS Corp to post a big loss.

CBS was given a "strong buy" last week by one analyst. Several of the others you mention have very strong EBITDA, despite the economy. What affects a few is the debt payment, which is not a reflection on successful operations of the business

Total disaster, red ink galore and it ain't stopping.

A couple of companies are in trouble, just as some banks are. But we also saw strong buys put on banks like Wells Fargo in the last 3 to 4 weeks; there are lots of good radio companies and a few that were ill-positioned for the downturn.

Too bad I can't see the putrid CC numbers since they're now private, but I've heard they're a complete disaster as well.

Huge EBITDA, too. The issue is debt service, but the core radio and outdoor numbers are good, considering the economy.

Beiieve what you want, but investors are abandoning this sector and I've told my clients to avoid it as well.

The sector has incredible cash flow, and if those companies with poor and/or excessive debt or bad debt structures reach accomodations via equity exchange for debt, they will be in very nice positions.

 

[majaman78]

CBS was given a "strong buy" last week by one analyst. Several of the others you mention have very strong EBITDA, despite the economy. What affects a few is the debt payment, which is not a reflection on successful operations of the business. But we also saw strong buys put on banks like Wells Fargo in the last 3 to 4 weeks; there are lots of good radio companies and a few that were ill-positioned for the downturn..

You really cannot trust wall street analysts. Most of the time they put out a "strong buy" rec they are selling inventory and/or getting their preferred clients out. I would think Wells Fargo was accumulating CBS under 6 and is now divesting with a 100% gain.

CBS is gaining strength with television and internet. They just sold 4 radio stations and in my opinion will divest all of their radio interests in the next few years as a large debt payment becomes due in 2010.

Even if you believe investment analysts, I don't see any pure play public brocasters currently with a buy rec. Most of them abandoned the sector several years ago.

Several of the others you mention have very strong EBITDA

EBITA is a very poor and even misleading mechanism when used to approximate cash flows. It doesn't exclude all non cash items, only depreciation and amortization. Among the non cash items not adjusted for in EBITA are bad debt allowances, inventory write-downs, and stock options granted.
Unlike proper measures of cash flow, EBITA ignores changes in working capital, and additional investments in working capital consumes cash.
Lastly, like most of these broadcasting companies, if they over or under reserved restructuring expenses or bad debt allowances, their earnings will be skewed and thus their EBTIA misleading, especially if they recognize revenue prematurely or disguise ordinary costs as capital investments.

The sector has incredible cash flow, and if those companies with poor and/or excessive debt or bad debt structures reach accomodations via equity exchange for debt, they will be in very nice positions.

If you see a quick rise in short term interest rates (which IMO might very well happen), a lot of these companies will disappear.

 

[davideduardo]

CBS is gaining strength with television and internet. They just sold 4 radio stations and in my opinion will divest all of their radio interests in the next few years as a large debt payment becomes due in 2010.

CBS is the most "terrestrial media" based of all the networks... see the article and analyis in last week's Business Week. Almost all the Internet and Cable went to Viacom, and except for lastFM, they really have a lot less than any of the other Big 5 Networks in the web area; CNet has even been written down and is widely considered to have been a bad buy anda bad fit.

The TV margins are way down as CBS continues to do the $8 million an episode scripted show model while ABC, FOX and NBC have much higher percentages of unscripted shows. The growth area is outdoor, which is not saying a lot.

CBS does have a fairly high amount of debt, mostly from the bad web purchases. What concerns me is s Redstone's debt which could cause a change in control of the company.

The current, and very good, CBS management in radio, has stated repeatedly that they want to be out of markets outside the top 15 to 20 and those markets where the cluster does not have critical mass. And they have sold a number of the properties that don't make the cut, but their worth is not significant either now or before our merry little depression started.

The major market stations are huge cash cows, even in this economy. The value as cash flow generators is much more than what anyone might pay for them.

Even if you believe investment analysts, I don't see any pure play public brocasters currently with a buy rec. Most of them abandoned the sector several years ago.

There are very few pure play radio or just radio and TV companies. Emmis has magazines, Clear (which does have shares out there) is half an outdoor company, Salem has publishing and web divisions, etc. The sector lost coverage because there is not musch to buy, and many of the companies are covered, as the case of GE, by a different industy analysis.

[/quote]EBITA is a very poor and even misleading mechanism when used to approximate cash flows.[/quote]

It's the standard in media, entertainment and related fields where inventory, COGS, etc., are poor metrics. It's the closest easy metric that there is to show the results on operations of industries where there is not much of a tangible asset base.

It doesn't exclude all non cash items, only depreciation and amortization. Among the non cash items not adjusted for in EBITA are bad debt allowances, inventory write-downs, and stock options granted.

As I said, the related industries have essentially no inventory (commercial time not being recoverable if not sold, ietcl.) and bad debt charges are treated as a reserve based on prior recent periods and expensed. Stock options have been given a new treatment by the APB and are booked differently now; there are so few in any industry that are above water that this point is irrelevant.

.... I'm pausing to giggle a little about the idea of "inventory" at a radio station being impactful. Let's see, there are 10 boxes of T-Shirts in the prize room... but, uh, they were expensed since we don't sell them.

Unlike proper measures of cash flow EBITA ignores changes in working capital, and additional investments in working capital consumes cash.

And the purpose of EBITDA is to show the results of operations, stripped of all non-operating items. That's why it is the perfect measure of industries like radio, TV and films that deal pretty much in intangibles.

Lastly, like most of these broadcasting companies, if they over or under reserved restructuring expenses or bad debt allowances, their earnings will be skewed and thus their EBTIA misleading, especially if they recognize revenue prematurely or disguise ordinary costs as capital investments.

I don't know what the obsession with bad debt is; even in a recession stations run credit checks on new clients and generally have only 90 to 120 days of exposure, with the write-offs being a very small percentage of revenues. And they are reserved for each billing cycle, so the variance is often zero at the end of an accounting period.

Oh, and more risky kinds of business, like concerts, are generally prepaid.

If there is any kind of restructuring, it is not generally recurring. And that's again why EBITDA is a good measure of the health of the business.

If you see a quick rise in short term interest rates (which IMO might very well happen), a lot of these companies will disappear.

Generally, interest rates on long term debt is fixed or tied to things like prime; they are currently so far below the minimum rate specified in the deal that there is an immense margin of safety.

None of this, of course, changes the fact that formats that draw unalable audiences get eliminated.