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Another Tepid Year Forecast for Radio Revenue

Overall U.S. media ad revenue will pick up a bit next year; but radio will be flat.

Overall U.S. media ad revenue will pick up a bit next year; but radio will be flat.

That’s the prognostication for investors in a report from Wachovia Capital Markets.

Following a year of tepid 1.4% ad growth in 2007, the company foresees U.S. ad revenue improving by 3.8% this year, “with budgets continuing to shift to below-the-line advertising as well as more targeted media such as cable networks, the Internet and outdoor. From a sector perspective, we favor ad agencies, Hispanic media and cable networks.”

“In general, the traditional local ad market remains under attack from more targeted media,” Wachovia reported. “As a result, we anticipate the reallocation of ad dollars to new media to continue for the foreseeable future as disruptive technology transforms traditional ad and viewership models.”

Radio, it said, continues to face secular and cyclical challenges, and “therefore we anticipate another slow year with political and non-spot revenue keeping the industry flat rather than down.” Wachovia thinks radio will see a 1% drop in local ad revenue, a 1% increase in national and 10% growth in nonspot/online.

“With no revenue growth coupled with low single-digit expense growth (as radio is a high fixed-cost business), we anticipate another year of margin contraction,” wrote radio analyst Marci Ryvicker. “While Internet initiatives will be of utmost priority, we don’t believe they are enough to offset declines in ad rates and the lack of demand in core radio advertising.”

She also believes further radio industry LBOs are unlikely anytime soon because a “questionable exit strategy” is created by radio’s lack of revenue growth, margin contraction and high debt levels.