Corporate radio engineering managers acknowledge that this fall’s capital budgeting process for 2009 was especially tough as revenue and cash flow dip and as credit for projects and purchases has become more difficult to obtain.
Faced with another year of economic uncertainty and now, officially, a full-blown recession, broadcasters are being forced to prioritize capital spending on equipment and facility buildouts, industry insiders say.
Even broadcast equipment manufacturers and suppliers — who as a group tend to use optimistic language whenever describing the state of their business — believe spending by stations is likely to be very conservative in 2009. The impact will be felt in HD Radio deployments and large RF projects, some experts believe.
Engineering directors tell Radio World they have been forced to delay some construction projects in the new year in light of economic conditions. In many cases, managers are preparing for a year of getting by with less.
“We have tightened the amount of capital tentatively approved for 2009 by approximately 30 percent,” said Sterling Davis, vice president of engineering for Cox Broadcasting. “We are going forward with necessary projects and deferring the balance.”
Cox’s policy is to “defer what we can, but to also make sure we don’t do something that we’ll regret later,” Davis said.
The Atlanta-based broadcaster, which owns 67 FM and 13 AM stations in a total of 18 markets, is delaying at least one major studio upgrade it had hoped to complete in 2009, he said.
‘Hard look’ at proposals
Dave Remund, vice president of engineering for Regent Communications, said, “We are taking a hard look at all proposals to be sure the benefit is worth the expense. We are being a bit more critical than we might be in a better economy.”
Regent, which owns and operates 62 radio stations, evaluates each capital expenditure or cap-ex project with an eye on return on investment, Remund said.
“There are some projects that you just don’t realize the potential return on until you see the numbers in black and white. If the return is substantial we may, in fact, expedite a project. We did expedite a couple of smaller projects last year.”
Greater Media will continue to pursue a “conservative approach” to any capital spending this year, said Milford Smith, vice president of engineering for the radio group, which owns and operates 23 radio stations.
However, Smith doesn’t believe that caution during extraordinary times implies significant harm on the operations of the company and in fact it can contribute to the long-term health of the company.
“Any projects that are compliance, reliability or coverage improvement-related will still likely be funded,” Smith said. “Necessary maintenance or other work essential to the proper, reliable and legal functioning of our plants is never deferred.”
Clear Channel Communications had yet to complete its 2009 capital budgeting process by mid-December.
“However, Clear Channel remains committed to investing in projects that will grow or strengthen our business,” said Steve Davis, senior vice president of engineering and capital management for Clear Channel Radio.
Small-market broadcasters are especially vulnerable to the current economic pressures, said Ed De La Hunt, president and chief executive officer of De La Hunt Broadcasting, which owns eight stations in rural areas of Minnesota, including Brainerd and Thief River Falls.
“We are not in position to spend money on anything right now. Spending is up on so many other things when it comes to operating in the radio business, whether it is fees to BMI, ASCAP or spectrum fees,” said De La Hunt.
Available bank credit
The broadcaster completed its most recent cap-ex project in 2008, putting a new FM on the air in Bemidji, Minn., a city of 10,000 in the northwestern part of the state.
“We certainly are not thinking about [installing] HD Radio right now; far from it. It’s all about having the money you need for emergencies to stay on the air in our markets.”
Equipment manufacturers and vendors contacted by Radio World said they expect to see a serious reduction in spending by broadcasters as investment in U.S. radio properties is affected by the reduction in bank credit availability.
“Radio stations are very conscious of getting value for their purchases right now,” said Richard Redmond, director of strategic marketing for Harris Broadcast.
Specifically, he said HD Radio deployment in this country “will take a hit” in 2009.
“Our transmission business has been fairly steady, but actually it is analog that is doing better. I think broadcasters are getting by with analog where they can.”
Harris, which makes and sells transmission equipment and other broadcast gear for radio and TV, has found radio customers are taking more of a “modular approach” to purchasing equipment these days.
“They seem to be buying things in stages. They are spreading out purchases over several years to complete projects that can wait,” Redmond said. “Customers are being very judicious with their spending right now.”
Large RF projects are particularly susceptible to delays, with broadcasters looking for ways to save large chunks of cash during the economic downturn, some observers said. However, there are still cost benefits associated with moving forward during what might be seen as a buyer’s market.
“Deals can be made right now due to the reduced numbers of projects being implemented and the need for manufacturers to keep a sufficient amount of work in their production line to avoid layoffs,” said Tom King, president of Kintronic Labs Inc.
His company continues to work on radio projects that are being implemented as a result of moves dictated by termination of lease agreements and construction permits for power increases.
“Obviously, some of the major broadcast groups are in serious belt-tightening mode right now as they either seek to cut costs and downsize to maintain profit margins or just adjust to new ownership reorganization,” King said.
Regular maintenance issues will continue to demand attention from broadcasters no matter what the economic outlook is, said Tom Silliman, president of Electronics Research Inc.
“We feel that there will continue to be capital projects in radio both for maintenance of existing facilities as well as new transmission plants,” Silliman said. “These projects will go forward, but they may be somewhat reduced in scale in these difficult economic times.”
However, major projects are much more likely to be pushed back a year or two, Silliman said.
“We expect to see many projects pushed from 2009 to 2010,” he said.
