April Revenue Up, May Pacing Much Higher
April Revenue Up, May Pacing Much Higher - Strong second quarter shaping up
By Jim Boyle, May 24, 2010
Radio industry revenue had its fifth consecutive positive or flat month in April, with revenue up 5% over one year ago. April performed noticeably better than most expected – I had been expecting 2% growth and some Wall Street observers had been anticipating flat revenue, given the few public radio groups’ commentary on their quarterly earnings conference calls a few weeks ago. Interestingly, the 9% March revenue increase probably received about a 2% boost from the early Easter, which shifted the holiday into March. Hence, April might have been closer to up 7% if Easter had been in that month, and conversely March might have been up 7% without the atypical early Easter.
The solid revenue increase does not yet overcome last year’s major revenue decline – the recent growth is still largely driven by very easy comparisons. For context, first quarter 2009 revenue might have been the historical nadir for radio with a 24% plunge, followed by a second quarter 22% plummet. The broad advertising category spending breadth appears to be continuing in second quarter, led by a very strong automotive category. Auto, which historically has accounted for 12%-15% of industry ad revenue, was up 39% in Q1.
First quarter industry revenue was up 6%, according to the RAB. For context, the last time the radio sector had a quarter with a 6% revenue increase was in the fourth quarter of 2001. Second quarter 2010 industry revenue should be up 8%, given very strong May and June local anecdotal evidence and ongoing double-digit bookings for national spot sales.
April might have done better, but several markets noted there was a week or so lull in business growth that somewhat dampened the overall month. Despite the “less easier” comps beginning in June, radio revenue appears to be doing the opposite and accelerating. That is good news for the industry’s long-term prospects.
Assuredly, the recent months were fuelled by those very easy mathematical comparisons from 2009’s revenue dive. Yet the industry has very easy comps for most of 2010. Thus radio industry revenue levels going forward in the second and third quarters should continue to benefit from these dramatically stronger mathematical tailwinds. Add in the recovering economy, and radio revenue is growing more than just the mathematical tailwinds would suggest.
The three-year “stack” or average of the month across three years – rather than a simplistic single year-to-year snapshot which can be heavily skewed by easy (or hard) comps – has improved by 3% over the last four months. Radio seems to be decoupling from strictly benefiting from the very easy comps. That bodes well for when the mathematical tailwinds turn to headwinds.
June Pacing to Beat May
The table below shows this year’s dramatic improvement through April as positive growth is much wider and higher across almost all of the 50 markets where data was analyzed. The number of markets down by negative single-digits has swiftly dwindled in the last six months, while the number of double-digit positive growth markets has spread wider – a thorough turnabout from even six months ago. This is likely driven by earlier budget placement, broad ad category rebound and gradual firming up of ad rates.
Looking ahead to second quarter pacings, which have stayed stronger than what some public radio groups disclosed in recent weeks, there’s a renewed confidence and surging optimism in more markets. For example, national spot, which was up 19% in first quarter, is pacing up 17% in Q2-to date and up 25% for Q3-to date – albeit very early, even well before political budgets start flowing. Bear in mind that pacings are volatile and shift up or down. For example, national spot pacing has moderated from up 21% to the recent up 17%.
My industry forecast for 2010 is a 6% revenue increase, which is towards the high end of where others have projected revenue to be this year. The current crop of forecasts range from up 1% to up 7%. But I continue to wonder if that is too conservative and by how much.
Market Trends Sing Familiar Tune
Small markets are again outpacing big markets in April, both on an unadjusted and adjusted basis for the harder small market comparisons from April 2009. The average small market was up 7%, the average mid market was up 4% and the average big market was up 6%. But looked at on an adjusted basis for small markets’ relatively tougher comps, then small markets topped big markets by 3% in April. During the last 38 months, there have been 34 monthly wins by small markets over big markets, two losses and two ties. The trend of small markets beating big markets has seemingly returned, despite surging national ad revenue, which has historically disproportionately favored big markets.
To strip out the differing mathematical comparison “headwind” for smaller markets that infrequently gives big markets a misleading year-to-year edge or more often causes the gap to jump around, the best way to look at the market size differential is across many years so as to smooth out the differing one-year comps that each market size faces.
Long term, it’s not close when looking at full year levels across five years. From 2005 to 2010, the average big market plummeted by 28% while average small market revenue decreased by merely 10%. In other words, small markets fell roughly one-third the average April drop of big markets. The annual average decline for big markets was roughly 6% while average small markets dipped about 2%. The incessant gap affirms that the industry has long been two different businesses, even as more large market radio groups have gone private, such as Univision, Cox Radio and Clear Channel. The conventional wisdom believed that without the quarterly earnings pressure of being public and reporting results to investors, private companies could operate more for the long-term and thus put up better numbers. But that conventional wisdom seems to be consistently wrong. See a four-year big-versus-small analysis Here.
Looking at the big picture for radio, taking into account April’s results and the accelerating May and June pacings, second quarter should see 8%-9% radio industry revenue growth. The rebound gets better and better.