After two years of revenue declines, political advertising will help propel the radio industry to its first annual gains since 2013 according to an S&P Global forecast. The firm estimates radio revenue will reach $17.6 billion in 2016, a 1.5% increase compared to a year ago.
“We see a positive trend this year,” S&P Global research director Robin Flynn said. “We think due to political advertising coming in—and especially as off-air and digital revenue grows—that we could have overall growth in the industry just over a 1% gain which is a reversal from recent negative trends.”
S&P Global (the former SNL Kagan) predicts off-air revenue will increase 10% to $2.2 billion while digital revenue will grow 10% to $1.1 billion. It also expects a 3.8% uptick in national ad dollars while its outlook projects local radio revenue and network revenue will hold steady in 2016. “It’s shaping up to be a huge political year and radio stations are starting to see some revenue come in,” Flynn said at the 33rd Annual TV & Radio Finance Summit in New York on Wednesday.
Twelve states have been identified as political battlegrounds, which Flynn noted is more than during the 2012 presidential election. That’s likely to bring additional spending by the campaigns and their supporters.
Beyond 2016, Flynn said S&P Global projects “marginal growth” for the radio industry hovering around 1% in the coming decade. But she cautioned with such a low growth rate, the trend line may slip into negatives if there is a significant pullback in retail or automotive advertising.
At the same time the trading multiple for publicly traded radio companies’ stock price has held fairly steady, albeit at a relatively low 7 times. That compares to 18 times in 2002. “For radio stations it’s been more of a decline over the last couple of years and that’s been related to leverage concerns at some of the companies and operational issues at others, which are still being worked through,” Flynn said, adding, “We’re definitely seeing some bright spots for radio with some firmer revenue trends.”
But the more positive outlook comes as no surprise to Stephens Research analyst Kyle Evans. “Radio has outperformed in the first half of the year relative to our expectations,” he said.
Some broadcasters are also upbeat. “We’re quite bullish on radio for this year; part of that is driven by political and part of that is organic,” Beasley Broadcast Group interim-CEO/CFO Caroline Beasley said.
And while Westwood One president Steve Shaw says second-quarter spending among national advertisers was a bit “sluggish,” he believes political and Olympic-related advertising will help propel the second half to a stronger growth rate. “Telecom is still a huge national spot driver,” he noted.
Some investors appear to be taking notice. Drew Marcus, Sugarloaf Rock Capital managing partner, said although radio was the worst performing media stock segment for the past two years, so far this year radio is the best-performing sector. “Part of what is helping this year is certain companies are now coming out of the deleveraging and they’re flaunting their cash flow,” he said. But Marcus added that radio’s organic growth is also helping. “Radio is one of the healthier media,” he said.
Beasley told the financially focused crowd that radio’s firmer footing has companies investing in their own platform. “We all cut costs during the recession, all of us did, just to survive,” she said. “Now we are reinvesting in our product. We’re reinvesting in our on-air content, social media, websites, blogging—everything.”