Amid what he called “a year of evolution and re-education and analysis,” Saga Communications’ Ed Christian admitted during the company’s second quarter 2019 investor call Tuesday, “Despite the fact that it was another flat quarter with decent margins and profits, it was still not thrilling… It wasn't bad but, please, no trumpets necessary.” The President, CEO & Chairman added that despite his positive forecast at the beginning of the year, “We are three months away from having most everything in place to deal with the new realities in radio.”
In fact, Christian went on to say, “Remember back 6 months ago, we talked about what Saga anticipated for 2019. I was wrong on my timetable.” He then reflected: “It is an interesting and challenging time. Old precepts still hold true, but the radio industry cannot stand on ceremony and must both defend old premises and adopt new business practices.”
For the quarter ending June 30, as Inside Radio reported Tuesday, Saga reported net income of $4.734 million for second quarter 2019, a 13.5% uptick over $4.171 million last year. Net revenue was flat at $32.2 million. On a same station basis for the period ending June 30, the company’s operating income increased $383,000 to $6.4 million; while same station net revenue dipped 3.5% in the quarter to $31.1 million from $32.2 million.
Elaborating on Saga’s ongoing mission, Christian explained during the Q2 conference call that while radio is “a valid media with lots of gas still in the tank, we recognize that we must add services to be able to enhance radio without destroying the core competency of what we do.” That includes changing the order of the company’s priorities: “We are now focusing and developing new training for our sales representatives on local direct business with priorities directed to the service industry,” he said. “This area has not been well mined and it is a treasure trove of business. It does take time for retraining and customer focus, and for all of the other attributes necessary for successful sales in local direct. We'll do it right and it will pay rewards. On the other side, we recognize that national business has markedly changed.”
The Next 6 Months: Political, CapEx
During the call, Saga Senior VP, Treasurer & CFO Sam Bush also offered a deeper dive, including political spending, which, not surprisingly, has dropped dramatically this year. For the first six months of 2019, spending reached $259,000 compared to $787,000 YoY. “We expect political to pick up as we go through the year,” he noted. In 2018, Saga reaped $488,000 in Q3 and $1.6 million in Q4. He added, “Political is always a tough call, but we expect it to pick up and potentially to be stronger than we've experienced in other years that were just prior to a presidential election year.”
Capital expenditures of $2 million in second quarter were devoted in large part to upgrading studios at its newer acquisitions in Charleston and Ocala, as well as the purchase of property in Hilton Head where a new studio building will replace the existing leased facility. During the rest of the year, Bush said Saga will continue upgrading “several of our existing tower and studio sites,” with CapEx for the year at between $5 million and $5.5 million. Also looking at the remainder of the year, Bush said same-station operating expenses are expected be flat to down 1% or 2% for 2019.
Returning to Christian’s commentary—which was colorful, as ever—the Saga chief brought up the topic of radio creative, actually taking pause to play the theme from the Lone Ranger radio program, reflecting on his youth some 70 years ago: “I remember as a child, riding to work with my father to his automotive parts business. We would pass this studio that said WXYZ radio, which is about 4 miles from where I'm sitting right now. I would look at this little Tudor building and know that in that building, they produced not only the Lone Ranger but Sergeant Preston of the Yukon and The Green Hornet.”
Radio: Get Creative.
After investors were played the familiar “Hi-Yo, Silver, away!” cry, Christian presented his point: “That is imagery that warms your broadcast blood. That imagery is 70-plus years old. There are 108 million Americans over the age of 50. This is a forbidden category where the agencies never talk about the fact that there are 108 million people, 44%, of which work…. Understand the meaning, the thrill, the passion that existed with radio. If it happened 70 years ago, it can happen today, and we can make it just as relevant as we did back then.”
Christian eventually came around to “the issue of quality of creative radio ads. I'm a big believer in creative. It stimulates the mind and creates a brand and a call to action. I challenge other broadcasters to listen to the quality and observe the quantity of poorly produced and non-productive creative that are running on radio stations. Many ads are inserted electronically without supervision or quality control. We are actually inviting our audience to leave — I’m not making this up, we’re inviting them to leave.”
He stressed that Saga is now focused on the quality of message, frequency of message, and proper presentation of radio to prospective clients. “We’re selling a relationship, a bonding, and most importantly a partnership,” Christian said. “‘We will prosper if you do’ is our message to the client.”
Christian wrapped the call with a battle cry for the radio industry: “Don't be afraid to tell clients that we are RADIO, all in caps. Talk about radio, not numbers or out-boarded concepts.” And regarding his own company, he added, “At Saga you have our assurance that we are radio. Certainly, we utilize our skills to bring in other dollars, such as digital, and we do a fine and growing job, but it is a part of what we do, not an accent on new media and small “r” for radio.”