RADIO—Radio Stocks Falling Amid Ad Pullback

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U.S. radio companies were licking their wounds in public last week as the industry gathered to discuss slowing advertising sales growth that has sent some radio stocks to their lowest levels in years.

Executives from Clear Channel Communications Inc., the No. 1 U.S. radio company, Emmis Communications Corp. and others met in San Francisco at the National Association of Broadcasters Radio Show. The mood was markedly different from last year’s show, when radio was seeing a surge in ad sales, fueled in part by new online companies seeking exposure.

Now that many of these same Internet companies are either defunct or cutting back on ad spending, investors are bracing for slower growth in an industry where strong double-digit growth has come to be expected. Still, ad sales growth this year is forecast to rise 10 percent to 12 percent, compared with 15 percent growth last year. That’s hardly a reason to panic, according to many analysts who consider the recent radio stock declines to be overblown.

“The business is doing much better than the share prices would suggest,” said Jim Boyle, an analyst at First Union Securities. “It’s almost like the business blew up and nobody bothered to tell the business.”

Clear Channel shares have fallen 32 percent since Aug. 15. Clear Channel Chairman and Chief Executive Lowry Mays was on hand at this year’s show, discussing his company and the future of the industry with Lou Dobbs, host of the Lou Dobbs/NBC Financial Report Radio Show.

Other highlights included the introduction of a long-awaited Internet coalition of radio companies, an effort led by Emmis Chairman and Chief Executive Jeffrey Smulyan.

The new business is called the Local Media Internet Venture, which promises to provide technology, content and marketing for local stations’ Web sites. Traditional broadcasters have been criticized by some as being too slow to embrace the Internet as new Web-based radio companies such as Launch Media Inc. in Santa Monica and NetRadio Corp. try to lure radio listeners online.

The Internet and the advent of new services such as digital and satellite radio continued to be hot topics this year. The underlying question, though, was how the radio industry can sustain the growth pace it has enjoyed over the past several years.

The start of this boom came with the Telecom Act of 1996, when radio ownership rules were eased, enabling big players such as Clear Channel and Mel Karmazin’s Infinity Broadcasting Corp. to buy stations around the country, cut costs and create more efficient ad sales teams serving several stations in a single market.

Even Infinity, which has been cushioned a bit from the recent decline in radio stocks because of majority shareholder Viacom Inc.’s plans to buy the entire company, has fallen 9 percent since Aug. 15. That’s 10 percent below Viacom’s offer to buy the shares of Infinity it doesn’t already own for $40 each. Infinity is the second-largest U.S. radio company.

The Bloomberg Broadcasting & Cable Radio Stock Index, consisting of 12 radio broadcasting stocks, is down 46 percent so far this year.

Some investors say the expected slowdown in growth represents a good buying opportunity, as many radio stocks had become expensive over the past year.

“The best time to buy radio is when (growth) has decelerated because you can get an attractive valuation,” said Chris Perras, a portfolio manager at Aim Management Group Inc., which owns Infinity among other radio stocks.

The challenge to Mays and other radio executives will be to persuade Wall Street that radio is still worth getting excited about.

“Operationally, these companies feel like they should throw a party, but public perception is saying it’s time for a wake,” Boyle said.

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