Loss of Talk Affiliates Is Setback for Christian Broadcaster

Staff Reporter

Christian broadcasting company Salem Communications Corp.'s drive to become a big-time player in the world of conservative talk radio has taken a hit.

Sixty stations nationwide declined to renew syndicated talk shows hosted by Salem personalities in favor of shows produced by competitors such as ABC Radio Networks and Westwood One, said Chief Executive Ed Atsinger in a conference call with analysts.

The loss of those contracts led to a modest fourth quarter loss of $700,000, he said in the call.

Simultaneously, Camarillo-based Salem warned it would lose between 20 and 22 cents a share in the first quarter of this year as a result of those lapsed deals and a one-time charge related to the refinancing of $100 million in high yield debt.

The double dose of bad news triggered a sell-off that sent Salem shares plunging 22 percent, to $18.44, on March 4. The stock has continued to slide, closing at $15.25 on March 12, nearly 50 percent below its 52-week high of $30.46 last June.

Questions surrounding Salem's talk lineup are considered especially troubling because that has been among the fastest growing area of the company's business.

Besides its programming network, which serves more than 1,600 affiliates, Salem owns 85 radio stations in 35 markets, a half dozen Christian-themed magazines and several Internet sites. It also sells Christian products, such as Bible study software and computer games.

"It's a fairly big deal," Walter Sabo, chief executive of Sabo Media, a New York radio programming and management company, said of the syndication losses. "But they've corrected that problem. They needed to improve their affiliate relations and they've taken action to shore up that area."

Sabo was referring to the recent promotion of Salem veteran Ron Walters to vice president of church relations. Church-owned stations represent a big slice of Salem's network sales and Walters will be charged with promoting Salem's lineup to those customers.

Conservative crowd

Dave Armstrong, general manager of Salem's Los Angeles cluster, said expanding the radio network and acquiring more stations remain priorities.

"We've seen some erosion with the arrival of Sean Hannity and Bill O'Reilly," Armstrong said of competing talk show hosts. "But on the station level, our programming is still doing very well."

Salem's four radio properties in the L.A. market are conservative talk station KRLA-AM (870), contemporary Christian music station KFSH-FM (95.9), Christian talk station KKLA-FM (99.5) and KXMX-AM (1190), a small audience channel that airs talk shows in languages such as Arabic and Korean.

Both KKLA and KXMX earn the bulk of their revenue from block programming in which producers mostly church-related pay Salem to run their shows in uninterrupted blocks. Many of those programs include pleas for donations. The other local stations operate on a traditional advertising model.

Armstrong said Salem's strategy has been to acquire station clusters in specific markets. That usually involves an FM station that broadcasts the company's "Fish" format and an AM station dedicated to Christian block programming. In those markets where the company has three stations, the third is devoted to conservative talk and news.

Between 1983 and 2003, the number of talk radio stations in the United States has increased by nearly 2,000 percent, from 59 to about 1,150, according to Sabo. Much of the time on those stations has been filled by conservative voices.

"The hosts we have on our stations reflect the same values and political perspective, without the off-color content that you see on other stations," Armstrong said.

Local mirror

Salem has increased its affiliate reach by some 500-odd stations in the past three years with a lineup that includes Dennis Prager, Michael Medved and Hugh Hewitt.

Nevertheless, Salem continues to trail the radio giants who dominate the conservative talk ranks. They include Clear Channel Communications Inc. subsidiary Premiere Radio Networks (Rush Limbaugh, Dr. Laura Schlessinger, Jim Rome), Infinity Broadcasting Corp.-owned Westwood One (Bill O'Reilly, Tom Leykis, Larry King) and ABC (Sean Hannity, Larry Elder).

Salem's performance in the Los Angeles market offers a glimpse of how the company shapes up nationally.

The company's local talk station, KRLA, garnered a 0.6 rating in the fall 2002 tracking period, a bit below its average for the past year. By comparison, Clear Channel's KFI-AM had a 3.6 rating in the fall, KABC-AM (790) had a 2.3 rating and Infinity-owned KLSX-FM (97.1) also earned a 2.3.

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