Investors weigh satellite radio's threat to conventional broadcasters

By Paul A. Harris

St. Louis, Mo., Feb. 22 - With Entercom Communications presently roadshowing its new deal for $150 million of 12-year notes, investors must reckon with the possible shape of the audio broadcasting landscape in the year 2014, according to Louise Rieke.

Reike, portfolio manager for the Waddell & Reed Advisors High Income Fund, told Prospect News that she is checking out Entercom's new deal, which will come to market via Credit Suisse First Boston and Deutsche Banc Alex. Brown.

One factor she will calculate is the possible near-term and intermediate-term impact that the emerging satellite radio services, XM Satellite Radio and Sirius Satellite Radio, may have on conventional broadcasting companies such as Entercom.

Presently, that impact seems minimal to her.

"In certain markets satellite radio may work," said Rieke, "But overall you're going to pay $10-$15 a month so that satellite radio can advertise in your car. Originally it started out that satellite radio was going to be a no-advertising forum. Now it's an advertising forum, and you have to pay them $10 a month so they can advertise to you.

"Maybe it's just me," she added, "but I don't particularly want to do that. I don't think that over the near term it's going to have that much impact on regular radio.

"I think the local economic forces that are driving ad revenues are more important."

XM began commercial service in September 2001. Sirius, its principal satellite competitor, began commercial service less than two weeks ago on Feb. 15. All of Sirius Radio's music channels are commercial-free as opposed to only about 30 such channels on XM Radio. XM is reportedly charging $9.99 a month for its service. Sirius, it is reported, will charge $12.95.

Consumers will need special receivers, which start at approximately $150, to capture the satellite signals.

Bob Franklin, portfolio manager of the Neuberger Berman High Yield Fund - who told Prospect News that he will check out Entercom's deal - also professes skepticism at satellite's ability to encroach meaningfully on conventional broadcasters, in the near- and intermediate-terms.

"It's going to take a long, long time before car radios take the path of the buggy whip," Franklin says. "Radio is a product that people receive for free and the model has been proven to work. You can't say that for satellite radio. It may work, but there is no history."

Entercom chief financial officer Steve Fisher, presently on the Entercom roadshow, told Prospect News that broadcasters presently feel more threatened by CD changers, cassette tape players, cell phones and silence, than they do by the new satellite radio services.

"It's not an issue," Fisher said. "Your typical consumer has seven radios. Satellite radio just plays in the car.

"Satellite radio has to achieve national scale," Fisher added. "And regulations preclude them from providing local programming and therefore from local advertising. And over 80% of our revenues come from local advertisers.

"So satellite is not an issue for over-the-air radio in major markets."

Albert Turner, media analyst for Fitch Ratings draws an analogy between the competitive dynamics of broadcast radio versus satellite radio and cable's encroachment on broadcast TV several decades ago. The difference, he said, is that whereas cable fragmented the network-bound TV audience, the radio audience is already highly fragmented.

"When cable TV came in it really drew its success from the fact that it was able to provide formats that network TV was not providing: CNN, cartoon channels, and a variety of other entertainment options.

"Radio, because it has always been a multi-channel business, has already fragmented its audience. It began with AM, and then you had the emergence of FM, which turned out to be a superior medium for music. So AM adjusted by turning to talk radio and sports.

"It's hard for me to imagine that there is much more that satellite radio is going to be able to provide that the radio people are not already providing.

"Those radio people are very savvy. And they are very cognizant of how to slice up demographic pie. They are always adjusting their formats. So the argument that Sirius and XM are going to be able to fragment the existing radio audience I find to be not very compelling because I suspect they are going to have difficulty finding an unsatisfied audience base."

Calls to Sirius and XM were not returned.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.