Insight Analysis: Radio Feels The Effects Of Advertising Downturn

Commercial radio has not escaped the downturn in advertising, which has been affecting the sector worldwide for a number of months. Revenues at GWR for the six months to September 2001 are estimated to be 6.5% higher than for the same period last year, but this figure includes the contribution of acquisitions made by GWR during the period. On a like for like basis, total revenues declined by 3.5%.

Similarly, Capital released a trading statement which revealed that advertising income for Q2 had fallen by 16% when compared with the same period last year. Q3 advertising revenue was down 9%, resulting in a decline in like for like revenues of 6% for the year to September 2001.

Scottish Radio Holdings is forecasting a 3% drop in radio revenues for the year to 30 September 2001. This is an outperformance of the radio market in general, which is expected to fall by an average of around 9% this year.

Like Capital and GWR, Scottish Radio benefited from the stronger performance of local radio revenues, which offset the weakness in national spend. Local revenues, which comprise 41% of SRH’s total, rose by 7% over the period; national revenue, which makes up a further 41%, declined by 12%.

At GWR, UK national advertising revenues are forecast to be flat in the second quarter compared to a decline of 15% in the first quarter; this averages out as an overall a reduction of 8% in the six months to September. UK local advertising revenues have experienced less volatility with a six month forecast decline of 3% – 4% in Q1 and 2% in Q2.

The £1.3 million cost reduction from the restructuring of GWR’s internet ventures had now been fully implemented (see 46 Jobs Go As GWR Restructures Internet Operations). Further cost reductions are being made by focusing the company on its core radio businesses. In July Capital Interactive, the online music arm of Capital Radio, announced a deal to become the first web-radio provider for MSN.co.uk, allowing Capital to market its services to MSN’s 11m monthly users.

Capital Radio’s preliminary results,to be announced on November 15th, are expected to show an underlying profit before tax of £30m which is in line with interim expectations and ahead of market expectations but compares unfavourably to pre-tax profit of 41m for 2000.

Outlook

GWR says that it remains ‘extremely cautious’ about forecasting revenues, adding that ‘the timing of a return to sustainable revenue growth will happen only when confidence on the political and economic fronts returns’. Likewise Capital stated that “longer term prospects for radio advertising are very positive” although remained cautious about the short to medium term prospects.

According to press reports this morning up to 30% of staff at Capital’s interactive and digital divisions were told yesterday that their jobs would be under threat if the advertising recession continues.

Radio industry quarterly advertising growth
	2000	2001	2002
Q1	16.4	1.5	-10.0
Q2	25.6	-14.5	-1.0
Q3	9.8	-9.0	4.5
Q4	10.9	-11.0	7.5
FY	15.4	-8.6	0.3
Source: ABN Amro, estimates, 21/09/01

The reach of all three groups in the local market, which has been least affected by the downturn, has allowed them to outperform the market. GWR notes particularly growth in its audiences of Classic FM in the UK, Danubius in Hungary, Antenne Wien in Austria and Nova in Australia.

At 12.00am today shares in GWR had fallen from 172½p to 165p, Capital shares were up from 497½p to 511p and Scottish Radio Holdings had fallen from 592½p to 580p.

Radio companies’ share price performance
	17-Sep	18-Sep	19-Sep	20-Sep	21-Sep	Actual change
Capital Radio	537.5	517.5	502.5	495.0	482.5	-12.5
Chrysalis	165.0	164.0	161.5	155.0	150.0	-5.0
EMAP	596.0	567.0	540.0	510.0	480.0	-30.0
GWR Group	211.5	206.5	182.5	167.5	168.5	1.0
Jazz FM	117.0	115.5	115.5	115.5	111.5	-4.0
Scottish Radio	752.5	750.0	745.0	630.0	630.0	0.0
SMG	141.5	137.5	119.0	112.5	107.0	-5.5
Source: MediaTel Insight