Small increases offer hope of upturn in spending.
Radio industry revenue trends turned positive in August, giving the long-languishing sector a glimmer of hope that advertising momentum eventually could return.
Total radio revenue for the month increased 2% year-over-year, according to the latest data from the Radio Advertising Bureau.
Local ad sales rose 3% year-over-year, while national ad dollars remained more elusive and turned out unchanged year-over-year.
Nonspot ad revenue was the only category to report a downturn, falling 5% in August compared with the same frame in 2004.
The latest data means that year-to-date total radio revenue is running 1% ahead of the January-August 2004 period. Local and national ad sales are up the same 1% each. Nonspot dollars are flat year-over-year when looking at the eight-month period.
"Radio remains relevant to today's consumers, even as new media proliferates," RAB president and CEO Gary Fries said. "During the recent tragedies in New Orleans and the Gulf Coast, we witnessed the significance of radio's unduplicated localism and mobility."
Fries also predicted that technical innovations, like high-definition radio, will allow the industry to "accelerate its growth even further."
Still, the small gains for radio failed to create a big spark Tuesday on Wall Street despite at least one upgrade to near-term growth projections and some positive reviews.
Citigroup analyst Eileen Furukawa said she is assuming that radio giant Clear Channel Communications, which has been reducing ad inventory loads as part of its "Less Is More" campaign, saw a 5.5% revenue decline in August, which would leave the rest of the industry up a healthier 4% year-over-year.
And "local growth of 3% is encouraging, especially after local's 2% decline in July," she added.
Merrill Lynch analyst Laraine Mancini acknowledged that the 2% August gain exceeded her expectations of a flat radio market and led her to raise her third-quarter revenue increase forecast to 1% from flat.
"Current trends suggest the pickup in August will gain momentum into September, causing us to raise our September projection to 3% from 1%," she said. Mancini also raised her full-year 2005 radio revenue forecast from 1.1% to a 1.3% increase.
While the fallout from Hurricane Katrina remains unclear at present and "it appears that New Orleans will remain uninhabitable for several months, we believe increased radio listening in surrounding regions and increased advertising from insurance and home repair categories will likely offset some of the revenue losses," she added.
Despite the higher full-year estimates, Mancini said she remains "neutral" on the radio sector, "given negative long-term secular trends."
The pure-play midsize radio stocks trade at 12 times projected 2005 operating cash flow, according to Mancini, down four points from the beginning of 2004. However, she pointed out that this is still at the high-end of the eight to 12 times range seen during the pre-1996 era.
Most radio stocks closed down Tuesday. Shares of Cox Radio declined 1.6% to $15.10; Citadel Broadcasting lost 0.9% to $13.94. Clear Channel shares fell 1.3% to $32.48.