With the coronavirus pandemic wreaking havoc on the U.S. economy, postponed live events and temporary retailer closures have created ripples through local economies and hammered radio stations. Over the last three weeks, with Americans ordered to stay home and abide by social distancing rules, investors have rightly grown concerned of the fallout’s affect on advertising revenue.
As the saying goes, radio isn’t in the music business; radio is in the advertising business. So when local businesses close or pare down budgets at the onset of financial hardships, radio stations are uniquely positioned to suffer the consequences. Since the bear market began Feb. 24, as of Wednesday, iHeartMedia’s stock price had fallen 63.4% to lose $554 million in market value. Shares of the next-largest competitors, Cumulus and Entercom, have fallen 66.6% and 67.5%, respectively.
The good news is people are still listening to radio while businesses are buying fewer spots. But rights owners and artists rely on radio’s promotional prowess and steady royalties. Because radio pays PROs a fixed percentage of ad revenues, songwriters and publishers can expect lower royalties from the second quarter and potentially beyond. What’s more, financially strapped companies routinely sell stations to opportunistic competitors, potentially changing where specific genres of music are heard.
Cracks in the radio business became visible during Saga Communications’ March 12 earnings call as president, CEO and chairman Edward Christian said Saga had “experienced cancellations” in live events like concerts and communities with colleges with closed campuses and online classes. Even though the economic outlook has darkened since March 12, Saga’s share price is down only 20.8% as of Wednesday.
1. Lower ad revenues mean songwriters and publishers will be paid lower royalties until stations’ ad sales return to normalcy — if that ever happens.
2. Large, publicly traded radio companies have lowered their revenue forecasts for March and in the second quarter. Many companies have already laid off or furloughed workers.
3. Radio excels during a crisis. About three in 10 Americans claim to be listening to more radio since the Coronavirus outbreak. That’s good news for rights holders and artists.
The growing pandemic has also affected Urban One, owner of 53 radio stations across the country. In a March 20 statement, president/CEO Alfred C. Liggins warned that the coronavirus pandemic will dent first quarter earnings. With losses in live events and travel clients, radio revenue excluding political advertising will have a double-digit decline.
In a testament to the virus’s pace through Europe and to the U.S., iHeartMedia CEO Bob Pittman said during a Feb. 27 earnings call, “We haven’t seen an impact yet.” To iHeartMedia and others, the coronavirus was a threat in China and Italy but not in the U.S. (Live Nation executives gave investors a similar assessment that day, while President Donald Trump only began to publicly recognize COVID-19’s potential damage on March 13.)
But five weeks later, after the coronavirus’ impact arrived quickly and forcefully, iHeartMedia withdrew its 2020 financial guidance, drew $350 million from a $450 million asset-backed loan, and furloughed an unspecified number of employees for 90 days. Like its competitors, iHeartMedia could see that stay-at-home orders and retail business closures would decimate ad revenue.
Now the radio industry faces a looming recession that threatens to drag down smaller, regional stations with less of a financial cushion. “We’re holding on for dear life,” says the owner of a small network of stations in the Southeast, who wished to remain anonymous. The region’s agriculture industry has been hit by Trump’s tariffs war with China. Now some advertisers have canceled because they “are scared about the uncertainty” inside and outside the U.S. “I’m in all unrated, rural communities where we’re generally insulated. Probably not this time.”
WHUD in Beacon, New York, lost “a significant amount of advertising” over the last three weeks as retailers and concert promoters shut down, says program director Steve Petrone. “A car dealer can’t talk about buying a car.” A “slim” amount of new advertising came from plumbers, medical facilities and the state health department. But the drop in advertising has caused WHUD to “furlough its support staff and operate with a skeleton crew,” says Petrone. “It makes for very trying times.”
Prognosticators fear the U.S. economy will sink by historic proportions. Forecasts of second-quarter gross domestic product’s contraction go as deep as 34% at an annualized rate while unemployment could hit 32% of the workforce, according to the St. Louis Federal Reserve. But forecasters see a V-shaped recovery with a sharp increase in productivity rather than a gradual incline.
Radio executives and experts are optimistic about radio in spite of obvious financial challenges. Fred Jacobs, president of Jacobs Media, calls the Wall Street sell-off “a lot of emotional buying and selling” not tied to radio’s inherent value. Indeed, iHeartMedia bottomed out at $5.86 on March 18 when uncertainty — if not emotions– ran high and the stimulus bill’s passage was still nine days away.
For radio to survive it must leverage its strength of being live and local, says Petrone. “We know a lot of people turn to radio in times like this. You’re not going to get it on Pandora or Spotify. Radio can provide companionship and comfort.”
Radio consultant James Cridland agrees, saying radio owes its audience “timely, sensible information.”
Like the saying “all politics is local,” radio is tied to stations’ hometowns. The coronavirus plays to radio’s strength: a global pandemic felt suddenly by a community’s failing restaurants, shuttered clothing stores and sports events postponed and canceled. While increasingly popular streaming services have global reach and satellite radio provides national coverage, radio’s calling card has always been the listener’s relationship with a live, local DJ.
Jacobs believes radio stations will “distinguish themselves in this crisis” because they “may be in the most advantageous position to deliver information, entertainment and emotional value” such as companionship and laughter. New Nielsen Audio data jibes with Jacobs’ sentiment: 83% of adults in the U.S. say they listen to radio the same or more than before the coronavirus outbreak. Most people surveyed trust radio as a good source of information for the pandemic. In the last week, about 30% of people surveyed listened to more radio since the outbreak.
The trick is holding onto listeners after the worst of the pandemic ends and people return to work. “At the end of the day, we are still an outlet that entertains,” says Emmanuel Coquia, director of programming and content for Meruelo Media, owner of KLOS, Power 106 and Cali 93.9 in Los Angeles. Coquia points to on-air talent such as Nick Cannon on Power 106 and the station’s efforts to maintain their audiences through social media. In March, Power 106 has posted videos of Fabolous freestyle rapping over such songs as Nas‘s “Black Republican” and Nate Dogg‘s “I Got Love.” Rock station KLOS’s busy Twitter feed once included a nine-minute snippet of an interview with Radha Rajasingham, an expert in infectious diseases.
But radio is ultimately a profit-seeking business. When revenues aren’t increasing — as is the case with broadcast radio — a company can acquire, create new revenue streams or cut expenses. iHeartMedia, a year out of Chapter 11 bankruptcy, chose to lay off workers in January, continue investing in podcasting, furlough workers and cut senior management’s salaries. Entercom announced similar measures, including a “significant” number of layoffs and furloughs, along with salary reductions, on Thursday (April 2). At least three others — Beasley Media Group, Meruelo Media and Townsquare Media, owner of 321 radio stations — have reduced headcount through layoffs and furloughs and cut salaries, especially for top executives.
Meanwhile, staying lean and focusing on WHUD’s Hudson Valley community has fortified Petrone’s resolve. “It reaffirms our purpose and makes us stand out compared to so-called competitors we’ve had over the years,” he says in reference to digital services.
“This is how radio stations stand out. This is what we do.”