Terrestrial radio biz won't fade despite static

By Paul Bond

LOS ANGELES (Hollywood Reporter) - Radio stocks might be dead in the water, but the industry isn't.

Terrestrial radio still reaches 90% of Americans weekly, Stanford analysts noted recently. That number has remained steady despite the introduction of satellite radio, iPods and other competitors. And a recent report from SNL Kagan predicts that, just as has happened on several occasions, radio will meet its challenges and emerge a stronger medium.

Those challenges, though, are not trivial: Radio companies have taken on too much debt at exactly the wrong time given the credit crunch and a U.S. recession. Plus, Wall Street seems to think that radio never will recover from the advertising slump that has hurt all media, including online.

But given the horrendous way pure-play radio stocks performed last year, with the best of them being cut in half and the worst of them down to mere pennies, Wall Street might be too pessimistic.

The pessimism might last another year to 18 months, SNL Kagan says, but then radio will "again attract private-equity and debt players ready to take advantage of the industry's ability to throw off copious amounts of free cash flow."

SNL Kagan says that investors have pushed down the average radio stock to just 8 times 2008 cash flow, from multiples of about 23 a decade ago.

In 2008, Sirius XM took the biggest hit, falling from $3.03 a share to less than 6 cents as investors worried about debt of $175 million coming due Tuesday and an additional $750 million due later this year. Charles Ergen of EchoStar and Dish Network, though, has been acquiring Sirius XM debt, sending Sirius XM shares into convulsions as investors try to determine whether Ergen's endgame will be good for shareholders or if a bankruptcy might take the stock to zero.

But all publicly traded radio companies have heavy debt loads, and SNL Kagan acknowledges that they "will need to negotiate more flexibility with lenders." It adds, though, that most will succeed.