Static on the radio

Ad lull slows Clear Channel's biggest unit

Radio giant Clear Channel posted respectable profits last week with one troubling caveat: national advertising is missing-in-action and no one knows if or when its coming back.

It’s a problem also faced by some newspaper chains. National advertisers have fallen away, suggesting some big companies are directing their spending to other media. “The bigger accounts are either making their buys locally or they are going to cable TV and to the Internet,” said Peter Mirsky, analyst at Oppenheimer & Co.

Despite the national ad drop-off, the San Antonio-based radio behemoth on Friday posted a healthy 7% gain in revenue to $2.5 billion from $2.3 billion last year. Profits increased 12% to $253.8 million from $225.7 million. The year-ago figure excludes a one-time $41.3 million gain related to the retirement of debt. Revenue from outdoor advertising rose 12%; live entertainment grew 9%.

That’s the good news. But radio revenue, by far Clear Channel’s largest source, rose an anemic 3%, an increase made possible by local advertising in small and mid-sized markets. “There continues to be volatility in national with advertisers buying at the last minute,” said John Hogan CEO of Clear Channel Radio.

In order to get national back, Clear Channel last week announced a controversial plan to cut by 19% the number of minutes sold to advertisers and put a two-minute cap per hour on promotional messages. It’s a move the company hopes will increase audiences under aural assault from advertising, and decrease the amount of “clutter” advertisers say muddy their messages.

The result, the company hopes, will mean bigger audiences and higher ad rates.

“Pricing is a product of supply and demand,” Hogan said. “We’re trying to decrease the supply and increase the demand.”

Analysts were skeptical that Clear Channel can make the switch without at least a short-term drop-off, or at worst a revolt as advertisers are confronted with higher prices. But Hogan argued the plan, called the “less is more initiative,” will have the opposite effect. “Consumers will get more of the content they come to radio for; we think advertisers will come to us in increased numbers,” he said.

The company said it plans to charge higher rates for ads that run at the beginning and the end of spots and enourage advertisers to shorten their creative from 60 seconds to 30 to better retain the attention of harried listeners.

Clear Channel’s other problem is what interim CEO Mark May termed its “ridiculous” share price.

To boost its shares, Clear Channel has bought back nearly $1 billion of its shares since March and last week announced it would buy back another $1 billion over the next 12 months. The company said it would raise its dividend to 50¢ from 40¢ a year. “We believe in our future and are putting our money where our mouth is,” Mays said.

In addition, the company said it would equip 1,000 stations with digital broadcast equipment to improve sound quality and allow the transmission of data such as text to the screens of radio tuners.

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