Radio -TV

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In the spirit of trying to kill an idea, I would like to get feedback on radio/TV firms (the independent operators).  This busness' growth rate has slowed considerably and appears to be growing at GDP or slightly below GDP levels.  Most of these firms are highly levered and therefore can do nothing if there stock declines to support value.  A few can and for the most part there share prices reflect this (i.e. the are buying back shares). 

 

The biggest challenge for these firms is continued generation of advertising revenues.  Over the past five years, most of the radio firms have had significant declines in FCF (5 - 10% annually) but two have had increases based thier niche positions (SGA - small market; SALM - Christian).  Most of the TV firms have has steady or slowly increasing FCFs.  Over the past year or two, these declines have turned around in contrast to newspapers where the decline continues.  All of these firms have developed an internet/mobile presence and thus may co-opt the internet/mobile (like telcos and cell phones) versus being hurt by the internet/mobile (like newspapers and the internet). 

 

Some bears (Morningstar and other folks) have stated radio and TV are going away - displaced by cable and internet firms (such as Siris and Pandora).  I disagree as I think folks listen to radio and TV for more than music or national programming.  Those who only offer mucic and national programming will be hurt the most by Sirius and Pandora and are in terminal decline.  Thus, the firms that generate the most local and original content will be the most successful.  Even with longer term growth forecasts of 1.5% to 3%, the firms are selling from 2.1 to 5.8x FCF.  These multiples imply terminal declines for these firm.  Any feedback would be appreciated.  TIA.

 

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