Revenue Off In April

According to the Radio Advertising Bureau (RAB), March's local revenue numbers dipped 6%, but national revenue dropped 23% from the same month a year ago. On a combined basis, local and national dollars were off 10% from last March, when dotcoms were still strong customers. According to the RAB, through the first quarter of 2001, combined local and national revenue were running 7% behind the first three months of 2000. Individually, local dollars were off just 3%, while national sales were down 20%.

"Local radio continues to be more stable, relative to other media sectors," contends RAB president/CEO Gary Fries. He predicts that because the radio business is so embedded in the local marketplace, it will sustain the medium through the slowdown in the economy. "Once we get into the later half of 2001, past the high comparisons from the first six months of 2000, radio will be well-positioned to pick up momentum," he adds.

Westwood One CEO Joel Hollander says the network has concentrated on gaining additional business from traditional advertisers. It has also won a bigger chunk from Verizon, Southwest Airlines, and Auto Zone, which helped fuel Westwood's growth in the first quarter, with cash flow up 6% to a record $29.3 million.

"We're continuing to see weakness on the national front, but local business is strong, and it is up double digits in some cases," says Cox Radio president/CEO Bob Neil. While financial services, telecom, and dotcom advertising has been soft, he says, automotive, health care, and restaurants have improved. Although Cox's broadcast cash flow and net revenue both had double-digit gains, it reported a net loss of $2.1 million in the first quarter, down from a net profit of $33 million in 2000.

Neil says he is also experiencing "buyer's revenge," as spot buyers try to get bargain-basement ad time because of weak demand. "We've seen competitors adding inventory to try to make up for the lack of revenue in a number of markets. The problem hasn't been selling your inventory, it's been the price at which you sell it."

Radio One president Alfred Liggins concedes that it has been difficult to keep selling spot time for the same price as when Internet companies were beating down the door. "Anytime you see revenue growth fall off, the rates have to come down. It's just not possible to hold them." He says they are trying to give advertisers cut-rate deals and free bonus spots to avoid lowering rates.

In the first quarter, Radio One's net loss was $15.2 million, compared with a net profit of $2.1 million one year ago, while its after-tax cash flow fell from $7.5 million to $1.7 million. Liggins says that is largely due to its purchase of a number of stations from Clear Channel. "National [advertising] is definitely the weakest link," says Radio One's Mary Catherine Sneed. While she says fast food, soda, and entertainment categories remain strong, she does not foresee an upturn. "Right now, there's no light at the end of the tunnel."

Merrill Lynch analyst Jessica Reif Cohen agrees. Although she says it's too early to call, it's now a possibility that radio industry advertising may decline for the year. "Our survey of radio broadcasters regarding May and June pacings suggest that the industry is pacing down at a rate modestly worse than the first quarter's estimated decline of 7%," writes Cohen in a quarter advisory to investors. She goes on to note that that is critical, because May is traditionally the biggest advertising month for radio. "Major-market radio is truly struggling," she continues. By the firm's estimates, New York is pacing down 20%, Los Angeles down 15%, and Miami down 20%. The declines are largely led by a sharp decrease in national spot advertising, which is more common in large markets. Those companies with the biggest percentage of big-market stations will be the most affected, she says, including Clear Channel, Infinity, Emmis, Entercom, and Radio One.

On a more positive note, Cohen says Merrill Lynch's index of radio stocks is up 40% year-to-date.

CAPITOL

The Recording Industry Assn. of America (RIAA) is asking a judge in the U.S. District Court for the Eastern District of Pennsylvania to either throw out a lawsuit brought by broadcasters over streaming fees or skip a trial and issue a ruling in the record industry's favor.

The motion, filed April 26 in Philadelphia, asks Judge Berle M. Schiller to put the case brought by the National Assn. of Broadcasters (NAB) and six broadcast groups in February on the fast track. "The court need look no further than to the plain words and legislative history of the Copyright Act to ascertain that the Copyright Office has correctly construed the governing statute," wrote the RIAA's lawyers in the 25-page motion.

The lawsuit stems from a December 2000 ruling by the Copyright Office that said broadcasters must pay royalties for simulcasting their over-the-air radio stations on the Internet. Lawyers for the broadcasters' group were not surprised by the move and will likely respond within the next six weeks. "We'll probably file a similar motion," says Ben Ivins, senior associate general counsel for the NAB.

In a complaint filed with the court, the NAB and six broadcast groups ask that the copyright ruling be overturned, arguing it is "an abuse of discretion and otherwise not in accordance with law and therefore is invalid." Specifically, the broadcasters' attorneys say that when Congress passed the 1998 Digital Millennium Copyright Act, it never intended to include over-the-air broadcasters, which have traditionally been exempt from other royalty fees. According to the NAB, broadcasters already pay $300 million per year to ASCAP and BMI.

But the RIAA thinks the act clearly states that the broadcasters must pay, and even if it does not, the RIAA says the court must defer to the Copyright Office's ruling. It also notes that giving radio station operators the ability to simulcast free-of-charge would "hand them a significant and unintended competitive advantage" over pure Webcasters.

The station groups joining the NAB suit are Bonneville, Cox Radio, Emmis, Entercom, Susquehanna, and Viacom's Infinity Radio?although no Infinity station currently streams Internet audio.

Former Federal Communications Commission chairman William Kennard is joining investment firm the Carlyle Group as a managing director of its telecommunications and media practice. Carlyle, which claims to be the world's largest investment firm, manages more than $12 billion in funds worldwide?although very little of that has been in the telecom sector. A number of former government officials are on its payroll, largely from Republican administrations.