This column was originally published on RealMoney on Aug. 5 at 4:06 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Everyday life in the big city used to be all about using the radio to fill in the gaps where conversation lagged or the mind just went blank. Whether it was rock stations on FM at the beach, traffic reports on AM during the commute or baseball games at night at home, radio, for those of us in a certain generation, was a fundamental part of life on earth.
Right before our eyes and ears, though, commercial radio has become incredibly marginalized -- almost an endangered species. My kids still listen to Top 40 on FM when we're driving them to school and sports, but otherwise they're listening to their iPods (or finding new songs for them on iTunes). People are getting their traffic reports on GPS systems or dedicated satellite radio channels. Baseball at home is largely a TV medium now. And I do virtually all of my music listening either through my subscription to Yahoo! Music or on commercial-free
So where does that leave radio giant
, which built the nation's largest empire of radio stations in the 1990s -- and saw its shares go to $95 from a split-adjusted 85 cents in the process? I wrote about the company's
intractable audience dilemma back in July of last year, noting that the company had killed its golden goose by shoving so many ads into listeners' ears that radio was no longer a pleasurable experience.
I suggested that the stock could be bought around $28-$30 for a trade last summer, though, as it finally appeared that it was ready to get its house in order by cutting back on the ads to win back customers. The campaign, internally called "Less Is More," took the big risk that the company could actually make more money by broadcasting fewer ads and promotions -- down to 12 minutes per hour, from 16. The idea was that it would win back listeners, which would drive up ad rates.
It turned out that Clear Channel did get down to the $29 area last summer and fall before trading back up to $35, as it was purchased by value managers. But it slid all the way back to that level earlier this summer amid pessimism that the new program was working. But in recent weeks more optimism has emerged that the company -- which reports earnings on Tuesday -- has listened to its critics and made necessary changes.
According to Michael Nathanson, analyst at Bernstein Research, time spent listening to Clear Channel stations increased 5.3% year over year in the top 20 markets in the spring, vs. a gain of only 0.2% for the broader radio market. He reported that the Infinity unit of
saw a 2.2% decline. Clear Channel gained 80 basis points of market share of listeners' time, he said.
This all started back on Jan. 1, when the Less Is More strategy began to clear out the audio clutter, cut the number of ad minutes, the length of each break and the number of ad or promo minutes in each break, according to Nathanson. Previously, Clear Channel had two spot breaks per hour with eight or more ad/promo "units" that lasted up to 10 minutes per break. Now each break has no more than four minutes of ads and no more than six units.
In radio, Nathanson points out, revenue equals usage times price per ad minute -- so if the trend holds up, higher usage should produce above-market radio revenue growth for the company in 2006. He said in a note to clients this week that he expects Clear Channel's radio advertising growth to accelerate to +2.6% in 2006 from -6% in 2005. If so, then both estimates, as well as other analysts' estimates, will need to be revised higher. This is especially true as radio ad budgets for 2006 are set before September.
Nathanson has published a 2006 estimate that supports a price target of roughly $37, which would take shares to a one-year high from their current perch around $33. But as he notes, it is possible that Clear Channel could tell investors on its conference call next week that it will actually put more of its resources into the Less is More campaign -- a corporate strategy shift that could drive more market share gain and revenue.
It's hard to get excited about a company whose shares are mired near five-year lows and has arrogantly blown most prior opportunities to improve. But this might be one time to turn up the volume on your contrarian optimism. Listen in to the company's earnings call on Tuesday and see if this great American success story might finally get back on track. With a little bit of luck, the $38-$40 area would be in view over the next six to nine months, which would be a 15% to 20% gain from here.
P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our
premium Web site, where you'll get in-depth commentary
money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice --
Jon Markman, writer of TheStreet.com Value Investor, is the senior investment strategist and portfolio manager at Greenbook Investment Management, a division of Greenbook Financial Services. Separately, he is publisher of StockTactics Advisor, an independent weekly investment research service. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;
to send him an email.
Interested in more writings from Jon Markman? Check out his newsletter, TheStreet.com Value Investor. For more information,