Does radio have a future? Philly's Entercom makes $4B leap with CBS Radio deal

Next up on your radio dial: suburban Philadelphia's Entercom Communications Corp. thinks it can revitalize the beleaguered sector with its $4 billion deal with CBS Radio.

The stunning merger — recasting the family-owned Entercom into the nation's No. 2 radio group — is the latest shake-out in a radio industry besieged with radio station consolidation, cookie-cutter formats, digital competitors, and a loosening grip on 240 million weekly listeners.

One indication of radio's woes: The nation's No. 1 station group, iHeartMedia, is teetering on bankruptcy, buried under about $20 billion in debt.

But don't talk about radio's gloom with Entercom CEO David Field, 53, who will head Entercom/CBS Radio if federal regulators and shareholders approve the deal. He sees opportunity. In a conference call Wednesday with analysts, Field called the CBS Radio deal a "game-changer" in an industry that has been "punching below its weight class" by capturing only 7 percent of advertising dollars.

 "We think radio is incredibly under-appreciated and under-valued,” Field said in an earlier interview. "We live in a highly disruptive world and we are all time-starved. We talk faster. We eat faster." But he said “radio has been disrupted less than other mediums,” citing statistics on national listenership.

Field's plan is to grow radio to 8 percent to 10 percent of the advertising pie and boost digital and events revenue. The deal will vault the Bala Cynwyd company, based in a plain multistory office building, into the big time with a sweeping footprint of 244 radio stations in 23 of the top 25 markets, generating $1.7 billion in annual revenues and employing more than 5,000.

Among other properties, Entercom/CBS Radio will control  top sports-talk radio stations in Philadelphia (WIP), New York (WFAN), Boston (WEEI) and Chicago (WSCR), and own portfolios of radio stations in smaller areas such as Kansas City. It's "all about local" content, Field told the analysts. He believes there's potential for radio to be "rediscovered by advertisers."

Wall Street analysts and industry observers regard Field as a disciplined manager with a solid track record. Entercom's stock — which collapsed in the 2008 fiscal crisis and has yet to regain its pre-crisis levels — has tripled over the last five years.

But they note that Field has not operated a radio network of this scale. And although radio retains a chokehold on car listening, the medium has been beset by all sorts of other problems: targeted ads by digital companies, a crowded media landscape, and a perception that time has passed radio by.

"Not a lot of people think that what we do is glamorous," admitted Dan Price, the president of Philadelphia-based Oink Ink Radio, which develops radio spots for brands such as Ford, Lowe's, Advances Auto Parts and Verizon.

But Price also said the intimacy of radio — listening in a car — is powerful for advertisers. "It would be easy to say radio will face real challenges over the next two to five years," Price said. "But it keeps bouncing back. It has more going for it than people think."

Mark Fratrik, chief economist at the research-consulting firm BIA/Kelsey, said that "the one thing you have to remember about radio: It's still there. People still listen to the radio when they drive. It is still a very relevant player."

Jeanne Shoesmith, a director in the media and entertainment group in S&P Global, said that radio spot advertising has been declining 2 percent to 3 percent a year, doing what she calls a "slow burn."

Shoesmith said that Entercom is considered an operator with local content and popular sports-talk stations that generate buzz. Entercom reported on Wednesday that same-station revenues climbed 4 percent in the fourth quarter.

But, Shoesmith cautioned, "CBS stations have had a different revenue trajectory and it will be a big undertaking to convert them to Entercom trends."

The best-case scenario is that digital advertising on radio websites and diversified revenue streams outside of traditional radio — such as organizing events or selling media services to local businesses — will replace the lost radio ad revenue at station groups, she and other analysts say. Entercom and CBS Radio have been diversifying into these areas.

Joseph Field, now 84, and David's father, began the company in 1968 with the belief that FM radio stations were the next big thing. The company grew through strategic acquisitions and today the father-and-son Field team remind one of another pairing out of Bala Cynwyd: Ralph and Brian Roberts of Comcast Corp.

As part of the CBS Radio deal, the Field family has agreed to dilute its shareholder voting control of the company to 25 percent, from 73 percent. The deal will add about $1.5 billion in debt to Entercom/CBS Radio, with a total debt for the combined firm of $1.9 billion. Entercom also will control a majority of the merged company's board: five of nine seats.

A media giant with a storied past in radio, CBS Corp. is exiting the business as it focuses on television and streaming. Field noted to analysts that CBS Radio employees will be part of a company "where radio is first."

The deal brings into Entercom's orbit its first Philadelphia radio properties: six CBS stations, including the all-news KYW and WIP. The others are WOGL, WPHT, WXTU and WZMP.

The Philly stations are broadcast out of three separate locations. KYW has its studio off Spring Garden Street, co-located with CBS3 television station. WIP and WPHT air their programs from the 400 block of Market Street. WOGL, WXTU and WTDY broadcast out of Bala Cynwyd.

Field couldn't discuss the possible relocation of the Philly radio stations until the deal closes, he said. The combined Entercom/CBS Radio headquarters will be based in the Philadelphia area, with Field heading it, the companies said.

CBS Radio has been an "orphan child" at CBS Corp., which has launched a streaming service and focused on its television network, said Michael Kupinski, an analyst with Noble Capital Markets.

"Radio listenership has been flat for the last 10 years," Kupinski said, though he adds that he thinks there is an opportunity for radio to gain advertising market share.

Kupinski said Entercom has "been very concentrated in their local markets."

"Radio is definitely not dead," said David Neff, owner and CEO of advertising firm Neff Associates in Philadelphia. "Advertisers are a lot more discriminating today than they were 10 or 20 years ago."

With streaming radio outlets, an advertiser can target consumers in a specific county or counties within the Philadelphia market instead of broadcasting their message to all eight counties, Neff said. Traditional radio can't deliver advertising with such efficiency.

But at the same time, traditional radio has integrated advertisers into its on-air programming, which is something that other media companies can't do, Neff said.

Even in a nation "where new and sexy gets more than its fair share of attention,” Field said, there is a place for radio.