NEW YORK -- Radio industry executives appearing at the annual UBS Global Media and CSFB Global Media Week conferences here this month encountered lightly populated rooms and sometime sharp investor questions, while their satellite radio competitors got a warmer reception.
"It seems like one of the fundamental problems with traditional radio is there's too much crap around the things you want to listen to," one attendee told Emmis Communications chairman and CEO Jeff Smulyan after his presentation.
Cumulus Media CEO Lew Dickey also got a mouthful. "The XM (Satellite Radio) presentation just ended an hour ago, it was packed to the rim, lines out the door, and there are about 15 people in this meeting right here," one investor told him during his question-and-answer session. "What does that say to you about the industry?"
These investor reactions to radio managers demonstrate just how little attractiveness Wall Street has seen in the broadcast sector as of late amid a continuing weak advertising environment and competing offers. In the age of the iPod and digital media services, radio station groups seem to hold limited appeal for investors, observers have argued.
Not even the recent announcement by a group of leading radio firms that they have created an alliance to push high-definition to better compete with their satellite peers earned many cheers.
"HD Radio, in our view, is unlikely to pose a significant threat to satellite radio in the near- to mid-term," Bear Stearns analyst Robert Peck said in a research report.
Still, executives from traditional radio station groups defended themselves last week, arguing that satellite radio could turn out to be just a fad.
"I just think that it's eerily reminiscent, in my judgment, of things that we saw five years ago, six years ago with some other companies in a different industry," Dickey said, in a reference to the Internet bubble.
Dickey and Smulyan both argued that it remains unclear whether satellite radio is a real business. "No one has ever made a penny, anywhere in the world, on subscription-based radio," Smulyan said. "This doesn't mean that Sirius (Satellite Radio) and XM won't make it. ... But even if you take the most wildly enthusiastic estimations of their penetration, they will reach 30 million Americans in the next five years, 40 million. Radio ... will probably still reach 275 million people a week."
In his interaction with investors, Clear Channel Communications chief financial officer Randall Mays made a similar point about current-day realities. "If you look at the Arbitron sampling that looks at free radio versus pay radio, pay radio today is less than 1% of total listening for all radio," he said. "Very, very, very few people report that they actually listen to pay radio."
Dickey admitted that satellite radio has been a hot growth story but suggested that things would have to go unusually smooth for XM and Sirius to be worth what investors have been paying for their shares. "Money is going in there right now, which is why it's supporting evaluations based on a flawless execution of an aggressive business plan (through) 2011," he said.
Smulyan also invoked an old rule in the media industry that says newer forms of media rarely fully replace older ones. "The iPod of today was the CD five years ago and the cassette 15 years ago and the A-track 20 years ago and the citizen's band radio 30 years ago," he said. "The reality is people have fragmentation, but we haven't seen anything replace this particular radio experience."
Dickey also suggested that despite good marketing, satellite radio has little to differentiate itself from terrestrial radio. "We're in the content business, and the only real content that they have is Howard Stern," he said. "They don't have any real exclusive content."
Despite all the defense talk, Smulyan did agree that traditional radio players have room to improve performance in various areas. They particularly must focus more on providing compelling content, he argued. "We have done some things, as an industry, that have not been productive," he said. "I don't think we've marketed the industry too well. I think our product's been more stale. ... I think that we've over-researched ourselves."
Nonetheless, Sirius and XM currently dwarf most radio groups in terms of market capitalization. Sirius' market value has been above $9 billion, with XM well above $6 billion, while Emmis and Cumulus have seen market caps well below the $1 billion mark. Clear Channel remains on top though, at least for now, ending Wednesday's trading session with a market cap of $17.42 billion.