Broadcast Deal Flow: Severe Drought or Deep Freeze?

By Adam Jacobson - November 16, 2021

NEW YORK — Is investment in a publicly traded broadcast media company a wise one? Has Wall Street responded to the much-heralded benefits of NEXTGEN TV and the potential nontraditional revenue growth tied to the new ATSC 3.0 digital broadcast standard?

Those are just some of the questions addressed by an all-star panel of financial analysts, joined by one veteran media broker, at a Forecast 2022 morning session.

Offering "the real Street Talk" on radio and television broadcasting companies with publicly traded stock, panelists provided attendees with a bevy of insights that paint a stark portrait of twin legacy media businesses highly challenged in myriad ways against digital, streaming and social media powerhouses.

With Drew Marcus, Senior Advisor at Guggenheim Securities, moderating the lively session, Marcus shared that broadcast stocks are outperforming over the last year and that bond market is good. But, radio yields are down dramatically.

That's the overall picture, which was further discussed by Wells Fargo Securities Managing Director and Senior Equity Media/Cable Analyst Steven Cahall. Yes, a big rebound in media stock values has been seen since last year. But, when put in to the right context, "it is because they all got so clobbered that they all reached ‘on the deathbed' levels in the depths of the pandemic," he said. Yes, some are trading above where they were trading pre-2020, but most are trading at or near that range.


Radio and television companies are "not expensive companies," Cahall noted, and believes radio "faces some bigger challenges" than television.

"The line between the new companies and the old companies is much blurrier, and that comes down to content," Cahall said. In his view, music is the most important content piece, and even Spotify isn't the perfect solution. As such, the competition for consumers with a product that is ultimately the same largely comes down to price. As such, that makes audio an inherently more difficult segment of the media industry than video.

Earlier in the session, Cahall noted that radio and television companies generally trade on seven times cash flow and EBITDA. For Wall Street, that's a "meh." "Investors just generally like those growth profiles better," Cahall said of streaming, digital and Sirius XM.

That said, a snap back in ad spend is making Cahall more encouraged in terrestrial radio stocks.

The growth differential between the best performing broadcasters and the key digital denizens can't be overcome easily, though. Marcus noted that Spotify has a $52 billion valuation with EBITDA less than $200 million. "The market overpays for growth and underpays for value," he said.

For Noble Capital Markets Managing Director/TMT Chris Ensley, the $100 billion in incremental growth in digital and online advertising space is something linear media must try to chip away at. How so? Radio and TV should be "skating to where the puck is going … and clearly that has been digital." While terrestrial media has started the process, increased diversity in its advertising offerings must come for the business to grow, Ensley says.

Rounding out the panel is Dick Foreman, the noted broker. He offered a review of the M&A picture "in our COVID years." And, it was rather bleak. There is slow activity in television because most of the major deals have been done.

"We've got a few really hanging out there in television, but other than that, there's not much going on from my purview," he said.

For radio, it is not apparent. Foreman added, "It is not here. Think about it — how many 100-year-old technologies can you put your finger on and say, ‘Look at how great it is?' Radio is not, and it needs to change."

The conversation then pivoted to television advertising. For Cahall, he's bullish short-term and bearish over the long term for television advertising, with automotive down 20% to 25%. In 2022, a combination of auto inventory and political will provide as good of a situation as possible to bring analyst upgrades and forecasts, he believes.

And, with cord-cutting and Netflix changing consumption habits by the day, time spent viewing different visual media is ever-evolving. As such, Cahall said, the risk is being priced in to television stock values.

What about retransmission consent revenue, a subject of scorn for groups such as the ATVA and ACA Connects? "Retrans has been great for Broadcast Cash Flow," Cahall said. "But what happens if it gets taken away in three, five or seven years? We know where the trend is going." And, he adds, the danger is that the foundation "are companies that really don't care about making a lot of money when it comes to television."


At one point in the wide-ranging conversation, Foreman suggested that "we better see some enhancement in ATSC 3.0 technology to bring on some of those flavored benefits we all hope for."

With Pearl TV and Sinclair Broadcast Group high on what NEXTGEN TV will bring, Marcus asked Cahall if Wall Street is giving any value to ATSC 3.0. Cahall quipped, "The short answer is no. The long answer is ‘Nooooooo.'"

The problem? "This does feel like a ‘if we build it, they will come' use case," he added, urging that the NEXTGEN TV business case needs to be proven out more clearly. "I have not yet met someone who has used a ATSC chip-embedded set," Cahall admitted.

And, with Amazon and Google "literally shaping the way people engage with television," there needs to be more from the NEXTGEN TV camp to demonstrate its usefulness.

Ensley agrees. "Within five years there needs to be some real progress," he said.

This article has been republished from Radio + Television Business Report. Access the source article.