New net plans push Chancellor stock
Chancellor, the second-biggest radio broadcaster after CBS, hopes to expand what now is a tiny national radio advertising market and take share away from the two major radio networks, ABC and CBS affiliate Westwood One.
The announcement excited Wall Streeters, who pushed Chancellor stock up $5.75, to $53, on the news. The rise is surprising because the economic impact of the radio network is small, adding an estimated 3%-5% to Chancellor's annual revenue, according to Morgan Stanley analyst Frank Bodenchak.
But recent radio acquisitions have heated up interest in radio stocks, leading investors to overreact to any news from the industry, analysts said. Chancellor stock rose $3 on Monday, possibly affected by the American Radio Systems deal announced Friday, so Chancellor stock has now gone up 20% in two days.
Details of how the new net will work still are unclear. Radio networks are much smaller businesses than TV webs, with radio advertising revenue totaling $500 million annually compared with $13.4 billion for television advertising, Bodenchak estimates.
While ABC programs its network 24 hours a day, some networks offer only support services, Kantor said. He added that Chancellor has not decided how much programming it will offer but said its preference is to offer "the full gamut" of services and 24 hours of programming to its 99 stations around the country.
Kantor said the network would rely on programming talent already available on Chancellor stations, keeping the extra programming costs to a minimum. The upside is the extra minute an hour of advertising inventory Chancellor plans to offer to national advertisers, Kantor confirmed.
Would increase
Bodenchak estimated the extra advertising time would increase Chancellor's $800 million revenue by $24 million-$40 million. That translates to cash flow --- earnings before interest, taxes, depreciation and amortization --- of $16 million-$26 million a year.
Kantor declined to comment on this estimate. He said national advertising was a "significant business for ABC and for CBS," and he noted that Chancellor's station group was larger and situated in bigger markets than ABC's station group, ensuring that "Chancellor would be a significant player in this market."
The revenue growth will be enhanced if Chancellor can increase the national advertising pie. Kantor said the lack of radio networks has kept available inventory down and he claims advertisers will welcome the addition of the network.
At ABC meanwhile, Kantor will be replaced by Lyn Andrews, senior VP of advertising, sales and marketing at ABC Radio Networks, the broadcaster said.
