Will CBS Radio Become the Big Kid on the Radio Block? Evaluating the Upcoming IPO

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BIA/Kelsey Bytes are excerpts from research reports. This is the latest installment from the recently launched report, CBS Radio as it Approaches IPO: Industry Position, Competitive Assessment, Valuation Estimates. 

CBS Radio Inc. (“CBS Radio”) is in the process of being spun out of CBS Corporation into a standalone publicly traded entity. It’s a fascinating moment for the industry as the comparisons between the new standalone radio group and existing players inevitably begin. It made us wonder what the potential success for CBS Radio could be and if they have the potential to become the face of publically traded radio groups because of their size and profitability. Let’s examine.

CBS Radio has been in the commercial radio business since the beginning of radio stations in the U.S. and has long history of developing national and local entertainment and news programming. Even when much of their national programming migrated over to the television industry, CBS retained a strong commitment to local radio programming and that steadiness has been rewarded by strong ratings and local station revenues.

In 2015, CBS Radio generated advertising revenue of over $1.2 billion, ranking second only to iHeartMedia’s estimated $2.6 billion, according to our estimates. This success is particularly striking because CBS Radio operated 117 stations in 26 markets, compared with 861 stations in 150 markets for iHeartMedia.

What’s driving the success of CBS Radio? A couple of factors.

First, it is operating in eight of the largest markets in the nation and its stations net the highest revenue in most of those markets. Our data shows CBS Radio clusters generated 35.0 percent of radio revenue in New York, 33.1 percent of the radio revenue in Boston and Philadelphia and 29.4 percent in Chicago in 2015. It is also very strong in Hartford (46.4 percent) and Detroit (33.5 percent).

Second, beyond traditional radio programming, CBS Radio sees itself as a media company and enhances its offers with a blend of on- and off-air offers. Digital/online local advertising in their markets is expected to generate $17.9 billion in 2016 and we expect that to grow rapidly due to attractive programming. Many of their stations air news or sports formatted programming and this genre of programming continues to be successful in attracting noticeable and desirable (in terms of demographic groups) audiences. While this programming is expensive (talent and other personnel costs), it provides a foundation for CBS Radio to expand the reach of its content, primarily through online activities.

Based on their size and performance, CBS Radio is well positioned to enter and maintain a leading position. Despite strong competition from online media, radio overall is maintaining its hold in the top five media because it still delivers large local audiences to national and local advertisers. On its own, CBS Radio has the opportunity to become the face of publicly traded radio companies. We believe that expanding the reach of their audiences beyond over-the-air transmission will be one major key to their radio stations’ continued growth. Certainly the industry will be closely watching and critiquing.

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The content of this article was extracted from a new BIA/Kelsey report, CBS RADIO AS IT APPROACHES IPO: Industry Position, Competitive Assessment, Valuation Estimates. Prepared by BIA/Kelsey’s media valuation analysts, the report draws on the company’s proprietary broadcast data to deliver insights and observations for executives and analysts involved and/or invested in the radio industry.

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