Companies by Jean Gruss | Editor/Lee-Collier
Don't count broadcast radio out yet. Beasley Broadcasting Group of Naples is holding its own against new competition.
Satellite radio, iPods, the Internet.
The number of new-media competitors encroaching on broadcast radio's turf has some predicting the demise of the medium.
But a small Naples-based broadcast-radio company is surviving the onslaught. Unlike satellite radio, Beasley Broadcast Group is profitable and is investing in new technology that will allow it to broadcast several stations over existing bandwidths.
Certainly, Beasley has felt the sting of increased competition and financial results have been lackluster. Revenues declined 4% and net income fell 11% in the first six months of this year compared to the same period in 2005. Investors have pushed the price of the stock (symbol BBGI) down to $7 a share, 55% off its 52-week high price of $15.59 per share.
Broadcast radio has been somewhat of a stepchild lately. Compared to its peers in the broadcast and cable TV industry, Beasley's stock trades at half the industry's price-to-earnings ratio. But the company's five-year average return on equity has been 6.47% versus the industry loss of ?1.19%, according to Reuters Fundamentals data.
Some observers think the selling in Beasley shares has been overdone. James Dix, an analyst with Deutsche Bank Securities, says the stock's price should be worth $11 a share based on Beasley's stations in strong markets such as Philadelphia, Miami and Las Vegas. The company operates 42 stations in 10 markets, including West Palm Beach-Boca Raton and Fort Myers-Naples. In particular, the Miami-Fort Lauderdale and Philadelphia markets accounted for 51.4% of the company's net revenues in 2005.
The ace that Beasley and other radio broadcasters have is that their programming is free to listeners. Satellite radio charges a monthly fee. And Beasley's strategy of clustering multiple radio stations in growth markets has worked well over the 45 years the company has been in business. For example, the company owns five stations in the Fort Myers-Naples area, broadcasting a variety of music. This gives its salespeople heft in negotiating advertising rates with customers because it controls more of the market.
With the stock price so low, the company's board has been buying back shares and it recently started paying a dividend. It also has resumed its acquisition strategy and recently bought an AM station in Las Vegas for $22 million.
"We're doing a little bit of everything," says Caroline Beasley, the company's chief financial officer.
Banking on a new technology
Radio broadcasters, including Beasley, are backing a new technology called HD Radio. The technology allows AM and FM stations to broadcast their programs digitally rather than in analog format as most do now.
The promise of HD Radio for listeners is CD-quality sound on the FM band and FM-quality sound on the AM band. Meanwhile, broadcasters can fit more than one radio station on a band because the digital signal doesn't take as much room as the analog one. Improvements in digital technology may let radio stations broadcast as many as eight stations on a single band.
For example, Beasley converted its WKIS-FM Miami country music station to HD Radio and it now broadcasts a second "rebel country" channel on the same frequency called Gretchen. So far, Beasley has converted five stations to HD Radio, or what it calls "multicasting," at the cost of about $150,000 per station.
But the additional channels aren't bringing in any revenues. That's because very few people have purchased the special radio receivers you need to listen to the other channels. So far, few manufacturers are selling HD Radio receivers and the ones that do charge about $300. Currently, BMW is the only carmaker to install the special receiver.
Beasley and other radio broadcasters formed the HD Radio Alliance last year to speed up the conversion of stations to the new technology. They are pushing manufacturers to make the receivers and carmakers to install them. Beasley also sits on the board of the National Association of Broadcasters, an influential trade organization that sets future policy for the industry.
The car market is particularly important to broadcasters. Beasley estimates that over half its listeners listen to its stations while driving. But the competition for space inside the car is fierce as most manufacturers already offer satellite radio and iPod options to buyers.
So far, 800 stations are broadcasting digitally, reaching 75% of the U.S. population. By the end of the year, 1,200 stations will be broadcasting digitally reaching 90% of the population. "It's an investment for our future," Beasley says.
For now, Beasley says the company must focus on showing the value it brings to advertising customers. Beasley and others are pushing ratings firm Arbitron to switch to measuring listener habits using electronic devices. Currently, radio listeners who participate in the Arbitron ratings must write down their listening habits with pen and paper and advertisers only get results quarterly. Ratings help customers determine the audiences they're reaching and help broadcasters establish advertising rates.
One of the benefits of HD Radio is that the AM signals will sound as good as the FM stations do on analog channels today. That could be a plus for Beasley because 16 of the 42 stations it owns broadcast on the AM band.
In March, Beasley acquired another AM station in Las Vegas for $22 million. "Our acquisition strategy is to expand in existing clusters," Beasley says. The newly acquired station is the fourth Beasley station in fast-growing Las Vegas.
Much of the growth is funded through bank debt. Since 1994, Beasley has borrowed from Bank of Montreal, which specializes in lending to small and midsize broadcasters.
What's more, the downturn in radio broadcasting translates into buying opportunities as prices for stations are dropping. "There are a lot of stations coming on the market," Beasley says.
And the company will be there to pick up market share.
A BEASLEY BUSINESS
Although its stock is publicly traded, Beasley Broadcast Group is a family business.
Like so many other family-run media companies, Beasley has two classes of shares. The Beasley family, led by Chairman and Chief Executive Officer George Beasley, controls 93.8% of the voting power, according to its most recent proxy filing. Besides George, 74, and daughter Caroline Beasley 43, son Bruce Beasley, 48, is president and chief operating officer and son Brian Beasley, 46, is vice president of operations. George Beasley's total compensation in 2005, including restricted stock awards, was $1.7 million. "There is no succession plan in place," Caroline Beasley says.
The company leases most of its radio towers from Beasley Family Towers, a privately held company controlled by the Beasleys. "It's a very good business," says Caroline Beasley. In addition to leasing the towers to the radio stations, the Beasleys can lease space to cell phone companies, television stations and even rival radio stations.
With the publicly traded shares priced so low lately, is there any incentive to return the company to private status? "Our board has not discussed it," Caroline Beasley says.
As the CFO, she acknowledges the burdens of public scrutiny. "Sometimes it's a lot of my time," she says. It's also a lot of money. Beasley estimates compliance with Sarbanes Oxley legislation has cost the company about $600,000.
Still, she says the legislation tightening public-company regulations has forced the company to scrutinize its internal operations. "A lot of things have been done for good reasons," says Beasley.
Because the family is so involved in the management of the company, Beasley says it's essential to make sure everyone's communicating. It's also important to delineate clear lines of authority so that there's no miscommunication between employees and family managers.
"It's good for everyone to be on the same page," she says.
BY THE NUMBERS
BEASLEY BROADCAST GROUP
Six months ended June 30
2005 2006 %Change
Net revenue $61,647,662 $59,284,819 ?4%
Cost of services 20,734,411 20,666,090 ?0.3%
and administrative 23,469,601 21,257,339 ?9%
and administrative 3,467,033 3,480,554 ?0.3%
Stock-based compensation - 923,570 -
and amortization 1,466,114 1,362,952 ?7%
termination costs 141,449 - -
and expenses 49,278,608 47,690,505 ?3%
Operating income 12,369,054 11,594,314 ?6%
Interest expense 3,784,036 3,768,927 ?0.3%
expenses 84,927 25,468 ?70%
Interest income 254,440 234,779 ?7%
income 211,267 32,699 ?85%
income taxes 8,965,768 8,067,397 ?10%
Net income 5,415,324 4,800,326 ?11%
12/31/2005 6/30/2006 %Change
Cash and cash
equivalents 16,278,951 13,049,475 ?20%
Accounts receivable 21,631,643 21,336,894 ?1%
Trade sales receivable 945,106 791,562 ?16%
Other receivables 483,602 643,002 33%
Prepaid expenses 2,370,202 4,903,491 107%
instruments 971,864 148,771 ?85%
Deferred tax assets 453,897 746,744 65%
Total current assets 43,135,265 41,619,939 ?4%
from related parties 4,254,350 4,169,100 ?2%
and equipment, net 19,007,810 19,778,858 4%
licenses 199,661,298 199,661,298 -
Goodwill 10,128,224 10,128,224 -
Investments 1,044,128 3,529,899 238%
Other assets 3,585,921 3,529,899 ?2%
Total assets 280,816,996 280,072,822 ?0.2%
LIABILITIES AND STOCKHOLDERS' EQUITY
of long-term debt - 1,250,000 -
Accounts payable 1,770,129 1,605,538 ?9%
Accrued expenses 8,100,733 8,549,934 6%
Trade sales payable 862,882 883,888 2%
Total current liabilities 10,733,744 12,289,360 14%
Long-term debt 144,375,000 139,125,000 ?4%
Deferred tax liabilities 37,709,914 40,512,032 7%
Total liabilities 192,818,658 191,926,392 ?0.4%
Stockholders' equity 87,998,338 88,146,430 0.1%