Acquisition Makes Cumulus 4th Largest Player

Acquisition Makes Cumulus 4th Largest Player

The market share of the top four companies in the Radio Broadcasting industry is rapidly increasing as a result of consolidation activity, according to industry research firm IBISWorld in Los Angeles, Calif.

Citadel Broadcasting Corporation exited bankruptcy on June 3, 2010 and as of this "fresh-start date" the company had no retained earnings or accumulated deficit. This blank slate made Citadel a prime acquisition target for Cumulus Media.

Cumulus is a radio broadcasting company that has been slowly expanding throughout the past ten years through smaller acquisitions and station swaps with other radio broadcasters, including the industry's largest player Clear Channel (CC Media Holdings Inc. with 17.3% market share).

While Citadel underwent bankruptcy, Cumulus cut costs through 2009 and maintained its low spending through 2010 as advertising revenue gradually grew. This allowed Cumulus to earn a sizeable profit margin with earnings before interest and taxes (EBIT) of about 26.5% of 2010 company revenue, compared to the industry average EBIT of just 3.0% of 2010 revenue.

This merger will position Cumulus Media as the fourth largest industry player with a market share of at least 5.1% of industry revenue - combining Cumulus Media's 1.6% market share with Citadel's 3.5% share - according to IBISWorld. After CC Media Holdings Inc., other major companies include Sirius XM Radio Inc. and CBS Corporation, with 15.5% and 8.9% market share, respectively. Industry revenue is expected to total $16.7 billion in 2011, which incorporates a 1.7% growth rate since 2010.

"The Radio Broadcasting industry is projected to grow at an annualized rate of 1.6% per year over the five years to 2016," explains IBISWorld media industry analyst Agata Kaczanowska."Most of the growth will come from a return to advertising on the local level, especially in 2012 as smaller companies benefit from an increase in consumer and large business spending."

Improving advertising budgets will bring some much-needed relief to radio broadcasters. However, the industry's growth will be significantly hampered by increasing competition from music streaming sites on the web, internet-only radio stations and digital music players. To maintain profitability, operators will scramble to restructure. One bright spot for the industry will be the growth of satellite radio, which generates revenue from subscription fees on top of advertising.

For more industry news, follow IBISWorld on Twitter at @ibisworld

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