The radio industry is experiencing an undeniable ad recovery in third quarter 2020 but the rebound has yet to lift all boats. Some ad categories have yet to bounce back, as seen in Q3 results reported by Entercom on Friday. While the company has had five consecutive months of improving revenue, many of its biggest clients still remain on the sidelines.
In its local ad business, which accounts for 70% of revenue, 44 of Entercom’s top accounts from 2019 were still off the air in September, compared to 55% in June. To be sure, several key categories are back and rocking. Ad sales from auto dealers, its top local category, were up 62% in September compared to June, while auto dealer associations, its sixth largest category, grew 25% over the same time frame. No. 7 category gambling and casinos grew 144%. Fast food (No. 9) was up 108% and auto insurance (No. 14) grew 215%.
But other categories remain deeply challenged. Comparing September 2020 to the prior year shows concert advertising, historically Entercom's fifth largest local ad category, down 98%. And with no new fall lineup to promote, TV stations, a top 10 category last year, fell 88% year over year. Other categories that typically rank in the top 30 also sank in September compared to the prior year: sports events (down 57%), casual dining (-56%), amusement parks (-84%), and fairs/festivals (-91%) “Even categories that have recovered significantly due to the impact of COVID-related disruption are still struggling,” CFO Richard Schmaeling told analysts during the company’s quarterly earnings call. Advertising by auto dealers, who don’t have enough new cars for sale on their lots due to supply chain issues, cut their year-over-year ad spend by 34% in September.
Advertisers aren’t spending less because they’re shifting dollars over to digital, Schmaeling said. “The story remains COVID disruption and we are optimistic as the impact of the virus subsides that our spot advertising revenues will continue to recover,” he said.
Political Pace Picks Up
Despite predictions of record spending in the 2020 election, political ad dollars were lower than expected, coming in at $5 million for Q3. But the pace picked up considerably in October with $16.5 million forecast for Q4, up slightly on a same-station basis from the 2016 presidential election. For full year 2020, the projection is $30 million which would be a 20% lift from $25 million in 2016.
Entercom introduced some new revenue segment breakdowns in its Q3 results and they, too, show the recovery is not a one-size-fits-all proposition. Digital revenues shot up 41% year-over-year to $47.3 million, which the company attributed to ongoing audience and revenue growth in podcasting and digital audio advertising. But the bottom fell out on sponsorship and events with revenues down 61% to $8.8 million from $22.5 million one year earlier. Isolating just events is even worse with events revenue down 97% year over year.
The new segment reporting now breaks out revenue by format type, something Salem Communications has done for years. It shows Entercom’s spoken word stations fared better than it music stations. Revenue at music-formatted stations was down 41% year over year, compared to a 28% decline at sports stations and a 23% decrease at news/talk. About 40% of its station revenue comes from spoken word, suggesting Entercom was better able to withstand the COVID impact than companies that are more reliant on music.
Looking ahead to fourth quarter, Schmaeling said the continued absence of live events will cause Q4 revenues to fall 7% and that its remaining revenues are currently pacing down in the mid-teens, year over year. But that could change with COVID cases currently rising across the country.
More Cost Cutting
In a trend playing out across the publicly traded radio industry, Entercom is relying on drastic cost reductions to keep its balance sheet intact. CEO David Field said the company is making “meaningful improvements” to its business model and “capitalizing on technology and changing consumer behavior” to improve how it serves listeners and advertisers while making its operations more efficient. The company plans to “significantly” reduce the size of its studio locations “to reflect expected post-pandemic work structures.” That includes a major decrease in the $70 million it currently spends in studio leases over the next several years. In 2021 Entercom expects to spend $100 million less in fixed costs than it did in 2019, pro forma for its podcast acquisitions.
“We continue to improve sequentially and have done so in every month since April,” Field said.Business on the ledger for Q4 already exceeds the $269 million in total revenues booked for Q3.“We are evolving and enhancing the company through the pandemic and will emerge as an even stronger organization and are excited about the opportunities ahead,” Field added.