Wall Street Sees New Wave Of Media Consolidation Ahead.

Wall Street sees more consolidation ahead for the radio industry, but getting deals done may require a different approach. With debt weighing on some companies and investors reluctant to put fresh money into the business, Apollo Global Management partner Aaron Sobel says stock-for-stock mergers are likely to be the industry's best path forward.

Speaking at NAB Show New York on Wednesday (Oct. 21), Sobel said the FCC's support for consolidation has created an opportunity for radio operators, but the industry's financial challenges remain a major obstacle.

"No one's writing a new equity check in the radio at the moment, so it has to be a stock merger," Sobel said during a media finance panel. Apollo controls $1.05 trillion in assets under management including Cox Media Group — the operator of 45 radio and 17 television stations — giving Sobel a direct stake in both the radio and television broadcasting businesses.

“There are a few people floating around the industry that are that are very bullish on it and see that opportunity,” Sobel said. But he believes radio companies need to reduce their reliance on debt and preferred equity financing, which can make transactions more difficult and limit opportunities for growth.

“On the equity side, I haven't seen new money going to radio,” Sobel said. “Unfortunately, the money that I see that's new money is structured, meaning a preferred or something like that. The industry needs less preferers and less debt.”

That could require some difficult decisions by existing owners. Sobel suggested family-owned broadcasters may need to become more comfortable accepting lower valuations or giving up control as part of mergers. He nevertheless sees reasons for optimism, pointing to Townsquare Media and Cox Media Group as examples of radio businesses creating value. He also believes some investors remain bullish on radio, even if they have yet to commit significant new capital.

"I do think the industry will get there and will consolidate," Sobel predicted. One uncertainty, he added, is whether the FCC's current support for consolidation would continue under different leadership.

Sobel offered an even more urgent assessment of the television station business, warning that without consolidation, it could follow the difficult financial path experienced newspapers.

"This [TV] industry needs to consolidate," he said, expressing disappointment with the obstacles facing Nexstar's proposed acquisition of Tegna while praising FCC Chairman Brendan Carr's efforts to accelerate consolidation. Sobel suggested the most likely scenarios are financially healthy broadcasters combining through mergers, or companies eventually consolidating through restructuring as financial pressures mount.

He also believes television stations have more underlying value than investors currently recognize, particularly because of local news and sports programming. "There is more of a bull case for stations than the market gives credit for," he said.

At Cox, Sobel said local news remains a major competitive advantage, helping stations negotiate favorable terms with distributors. Although attracting younger audiences has become more difficult, he said the substantial older audience for local news remains commercially valuable.

Investors Look For Turning Point

The broader discussion offered a more encouraging perspective on traditional media, even as panelists acknowledged the industry's struggles to deliver shareholder returns like the declining traditional pay TV subscription revenue that local operators have relied on.

While subscriber losses are beginning to stabilize, Eric Mendell, JPMorgan's Global Head of Media and Communications Investment Banking, argued that the industry is still adjusting to the loss.

"The linear business model is one of the world's greatest business models," Mendell said, explaining that traditional television benefited from consumers paying for bundles of channels regardless of how much programming they watched. Streaming, by comparison, has been more difficult to monetize at similar levels.

Jessica Reif Ehrlich, Managing Director of Media and Entertainment at BofA Securities, said improving profitability through cost reductions is also not enough to generate sustained investor enthusiasm. "It's all about growth," she said, seeing acquisitions that add new digital capabilities as one potential solution.

An area where panelists were particularly optimistic was sports, which continues to attract investment and command increasingly valuable media rights deals. Sobel said sports leagues recognize the importance of broadcasting's ability to deliver mass audiences, even as streaming companies compete aggressively for rights. He pointed to the NFL's appreciation for broadcast reach and suggested stations could become increasingly valuable partners for sports organizations.