Let’s start with the basics: CBS (NYSE:CBS) CEO Les Moonves is bullish on radio. And, on top of that, investors should share his enthusiasm — though their reluctance to do so is understandable.
Radio is almost as unpopular on Wall Street as newspapers, another fading industry, because listeners and advertisers are migrating to digital media. Rivals such as SiriusXM Radio (NASDAQ:SIRI) and apps including Pandora (NYSE:P) are gaining listeners.
And during the latest quarter, CBS Radio , which owns 127 stations , said revenue fell 2% as gains in spending by automakers were off-set by declines from retail and financial services firms.
Radio, though, is more resilient than many investors realize. Media broker Eddie Esserman even said in an interview that station sales are on the rise despite the fact that “the market is pretty soft.”
During the last earnings conference call, Moonves rejected a suggestion that the company sell its radio business, arguing that “it’s performing very nicely, and we think, with some of the new digital offerings, it’ll continue to grow.”
Moonves isn’t all talk, either. He is scheduled to appear on a panel next month hosted by the National Association of Broadcasters entitled “Hear What’s on the Horizon for Radio.”
One reason for Moonves’ optimism is his smart bet on sports. CBS Radio currently has 18 stations that broadcast in a sports format and another is scheduled to switch in the fall.
The sports format attracts wealthy, well-educated male listeners — and has been paying off.
Sports fans are a desirable demographic because advertisers have trouble figuring out the media habits of men, — especially younger ones — and thus have difficulty targeting them. But studies show that roughly half of all Americans say they follow sports somewhat or very closely and 56% of them say they are college graduates, according to the Pew Research Center. Not surprisingly, more than half of fans are men.
And Philadelphia’s WIP, for one, has shown double-digit gains in the ratings between October 2011 and July 2012, according the company, while CBS also is seeing singe digit revenue growth for its play-by-play sports coverage.
It is true that the aaudience for the medium — like it is for newspapers and magazines — is indeed moving online, but it is not disappearing. Arbitron estimates that 39% of people listened to online radio this year — an audience of 103 million and an increase from 27% in 2010.
Plus, this trend will only continue as more people listen to radio on mobile devices such as tablet computers. TuneIn, a guide to online radio stations, recently reported a 267% increase in listenership, for example.
And while radio advertising spending is not as robust as it once was, the medium is still showing signs of resiliency. Marketers spent $3.8 billion in the first quarter, up 1% over the year-ago period, according to the Radio Advertising Bureau. Plus, political advertising tied to the U.S. presidential election should boost revenue for the rest of the year, while an mproving economy should lead to even better results in 2013.
Wall Street, though, seems to think that CBS — also is the home to the most watched TV network — has got room to run The stock has an average 52-week price target of $38.94, about 7% above where it currently trades. With a price-to-earnings multiple of 16.4, CBS shares are trading well under their 5-year high of 42.36, according to Reuters.
All-in-all, I think Moonves is right, and radio is indeed an investment worth tuning into.
As of this writing, Jonathan Berr was long CBS. Follow him on Twitter @jdberr.