Inventory-Cutting Program Reaps Some Gains in January

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NEW YORK ( -- Revenue is beginning to follow the ratings for Clear Channel Radio, whose first quarter is looking up after enduring a tough 2005 due to its ad inventory-cutting initiative known as Less Is More.
Clear Channel Communications CEO Mark Mays
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Starting in 2005, the radio company began slashing commercial time at its stations to improve the listening environment, in part by pushing for 30-second ads rather than the more popular 60-second spots. Fourth-quarter and full-year 2005 radio revenue dropped 6% as the market adjusted to the change. Analysts expected Clear Channel’s year-over-year comparisons to improve in 2006 when pitted against the softer 2005 numbers.

Clear Channel, which has 1,200 stations in the U.S., reported fourth-quarter overall revenue fell 1% to $1.76 billion from $1.78 billion for year-ago period. Its full-year revenue dipped to $6.61 billion from $6.63 billion for 2004. The radio giant reported fourth-quarter profit of $461.6 million, or 86 cents a share, compared with a loss of $4.67 billion, or $8.15 a share, a year earlier.

Optimistic on earnings call
Clear Channel Communications CEO Mark Mays was optimistic on an earnings call with investors this morning. He said radio revenue was pacing up in January 5.1% over the year-earlier period, and that the company expects first-quarter revenue to be up 2.9%. In markets reported by accounting firm Miller, Kaplan, Arase & Co., Clear Channel’s ad revenue was up 6.3% compared with an industry average of 1.5%.

“Let me repeat that. They were up 1.5%. We were up 6.3%,” Mr. Mays said, adding that Clear Channel believes it will “see an improvement as we go through the quarter as we are managing our commercial inventory very effectively.”

As part of Less Is More, Clear Channel has pushed advertisers to try using shorter spot lengths instead of the traditional 60-second ad format. An important component of the company’s strategy will be to drive up prices for the shorter spots, pricing 30-second spots at 75% of the rate of 60-second ads. Analysts call it maximizing yield.

Accepting shorter ad lengths
“Optimizing the inventory, getting the best possible prices we can for every spot that we sell, and selling all of the spots we can have been a big contributor to the out-performance in January,” Clear Channel Radio CEO John Hogan said. He said more advertisers are accepting the shorter formats. “[This] will be a strong catalyst for our competitors to include those options and potential solutions for advertisers as they move forward. And I think that as our successes continue, you'll see the rest of the industry look for ways to kind of dovetail in behind us.”

Clear Channel also estimated 2006 expenses would be up 3% to 3.5% as the radio industry begins its major promotional push for high-definition radio.

David Bank, director of equity research at RBC Capital Markets, thinks in 2006 Clear Channel will outperform the industry average, which he estimates to be “flattish.” Thanks to ratings increases, Clear Channel’s “likely to increase their wallet share of dollars being spent,” he said.

“During the first year they’ll have uncommonly good experience relative to the experience they had last year,” said Jim Goss, equities analyst at Barrington Research. “The question is can they sustain [the growth] after that? It depends on how well they can make some of the other improvements: selling different unit lengths and getting pricing power into those spot lengths... Thirties seems to be the radio norm elsewhere in the world and TV norm everywhere. Maybe it’s a matter of time and demonstrating that.”

According to Maribeth Pepuga, senior VP-local broadcast at MediaVest, Clear Channel suffered particularly last January, as buyers weren’t used to the pod lengths the group was pushing and competitors were quick to cut deals and steal share.

“Clear Channel’s strategy a year ago took some buyers buy surprise,” she said. “There was a push for people overnight to convert from 60s to 30s… Now Clear Channel’s getting some of that share back.”

Many of Clear Channel’s competitors have already quietly reduced commercial inventory as well, though none in such a highly publicized way as Clear Channel. In November 2004, a month before introducing Less is More, Clear Channel averaged 12.1 commercial minutes an hour, according to Media Monitors. So far this month the radio group averaged 8.6.

“Clear Channel’s really standing alone in this,” Mr. Bank said.

In 2005 Clear Channel spun off 10% of its outdoor unit and its entire live entertainment division.

Gains for outdoor division
Clear Channel Outdoor posted gains of 7% in fourth quarter and 9% for the full year, which Mr. Mays called “tremendous.” The gains (of ad revenue and radio revenue) were led by the North and South America division, which was up 11% in fourth quarter.

Mark Mays’ brother and Clear Channel Chief Financial Officer Randell Mays called outdoor “an advertising medium that will continue to attract larger and larger audiences thus providing a relatively inexpensive way for advertisers to target consumers. ... It is no surprise we're very bullish about the future of outdoor advertising.”

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