Struggling Radio Sector Cleans Up Balance Sheets Ahead of Potential Deregulation-Induced M&A Boom

For an industry that almost seems like a historical anachronism in a media landscape now largely dominated by streaming platforms and their associated services, traditional broadcast radio may well see a second, albeit downsized, lease on life should broadcast ownership deregulation be passed into law later this year, according to restructuring professionals interviewed by Octus.

Any potential industry recovery, however modest, comes after traditional broadcast radio was ravaged by audience fragmentation, high fixed costs and the legacy of the Covid-19-induced lockdowns pulling the rug out from the morning and evening “drive-time” commutes, crippling a key source of ad revenue.
 

“Covid was a major body blow to the balance sheets of these [broadcast radio] companies,” said Drew Marcus, senior advisor at Guggenheim Securities. “Radio EBITDA was generally cut in half during Covid in 2020 and has subsequently been unable to return to pre-Covid levels.”

Audacy and Cumulus Media, easily two of the most prominent restructurings to occur within the sector in recent years, both said industry-specific challenges exacerbated by the pandemic were contributing factors to their decision to file for chapter 11 bankruptcy protection.

Marcus said that even with drive-time commutes coming back to an extent after the pandemic, there is now even more competition during key commuting hours from services such as CarPlay and Sirius, underscoring the point that this is not a cyclical issue likely to be cured by a rebound in advertising revenue.

As much of a factor, just from a structural pressure standpoint, is audience fragmentation, according to Jason Zachary Goldstein, a partner within Gibson Dunn’s business restructuring and reorganization practice.

“There are so many different types of streaming content now, and traditional broadcast radio is being hit in a multitude of ways – you’re getting such a diversified set of people entering the market that it’s really created an audience issue as a result,” explained Goldstein. “It’s creating additional revenue decline in the traditional broadcast market.”

Shifting consumption patterns were cited by Spanish Broadcasting System as a critical factor in its decision to file a prepackaged plan of reorganization earlier last month.

There is also the issue of Nielsen contracts, which are a Chinese finger trap of sorts for radio companies who need them to establish objective metrics to sell advertising space, Goldstein said, but are now an increasingly crippling cost center for companies that cannot attract the audience they once did.

Radio companies need Nielsen contracts primarily to establish an objective “currency” for selling advertising space, and because the media-buying ecosystem relies on trusted data, networks use Nielsen’s measurement services to prove their audience sizes, justify their advertising rates and ensure their ad slots can be included in automated media planning and buying systems. However, these contracts may be creating diseconomies of scale wherein the radio companies are locked into paying the same prices to Nielsen as they did when their audiences, and therefore advertising revenues, were much larger.

The infographic below illustrates advertising growth across various media segments, comparing performance over a two-year period to account for the impact of the U.S. political cycle:
 

Cumulus Media also attributed its decision to file for chapter 11 bankruptcy protection back in March to a legal dispute with Nielsen after the audience measurement data provider implemented a policy change in 2024 that raised costs for the company.

“Legacy radio has to deal with high fixed costs comparatively, and it is coming out of an era where they built these capital structures in a totally different environment,” Goldstein said. “So, you put material debt on these companies, you have high fixed costs, and then you’re competing now with a bunch of different entrants in the market over the same listener base.”
 

Given the competitive landscape and ongoing secular decline of the industry, the obvious question is what, if anything, these companies can do to clean up their balance sheets given the likely difficulty of raising new money as top lines fall across the industry, or if there is even much of a future at all for them with Alphabet, Meta and Amazon deepening their market share.

“It’s been a busy year in our capital structure advisory group,” Marcus said. “I think part of the flurry of activity and why we [and others are] so busy actually, is everyone’s trying to position themselves for deregulation, and to get their balance sheets fixed before deregulation so they can participate in it.”

“[Deregulation] is a potential game changer where you could go from owning five FM [station]s in a market to eight FMs,” Marcus said. “Basically, your competitor who you couldn’t merge with is now your most synergistic merger candidate, so once deregulation is made official, which [may happen] later this year, we’re expecting markets to become duopolized with two major players per market.”

Thirty years after the Telecommunications Act of 1996 prompted the first massive wave of deregulation-induced consolidation in the sector, Marcus said a second wave could be transformative, and if reading the political tea leaves correctly, he expects further reregulation may be in store later this year.

“There’s a healthy skepticism on the buy side about deregulation since it’s been 30 years since the last piece of deregulation,” Marcus said. “However, Chairman [Brendan] Carr seems quite determined, and if he’s successful, which many think he will be, I think that’ll be a positive surprise to those skeptics.”

Last fall, the FCC under Carr launched a review of whether to eliminate the FCC’s local radio ownership rule, which limits the number of radio stations an entity can own in a local market and the number of AM and FM stations an entity can own within that market. Specifically, the rule has a sliding scale that permits an entity to own eight stations in markets with at least 45 stations, with no more than five that can be in the same AM or FM service, which decreases down to a cap of five stations in markets of 14 or fewer stations.

Carr has said that the FCC’s radio ownership rules, along with similar rules for broadcast television, are outdated in an era with increased competition from audio and video streaming services not subject to ownership caps. Before he became chairman, Carr as an FCC commissioner in 2023 voted against keeping the local radio ownership rule, saying the prior FCC leadership took an “ostrich-like approach” to media ownership limits. More broadly, the FCC under Carr also continues to press ahead with other deregulatory items including its “Delete, Delete, Delete” initiative.

This past February, FCC Commissioner Olivia Trusty, the other Republican appointee on the currently three-member commission, promoted the agency’s media ownership reforms, telling the Brookings Institution’s Center for Technology Innovation that “the agency is working to modernize our broadcast regulatory framework and empower broadcasters to compete for viewers for programming and ad revenues and reinvest those resources into their news gathering operations.”

“There is a narrow, but optimistic view going forward here that these are still durable assets,” Goldstein said. “These are still cash generating entities, and there could be a lot of value in some of the IP that they have, there could be a lot of value in the region that they have, particularly if you’re consolidating a bunch of local market stations under the banner of a bigger brand.”

Goldstein explained his belief that customers of the legacy broadcast businesses, such as local advertisers, have tended to stick with radio advertising, even during recessions, and that the broadcasters are therefore less exposed to the competition they’re seeing on digital platforms. He further opined that there is a material benefit in consolidating so that if the business in question has a lot of properties across many markets, it could amplify its reach and entrench brand recognition.

“The best thing for an M&A environment is less regulation, and that’s what we’re seeing – we saw a couple [of] recent sales of localized stations close much faster than we would have anticipated,” Goldstein said. “There are definitely attractive elements of legacy broadcast businesses, it just has to be the right combination of things, and the right go-forward approach.”

Marcus noted that the FCC and the Department of Justice recently approved a deal between television broadcasters Nexstar and Tegna, which, for context, required the FCC to waive its national and local broadcast television ownership rules.

However, some state attorneys general and DirecTV were able to convince a California federal court to halt Nexstar and Tegna from further combining their operations. The court held that the transaction was likely to violate antitrust law. Additionally, organizations are challenging the FCC’s waiver of the national television ownership cap for the Nexstar-Tegna merger in the D.C. Circuit.

Overall, Marcus said, “deregulation is literally like putting the industry on the autobahn.”