A Quick Look At CBS’ Local Broadcasting Division As The Company Weighs Selling Its Radio Stations

CBS Corporation (NYSE:CBS) recently stated that it is looking to sell its radio division to unlock shareholders value. CBS Radio is part of the local broadcasting division, which also includes CBS owned TV stations. Radio for long has been a drag on CBS’ performance and its possible exit has always in the cards. CBS had earlier stated that its radio business is an important asset because it acts as a hedge to the company’s other media operations. However, given its performance, CBS finally took a call to sell the business. The last five year CAGR for the segment revenues stood at -1.3%. However, the segment provides healthy EBITDA margins of around 35% to the company, according to our estimates. CBS also took a $484 million write-down on its radio business in Q4 2015. While CBS’ decision to sell the radio division is a move in the right direction, it will be difficult to sell all the stations to a single buyer, given the current industry landscape. iHeartMedia is the largest player in the industry and adding CBS to its existing portfolio will likely create regulatory hurdles. Cumulus Media has a heavy debt load and it is unlikely it would go after entire portfolio of CBS. In such a scenario, it appears CBS may end up selling the stations individually. ^[1]

CBS Radio currently operates 117 radio stations in 26 U.S. markets and offers audiences several formats through the combination of on-air, online and new media platforms. CBS Radio broadcasts its programs (mostly) for free and charges advertisers to advertise between these programs. Most of the advertisements on radio are local in nature. However, the advertising landscape has been rapidly shifting towards digital and advertisers are allocating smaller budgets towards traditional channels, such as radio, print and television. Ad spending on radio fell close to 6% in 2013 and 4% in 2014, according to Kantar Media. ^[2] These data do not include digital radio, which is growing at a double-digit rate. As more free music is available for streaming, advertising in radio has declined. We expect this trend in advertising to continue in the coming years. In such environment, it makes sense for CBS to sell its radio business and focus on its core strength, i.e., television content.

The table below highlights the value estimation of CBS’ local TV and radio stations and the segment’s contribution to CBS’ overall EBITDA. It should be noted that the segment includes both TV and radio stations, though CBS is currently looking to sell only its radio business. The company does not report its radio business numbers separately.

See our complete analysis for CBS Corporation 

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1. CBS Weighs Selling Its Radio Business, The Wall Street Journal, Mar 15, 2016 [↩]
2. US Ad Spending Trends in 2014, Marketing Charts, March 24, 2015 [↩]