Surviving on the Air

December 2007, HISPANIC BUSINESS Magazine
Rick Munarriz
Raul Alarcon Jr., CEO of Spanish Broadcasting System

It's 7:32 on a Thursday morning, and New York City commuters are shuffling off to work. WSKQ-FM – MEGA 97.9 – is there with the aural caffeine, fueling listeners with salsa, reggaeton, and amusing chatter from a crew of colorful characters led by Dominican-born Juan Carlos and Puerto Rico's Frankie Jay.

"Vieja ladrona," they greet a caller. The "old thief" identifies herself as a 78-year-old woman with a randy mouth that is bawdier than her years. She trades lighthearted yet saucy barbs with one of the show's sidekicks, ultimately suggesting that she liked him better when he used to bathe.

The morning show, El Vacilon de la Mañana, is as frenetic as a Daddy Yankee hit single. Like the reggaeton star, the station doesn't miss a beat either. Even after replacing both morning show hosts earlier this year, Spanish Broadcasting System's Mega 97.9 remains the most popular Spanish-language radio station in the country.

The lively morning show is syndicated through SBS-owned stations in key Hispanic markets like Miami, Orlando, and Atlanta. It's a recipe for success, one that the company knows all too well as it beams original content through its network of 20 radio stations.

According to the latest Arbitron ratings, SBS operates four of the seven most listened-to Spanish-language stations in the country. It's a good place to be. With Hispanic voters possibly holding the key to the 2008 election, local, state, and presidential candidates are expected to spend plenty on Spanish-language radio advertising over the next 18 months.

It's a rosy scenario, until you pull up a stock chart.

Turning Down the Volume
With shares of Spanish Broadcasting System (Nasdaq: SBSA) fetching less than $3 apiece, it's a far cry from when the stock peaked at $42 shortly after its 1999 IPO.

The numbers aren't encouraging. Through the end of June, SBS has missed analyst estimates in each of the four previous quarters. It has posted a loss in three of those four quarters, and seen three consecutive quarters of top line declines.

If you see the vieja ladrona, can you ask her to return the groove back to SBS?

Radio-related revenues at the company fell by 5 percent during the June quarter. Operating profits have also declined, with another dip projected for the third quarter. Strength in New York hasn't been enough to offset the weakness in national and local ad sales in Los Angeles and Miami.

The problem is that the company isn't stacking up well against the competition.

Univision is the market leader with 70 radio stations in 16 of the largest domestic Hispanic markets after its acquisition of Hispanic Broadcasting Corporation five years ago.

During that same June quarter, Univision's radio revenues climbed 12 percent. Entravision, another publicly traded competitor with 47 Spanish-language radio stations, reported a 9 percent increase in radio segment revenue.

That's the rub. If the company can't keep up with the competition on the radio airwaves, how is it going to keep pace with its better-bankrolled rivals in larger areas like television and cyberspace?

These are trying times for traditional media companies. Newspaper circulations are declining and advertisers are migrating to the Internet. Radio giants such as Univision and Clear Channel Communications may have been acquired at healthy premiums in 2007, but it's still a sluggish market. It doesn't help that XM Satellite Radio and Sirius have sucked in nearly 16 million of the most ardent radio fans, striking factory-installed deals with all of the major automakers.