News Column

Turning Up the Volume

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Amador Bustos knows he will have to move fast. Fueled by new investment money, Hispanic radio companies are maneuvering for position, bolstering their strongholds, and exploring new territories.

"At least I have a little bit of a head start," says Mr. Bustos, who has put together a chain of 18 Spanish-language stations in the last 12 months. In September, Bustos Media, which Mr. Bustos founded in 2003 with his brother, John, secured more than $100 million in private equity financing. Bustos plans to grow to 40 stations in the next year, focusing on building clusters of stations in mid-size markets like Portland and Sacramento before the big companies move in. "We're trying to play a chess game, trying to protect certain territories," Mr. Bustos says.

This fall both Clear Channel Communications and Viacom-owned Infinity Broadcasting, the United States' two largest radio broadcasting companies, announced plans to expand in Hispanic radio another indicator that the segment is the hottest sector in radio.

While revenue for the overall radio market is flat, stations with Spanish-language formats are posting double-digit growth, according to George Nadel Rivin, partner in charge of broadcast services for Miller, Kaplan, Arase & Co., a Los Angeles-based accounting firm that tracks media. Revenues for stations playing "regional Mexican" formats jumped 17 percent in 2003, compared with 3 percent for the overall market, he says. "That is why the major broadcast groups are paying attention," Mr. Nadel Rivin says.

As a result, the last year has seen an unprecedented flurry of deals in Hispanic radio. Companies sold in some markets and bought in others, as they tried to position themselves for the next wave of consolidation. The explosion of Hispanic programming may be old news in big cities like Los Angeles, New York, and Miami, where Spanish-language stations have been ratings powerhouses for more than a decade. But from Seattle, Washington, to Raleigh, North Carolina, growing Hispanic populations are creating new mid-market opportunities for radio companies.

"Now is the time to be a buyer," says Tom Castro, co-founder and president of Houston-based Border Media Partners, which has grown from six Hispanic stations to 32 in less than two years. Last year, Border Media secured more than $115 million from investors including Vestar Capital Partners and Goldman Sachs Urban Investment group.

The investment community traditionally showed little interest in emerging Hispanic radio companies, Mr. Bustos says. In the late 1990s, Mr. Bustos created a chain of 32 Hispanic stations, which he sold for $448 million in 2000 in the midst of Hispanic radio's first big expansion. Nevertheless, the investment community "didn't understand" Hispanic radio, he says. "They saw it as a niche market. They didn't see the potential."

From 1998 to 2003 the number of Hispanic stations in the United States grew from 302 to 598, according to the BIA Financial Network. And now Hispanic stations draw more than 11 percent of all adult listeners, according to the sales agency Interep. "This is a very exciting time to be in the Hispanic radio business," says Jorge Plasencia, vice-president of Univision Radio, which is also in an acquisition mode.

Univision started the latest round of activity in 2003 when it paid $3.2 billion for Hispanic Broadcasting Corp., the largest chain of Hispanic stations in the country. Univision has been shuffling its radio assets ever since, including last October's station swap with Salem Broadcasting, which left Univision with stronger signals in Chicago and San Francisco.

Univision is focusing on the top 20 markets with the largest concentrations of Hispanic listeners, where it can match local radio stations with its TV stations. Most of the Top 10 markets already feature anywhere from four to seven Hispanic stations. "The major cities are pretty well saturated in many cases," says Sean Ross, vice-president of music and programming for Edison Media Research.

Despite the number of stations targeting the same audience in the big markets, analysts believe Hispanic stations still have room to grow, unlike their general-market competitors. Of the 200 biggest companies advertising on English-language radio, less than half currently advertise on Spanish-language radio, Mr. Plasencia notes. In October, Univision announced a new three-year, cross-platform deal with Miller Brewing Co., valued at more than $100 million, representing a first-of-its-kind commitment to Spanish-language advertising by the brewer.

Broadcasters also hope to end the so-called "Hispanic discount," the widely accepted practice of advertisers paying less for a spot on a Spanish-language station than a similar spot on an English-language station. In many cases, advertisers may pay 40 percent less on Spanish-language stations, broadcasters say. "It's ignorance run amok," Mr. Castro says. "It's a vicious cycle that has to be broken."

Mr. Castro says the discount stems from outdated perceptions about buying habits and tastes of the Hispanic community. Ad buyers generally "don't have a lot of life experience with the Hispanic community," Mr. Castro says. "They buy what they like and they're not listening to Spanish-language radio."

If anything, the audience for Hispanic radio is growing so fast that some broadcasters believe the gap between revenue and audience share is actually growing. Closing that gap is seen as one of the industry's primary challenges and a source of great potential. "Everyone realizes that if we are able to monetize the ratings it's the biggest upside in radio," says Bill Tanner, executive vice-president of programming for Spanish Broadcasting System.

Spanish-radio programming is also in its infancy in developing formats to attract specific demographics. Stations typically have featured "regional music" and Latino classics hoping to attract a broad audience. But now companies are developing a variety of formats, mirroring the array of choices available on English-language stations such as Univision's RadioCadena, a news-talk format beamed to its network of AM stations.

Entravision Communications has broken ground with its "Super Estrella," a Spanish contemporary-hits format that features the music of cross-over stars such as Shakira and Ricky Martin, popular with the key 18- to 34-year-old demographic. Research shows that the "upper end of the demographic will follow the younger end because they want things that are hip," says Jeffery Liberman, president of Entravision Radio.

The new formats continue to blur the line between English-preference and Spanish-preference listeners. According to broadcasters, typical bilingual listeners in their mid-30s are willing to try both English- and Spanish-language stations. Bilingual Hispanics "want to connect to a feeling of home and heritage and that's Spanish radio," Mr. Tanner says.

But habits are changing. "It was long assumed that there was a split between first and second generation and what they will listen to," says Mr. Ross of Edison Media. "We're finding that at least some U.S.-born Hispanics are willing to consider Spanish-language radio." And that is putting Spanish-language stations in direct competition with English-language stations for the same listeners. "It will be up to the creativity of people doing Spanish broadcasting whether they can expand the audience," Mr. Ross says. "The battleground is how well Spanish radio manages to attract listeners and how well English-language does in holding on to them."

In the McAllen, Texas, market, one of the largest Hispanic radio markets in the country reaching both sides of the border, Border Media Partners owns seven stations four that broadcast in English and three in Spanish. "I would submit that they are all Spanish-formatted stations," Mr. Castro says. "I think that is the wave of the future."

Meanwhile, while this year's announcements by Clear Channel and Viacom attracted headlines, both were seen as fairly tentative baby steps into the market. Clear Channel's announcement came after it sold its 26 percent share of Hispanic Broadcasting to help pay down debt. Clear Channel only committed to flipping 25 of its 1,200 stations. Observers also noted that after buying stations at a frantic rate in the 1990s, Clear Channel said it would grow its Spanish-language presence by converting stations, not buying new ones.

"We have plenty of radio stations," says Alfredo Alonso, a 15-year veteran of Spanish-language radio who was named to the newly created position of senior vice-president of Hispanic programming for Clear Channel in September. "We have a lot of radio properties under-performing." In the last two years, Clear Channel's WMAX-FM in Atlanta tried a 1980s music format and a news-talk format before switching to "Viva 105.3" earlier this year, becoming the first station flipped to Hispanic since the announcement. Mr. Alonso hopes to have seven stations converted by the end of 2004, with another 18 following in 2005.

"In my view [Clear Channel's announcement] had less to do with the Hispanic market and more to do with the poor growth rate of English radio," Mr. Castro says.

Infinity's move into Hispanic radio was also fairly conservative. It essentially traded San Francisco station KBAY-FM for a 10 percent stake in Spanish Broadcasting System, the Florida-based chain of 20 Spanish-language stations. "Obviously the largest-growing marketplace is the Hispanic market, and we felt it was essential to get into it," Viacom co-president Les Moonves told investors in October. "We are putting our toe in the water."

Analysts generally applauded the move. "It was a good way for Infinity to start," says Mr. Flynn of Kagan Research. The market was "concerned" that Viacom might go on a buying binge, diluting the stock. "It was a way to get into a growth situation in a disciplined fashion," Mr. Flynn says. But both the Clear Channel and Infinity moves were still seen as significant for Hispanic radio. "They went from saying, 'We will participate,' to 'This is how we will participate,' " he says.

Clear Channel and Infinity also signaled to the investment community that Hispanic radio would continue as a growth market. "It certainly validates our business model," says Walter Ulloa, CEO of Entravision, which now owns 53 Hispanic radio stations. "We're confident we will be able to defend our turf and grow."

Like many broadcasters, Entravision is maneuvering to create clusters of advertising muscle in different cities, usually where it also owns TV stations. Last year it sold three stations in Chicago for $29 million, but bought KBMB-FM in Sacramento for $17.4 million, where Entravision already owned three radio signals. "Emerging markets" represent the biggest growth opportunity, Mr. Ulloa says. Echoes SBS's Mr. Tanner, mid-level markets are "the next wave, no doubt. There is a huge opportunity there."

And that's where Mr. Bustos comes in not trying to do battle in the big markets, where stations often fetch more than $150 million. "We will definitely stay away from the Top 10 markets," Mr. Bustos says. "The opportunity to create value is no longer there." But he believes he can beat the conglomerates in the smaller markets. "The big companies don't move as fast," he says. "By the time they want to move into markets that will be my exit strategy."

Gross billings ($M)
Location, owner 2003 2004
1. Los Angeles, Univision $89.12 $92.17
2. New York, SBS* $49.10 $50.63
3. Miami, Univision $43.14 $47.89
4. Houston, Univision $39.23 $43.12
5. Los Angeles, SBS* $36.60 $38.48
6. Miami, SBS* $35.00 $37.23
7. Los Angeles, Liberman $26.97 $28.03
8. Dallas, Univision $23.05 $24.09
9. Chicago, Univision $20.41 $20.99
10. Chicago, SBS* $20.00 $20.75

Language Preferences of Hispanic Radio Listeners in Top 10 Market Areas
Rank DMA Percentage of Population Spanish Primary English Primary
1 Los Angeles 41% 57% 43%
2 Miami/Ft. Lauderdale 44% 69% 31%
3 New York 21% 56% 44%
4 Houston 29% 57% 43%
5 Chicago 17% 57% 43%
6 San Francisco 20% 53% 47%
7 Dallas 22% 57% 43%
8 San Antonio 50% 25% 75%
9 San Diego 27% 50% 50%
10 Phoenix 24% 54% 46%
Source: Arbitron In-Tab Diaries from the Winter 2004 Syndicated Radio Survey

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