Report Card: Australian Radio Network

Staff Writer

Bob Peters from Global Media Analysis runs the ruler across the Australian Radio Network’s financial performance and finds it to be ‘a beautiful set of numbers’.

Bobs report is published below: In the current slow-growing economic environment where total advertising revenues are rising at only low single digit rates, it is rare to find a traditional media operation which manages to increase its audiences by 10% and its advertising revenues by almost twice that rate within a twelve month period.

However that is precisely the performance which the Australian Radio Network (ARN) generated from its Australian radio operations in calendar year 2014 (CY 2014), producing what former federal treasurer Peter Costello might have described as being “a beautiful set of numbers”.

ARN’s remarkable performance was driven principally by a 36.0% increase in average 10+ listeners to its two FM radio stations in the Sydney market.

Stalwart station WSFM rose to the #1 FM position in the market on the back of an impressive 19.6% jump in total listeners; however it was the extraordinary 59.0% audience rise at rebranded sister station KIIS 106.5, Sydney’s #2 FM station in CY 2014, which captured the bulk of the headlines.

The bold move in late CY 2013 to lure to KIIS 106.5 the top rating and out-of-contract, but controversial and incident-prone, breakfast team from 2DAY FM, Southern Cross Austereo’s (SCA) then market leading Sydney FM station, delivered immediate listener and advertiser returns for ARN.

Much of ARN’s impressive 31.7% growth in agency advertising revenues in CY 2014 was probably attributable to that single programming coup, because across ARN’s other six metropolitan stations which operate in Melbourne, Brisbane and Adelaide aggregate 10+ audience numbers were little changed.

ARN finished CY 2014 as the largest commercial metro radio group in terms of total 10+ audience with a 24.0% commercial audience share, compared with only slightly lesser shares of 23.6% for SCA and 22.7% for Nova Entertainment, thereby ending SCA’s two decade long reign as the top rating commercial radio group.

ARN appears to be well-placed to continue to out-perform its peers in CY 2015’s for three reasons:

  • First, it is in a good position to maintain and further benefit from its strong on-going ratings performance in the Sydney market.
  • Second, the recent high profile talent changes to the breakfast and drive teams at its recently rebranded KIIS 101.1 in Melbourne have the potential to grow ARN’s audience and advertising revenue share in that market.
  • Third, the recent purchase of station 96FM in Perth from Fairfax Media, which should be at least earnings neutral in the short term, gives ARN the opportunity to fairly quickly develop a KIIS-type brand across all five metro markets, which should further boost ARN’s share of agency advertising revenues.

While nothing is certain in the highly competitive world of commercial radio, in the absence of an unlikely ratings catastrophe, the recent purchase of 96FM, combined with the other above-mentioned factors, should ensure that ARN both retains the top commercial metro audience share mantle in CY 2015 and also further improves upon last year’s impressive financial performance.


Strong Audience Growth

During CY 2014, ARN’s eight metro stations in aggregate increased their average 10+ audience by 9.9%.  Five stations experienced audience increases, while three recorded modest declines.  Audiences in Sydney and Brisbane rose, while small falls occurred in Melbourne and Adelaide.  ARN stations also held, or shared in the case of Melbourne, the #1 FM spot in each of the four metro markets in which the group operated.

Consequently, ARN’s average share of all five market metro 10+ listeners grew from 13.3% in CY 2013 to 15.1% in CY 2014, while its share of commercial 10+ listeners climbed from 20.8% up to 24.0% over the same period.  Those audience increases made ARN the largest commercial radio group in terms of 10+ listeners, a position which SCA’s metro stations had exclusively occupied over the two preceding decades.

ARN’s displacement of SCA as the commercial ratings leader was particularly impressive because it was generated by only eight metro stations, compared with SCA’s ten.  The $78 million purchase of station 96FM in Perth last month from Fairfax Radio will give a sizeable boost to ARN’s average 10+ listener numbers.  For example, had 96FM been part of the ARN group throughout CY 2014, it would have increased the group’s total listener numbers by a further 9.3% and lifted its commercial audience share to 26.2%.

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ARN’s strong ratings improvement was driven principally by a 36.0% increase in average 10+ listeners at its two FM radio stations in the Sydney market.  Stalwart Sydney station WSFM rose to the #1 FM position in the market on the back of an impressive 19.6% jump in total listeners and under normal circumstances that could easily have been the year’s highlight ratings event.

However, CY 2014 was not a normal year and it was instead the extraordinary 59.0% audience rise at rebranded sister station KIIS 106.5, Sydney’s #2 FM station in CY 2014, which was the real game changer for ARN.  The rebranding which supported the bold breakfast team reshuffle at the station, not only generated substantial numbers of new listeners, but it also delivered a strategically important ancillary benefit.

A critical programming coup occurred in late CY 2013 when ARN succeeded in poaching then FM market leader 2DAY’s top rating and out-of-contract, but also controversial and incident-prone, breakfast team.  ARN’s risky KIIS 106.5 play almost immediately decimated the entire audience of 2DAY FM, the flagship Sydney station of rival SCA, and also belatedly forced that station to completely rethink its programming strategy and market positioning, a development which has had continuing network-wide implications for SCA.

ARN’s gamble has paid off handsomely.  In exchange for assuming the risks associated with acquiring an expensive and historically volatile on-air team in Sydney, ARN has achieved a market-leading position and has also severely destabilised its most direct competitor.

Brisbane was the other market in which ARN increased its 10+ audience during CY2014.  Music formatted AM station 4KQ registered a credible 6.9% audience rise, while 97.3FM, its stable-mate and market leader, experienced lesser 2.5% growth, to produce a combined 4.1% increase in 10+ listeners in Brisbane.

In Melbourne 10+ audiences declined by a modest 2.5% in CY2014.  That was the blended result of 1.1% listener growth at the under-performing MIX 101.1, which has since been rebranded as KIIS 101.1, being offset by a 5.3% decline at Gold 104.3, which still managed to finish the year as that market’s equal top rating FM station, amongst a highly competitive field of challengers.

Following some recent high profile talent changes to the station’s critical breakfast and drive-time on-air teams using popular out-of-contract personalities from both Nova Entertainment and SCA, ARN would be hopeful that this year the re-branded KIIS 101.1 will be able to replicate at least some of ratings and revenue success which KIIS 106.5 in Sydney enjoyed in CY2014.

Impressive Financial Performance

ARN managed to leverage its 9.9% increase in average 10+ listeners during CY2014 into an impressive 19.2% rise in advertising revenues.  That rise was largely driven by an exceptional 31.7% jump in agency revenues, which accounted for 62% of total group ad revenues, combined with a much more modest 3.4% increase in direct revenues.

Consequently, ARN captured a 24.8% share of total metro radio advertising revenues in CY2014, compared with a lesser 21.4% share in the previous year.  Moreover, ARN’s total revenues in the year increased by 18.2%.

However, the high profile talent poaching and station rebranding at KIIS 106.5 in Sydney did not come cheaply and consequently ARN’s operating costs rose by a substantial 21.1% during CY2014.  Had the programming coup at KIIS 106.5 not generated the immediate ratings and revenues rises that it had, ARN’s profits last year might well have been severely impacted by big increases in operating expenses, but that did not eventuate.

Instead, profits reached record levels with earnings before interest tax and depreciation (EBITDA) growing by a commendable 13.7% and earnings before interest and tax (EBIT) rising by 13.3% to reach record levels.

Taking a longer term perspective, since CY 2009, ARN’s Australian radio operations have experienced solid growth in revenues and earnings.  Over that period, total revenues increased steadily by a total of 47.1%, which represented a compound annual growth rate (CAGR) of 8.0%.  Similarly, EBITDA and EBIT rose by 44.3% and 42.9%, which represented CAGR’s of 7.6% and 7.4% respectively.

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Current Year Prospects

Last year’s programming gamble in Sydney paid off handsomely for ARN.

In CY 2015, much industry attention is likely to focus on the Melbourne market to see whether the KIIS re-branding and talent injections there will generate similar returns which, if achieved, would further consolidate ARN’s recently acquired position as the metro market leader

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