Traffic Network Drags Entercom Down Again


    The United States Traffic Network continues to do damage to Entercom’s revenue. As expected, USTN cost Entercom $12 million in revenue in the first quarter of 2018. Add to that what CEO David Field called a “soft advertising environment” and six format changes that have not seen the revenue upside yet, and Entercom reports a Q1 quarter down 7.5%. Taking out the USTN hit, Entercom’s same-station revenue was still down 4%.

    In Q4 of 2017 Entercom took a $4 million revenue hit from USTN, and CFO Richard Schmaeling gave a little more color on what went wrong with the traffic network. Schmaeling said the previous owners, GTN out of Australia, tried to execute an aggressive business model where they would “pay up” for inventory from broadcasters. USTN buys the radio inventory first then resells that inventory and Schmaeling said GTN “got out over their skis.” It pretty much sounds like USTN bought up all the inventory it could, hoping to win a bigger share in the traffic space, and didn’t or couldn’t resell the inventory, leaving broadcasters out to dry.

    Since Entercom went public with USTN’s financial woes, the company has been sold to Ivan Schulman’s company (Schulman was running the network here in the U.S. for GTN) and Entercom has taken a “meaningful” stake in the business. Other broadcasters are apparently negotiating with USTN to get equity positions as well. In exchange for that equity position (Entercom would not divulge the exact percentage), Entercom is giving USTN a pricing break. Entercom stands to lose about $15 million or more in 2018 from its relationship with USTN. Both Field and Schmaeling said USTN is making progress in its restructuring and Entercom is helping them through that. “They are quickly righting the ship,” according to Schmaeling.

    Field and Schmaeling also blamed the poor Q1 performance on a soft advertising environment but say they are starting to see some signs of strengthening in national business. There are also high expectations for political revenue as we get closer to election day, in Q4. And the company expects the six format changes it made at the time of the merger to yield positive revenue results later in 2018. Advertisers usually wait for ratings when radio stations flip formats and that delay contributed 1% to Entercom’s 7.5% revenue decline.

    Both Entercom executives reminded analysts and investors that they expected to take a revenue hit in Q1 and Q2 in 2018 as a result of integrating the CBS stations, format changes, and investments. The USTN revenue hit was a monkey wrench the company surely was not anticipating.

    A few other notes from the earnings call:
    – Entercom plans to run another marketing campaign in Advertising Age later this month.
    – On July 1, Entercom will launch its own national audio network hoping to take a bigger percentage of the $1 billion network radio market.
    – The company has $1.82 billion in debt.
    – The company is moving forward with the divestiture of eight stations in San Francisco and Sacramento now being operated by Bonneville. Those stations are expected to generate $160 million in revenue with the money being used to pay down debt.
    – Entercom also plans to sell a tower site in Chicago for $50 million.


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