For all the talk about Channel Ten takeovers and Seven West mergers, the true fight for control will be over FM radio once the government’s media reforms go through.

Media analyst Bob Peters, of Global Media Analysis, has taken a look at FM radio — described by some as the cockroach of traditional media — and reckons the commercial metropolitan FM radio groups will be the most highly sought-after assets in any takeover frenzy.

“Unlike the larger newspaper and television groups which have been struggling financially in recent times, the metro FM radio broadcasters have continued to enjoy reasonable growth in advertising revenues, profits and margins over the past half decade,” he said in his report.

The government finally got its media reforms through the Senate earlier this month, which will abolish the ownership rule that prevented the one person or entity owning more than two out of three of the traditional media platforms in the same market.

Peters told Crikey the TV and newspaper groups had received more attention in chatter about mergers because they were bigger corporate entities than FM radio. There are also more chances to cut costs by merging news and current affairs content between newspapers and TV — the FM music-oriented stations only dedicate a small part of their budgets to this content. And the bigger entities have more political sway.

“TV and newspapers are generally considered to be much more politically influential than the largely music-based FM radio networks, notwithstanding our current PM’s recent charm offensive on the FM airwaves,” Peters said. “Hence, media moguls seeking to achieve political influence would naturally be more attracted to the larger and more influential TV and newspaper sectors.”

Macquarie Radio, part-owned by Fairfax, owns mostly talk-based AM stations 2GB in Sydney, 3AW in Melbourne, 6PR in Perth and 4BC in Brisbane. And Peters said its revenue and profit are only roughly half the size of the average FM radio group, but it does have more political sway with its listeners.

“In short, if you wanted to maximise your financial returns from commercial radio, then FM radio is the more certain route,” he said.

The three metro FM radio groups — Southern Cross Austereo (SCA), Australia Radio Network (ARN) and Nova — had record profit margins in 2016, which had increased by an average of 5.4% every year for the previous five years.

ARN is the most profitable of the three, and GMA said the industry would value it highest (between $750 and $800 million)when consolidating. It has the KIIS stations in Melbourne and Sydney, but doesn’t have a metro radio network across more cities. 

Nova was an “astute investment” by Lachlan Murdoch, according to the report — it’s had nearly the same revenue growth as ARN, smooth fm has been extremely successful in Sydney and Melbourne, and it’s been “arguably the fastest-growing operator over the past half decade”. But its continued growth could be limited — it doesn’t have stations to expand smooth into Brisbane, Adelaide and Perth, and it could be operating at or near its full potential. GMA values the network at between $680 million and $730 million.

SCA was valued the lowest of the three broadcasters, but GMA said it might have the best potential for future ratings and earnings improvements, given that it has the most metro stations of the three companies, is the only to have two separate all FM networks (with stations in all five markets), and has been recovering over the past 18 months from a period of decline.

As to why the FM broadcasters have high profit margins, Peters said it’s down to the scarcity of commercial FM radio licences.

“The key highly paid FM on-air talent (like Kyle and Jackie O at KIIS in Sydney and Hamish and Andy on SCA) can only be sustained because there are only six commercial FM stations in the two largest metro markets of Sydney and Melbourne,” he said. “If there were instead 60 FM stations in each of those markets rather than only 6, then there would probably only be rubbish on all of those.”

NOTE: This story has been updated to correct a quote incorrectly attributed to Bob Peters in error.

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