Statistical Determinants of Radio Stations' Revenues and Trading Prices
OSP Working Paper 9 (Aug 1982) estimates the effects of various factors on radio stations’ revenues and trading prices. These factors include daytime AM power, nighttime AM power, AM frequency, FM power, consumer income, number of competing stations in a market area, and location (whether a station is located in the central part or on the fringes of its market area). Brown examines approximately 1100 stations in “large” markets, 300 stations in “small” markets, and 700 stations in both large and small markets (because they changed hands in 1980 and 1981). Revenue data are examined for 1976 through 1980, with emphasis on 1978.
Brown finds that these factors have approximately the same percentage effects on trading prices as on revenues. He also finds, however, that some factors have no statistically significant associations with revenues. These factors include newspaper circulation, automobile registration, and number of TV stations in a market area. They also include whether an AM station has nighttime signal protection and/or uses a directional antenna; and whether a station has network affiliation.
The data suggest that more than half of a new station’s revenues are likely to come from advertising dollars not previously spent on radio, while less than half are likely to come from advertising that previously went to old stations. The nighttime protection variable’s statistical non-significance suggests that “class IV” local AM stations (which lack nighttime protection) do not appear to suffer a relative earnings’ handicap vis-à-vis comparably powered stations having nighttime protection. Brown therefore recommends that the FCC consider a “class IV” approach for any allocation of new channels to the AM band.