Salem Tilts Right With Web Buys

When conservative pundit Michelle Malkin wanted to sell her website Twitchy.com, she found a buyer in Salem Communications Corp. The Camarillo media company is in the midst of an acquisitions spree and a stock run-up that has more than tripled its value in the last two years. And the company has a model for profitably developing media properties that serve its dual audience of Christians and political conservatives, even at a time when religious leaders are rethinking their political profile and the media sector continues to fragment. Last month, Salem also bought Eagle Publishing, a conservative book publisher for authors including Newt Gingrich and Laura Ingraham. The company already owned political sites RedState.com and HumanEvents.com. The December purchase of Twitchy was for an undisclosed price from Malkin, a former Los Angeles Daily News reporter who still manages the site. Twitchy compiles celebrity Twitter messages of interest to a politically conservative audience. Salem announced that the site, in combination with its conservative news sites Townhall.com and Hotair.com, will have nearly 10 million unique visitors and more than 100 million page-views every month. Salem Chief Executive Edward Atsinger III said the company’s mission remains constant, but today’s growth opportunities are online instead of on the air. “Our new media has grown a lot faster, but our old media has grown as well,” he said. “We essentially super-serve the audience interested in religious and family-themed content, and conservative political content. The mission hasn’t really changed, but what has changed is the media landscape.” Salem owns 102 radio stations in 39 cities. About 40 stations broadcast the Christian talk format and another 27 feature conservative political talk, with personalities such as Mike Gallagher, Hugh Hewitt and Dennis Prager. The remainder of the stations are contemporary Christian music, Spanish Christian talk and business talk formats. The company also runs a radio syndication business that distributes news and programming to 2,500 stations. But its growth is coming from websites. In its most recent filing for the third quarter, Salem reported revenue of $58.5 million and net income of $5.3 million, a profit margin of 9.1 percent. Broadcast revenue was $46 million, an increase of 0.26 percent from the same quarter a year earlier, while Internet revenue totaled $9.4 million, up 20 percent compared to a year earlier. John Lund, owner of Lund Consultants to Broadcast Management Inc. in Burlingame, said Salem is a well-managed company that has a strong connection with its audience. However, the really fast growth in radio is in contemporary Christian music, a format where Salem has little presence. If Salem tried to move into music, it would rub up against Educational Media Foundation in Rocklin, a non-profit with more than 245 stations. And even in talk, it faces competition from larger voices. “If you got a list of the top 40 talkers in America, you’d find Salem’s are mid to lower tier,” Lund said, noting that Rush Limbaugh, Sean Hannity and Glenn Beck are the real powers. “You have to go down a bunch of clumps until you get to Salem.” Also, Lund noted that Christian music tends to attract the younger audience that advertisers crave, while talk skews older. “Most of the people who listen to talk are in their 50s and 60s,” he said. “And when they die, that money goes away.” Audience overlap But clearly Salem has developed a profitable revenue model. Atsinger said that when the company buys a property, it tries to absorb all the revenue but few of the expenses. In radio, the company usually buys a station in cities where it already has a presence so it can use the same management, advertising sales force and office space as its existing operation. By putting its own syndicated programming on the air, the company’s costs are negligible. The same logic works with websites, where the company has an internal technology department to handle traffic, advertising and research. The key growth strategy is cross promotion. Salem’s radio personalities can discuss books from Eagle Publishing. Websites can promote news stories and commentary on Salem’s radio network. “We are able to dramatically increase traffic by cross promotion,” Atsinger said in reference to his websites. Atsinger acknowledges that Salem’s research indicates the Christian population isn’t the same as the conservative talk audience, but he added that about 60 percent of the conservative audience identify themselves as “people of faith,” whether evangelical Christian, Roman Catholic, Protestant or other. And so far, the pullback by Christian leaders from politics – including Russell Moore, leader of the Southern Baptist Convention, who has asked Christians to become less political, and Pope Francis, who has said the church shouldn’t be defined by its abortion stance – hasn’t hurt Salem’s business model. “There might be some toning down of the more vociferous, and a rebalancing of messages, but there are no changes in doctrine, worldview or convictions,” he said. “The folks we are involved with – Bill Bennett, Gallagher, Prager, Michael Medved – are not the high-decibel, in-your-face types. They are strong advocates for their worldview.” Industry comeback Thom Callahan, president of the Southern California Broadcasters Association, a radio trade group in Los Angeles, said the 2008 recession devastated the industry, but since then radio has staged a comeback with smaller broadcasters such as Salem leading the way. “In 2013, almost every publicly traded radio company either doubled or tripled in value,” he said. “Companies like Salem are perfect examples of the turnaround. Key investment houses are finally realizing that free content with advertising over the air is a strong business with profit margins that are the envy of the entertainment business.” Two years ago, shares of Salem traded at $2.53; its closing price on Feb. 5 was $8.28. For the future, Atsinger expects the company will continue to grow by acquisition of websites that pertain to its mission. Callahan, at the broadcaster association, said the company is well positioned to succeed in social media and mobile, the next frontiers of the media sector. “They are a trendsetter in the digital exploration of their message,” he said. “They were one of the first companies to develop turnkey websites for every property they own, and now they have a strong social media presence at the local level. Everyone admires the way they operate, their local management and their stewardship of the trust of their listeners. I view them as a complete broadcaster.”