Clear Channel Profit Drops After Ad Cuts

Clear Channel Communications Inc., the nation’s largest radio broadcaster, announced Tuesday a 13% drop in second-quarter net income as the company continues to reduce the length and number of commercials to attract more listeners.

Clear Channel’s profit last quarter fell to $220.7 million, or 40 cents a share, down from $253.8 million, or 41 cents, a year earlier. Revenue fell 1% to $2.46 billion.

Much of that decline stems from a drop in radio advertising sales, which fell 6.5% at the company’s 1,200 stations to $932 million.

The San Antonio-based company cut radio ads by almost a third in an attempt to lure back consumers who have abandoned terrestrial radio for digital music players or other forms of entertainment.

The strategy -- known as “Less Is More” -- enticed people to spend 14.5% more time listening to Clear Channel stations this spring, Chief Executive Mark Mays said in a conference call with analysts Tuesday.

Although increased numbers of listeners allow the company to charge more for advertising, rates have not risen fast enough to offset the decreasing number of ads sold.

“It’s hard to hold out a lot of confidence that ‘Less Is More’ will dramatically accelerate advertising revenue growth,” said Fred Moran, an analyst with Stanford Group. “But Clear Channel has to try if they want to stay competitive with Internet and satellite radio.”

Clear Channel executives confirmed that they were proceeding with plans to spin off the concert division and sell 10% of the growing outdoor advertising business to the public. Analysts expect the outdoor unit, where sales rose 7% in the second quarter, may be worth as much as $9 billion.

“In a year, Clear Channel will look substantially different,” said Leland Westerfield, an analyst at Harris Nesbitt. “The new company will be more flexible with its balance sheet and able to use debt to finance digital radio initiatives and outdoor acquisitions.”

The company also announced that it still intended to return $1.6 billion to shareholders, but it had revised the payout plan. Previously, the company said it would give $3 per share to shareholders. The new plan is less specific, entailing share buybacks, a special dividend or a combination of the two.

Westerfield said preserving flexibility was at the heart of the company’s decision.

“No company wants to go into an IPO with a $1.6-billion liability,” Westerfield said. “This gives the company the flexibility to pay out that money in different ways.”

Clear Channel’s stock closed Tuesday at $33.75, up 63 cents.