CLEAN-AIR POLICY CHRISTIAN RADIO BANKS ON FAMILY-FRIENDLY ALTERNATIVE TO TARGETED SHOCK SHOWS.

Byline: Evan Pondel Staff Writer

CAMARILLO - Investors might be more in tune with Salem Communications Corp. now that U.S. regulators are cracking down on what they deem is indecent for radio listeners.

Christian radio has garnered greater popularity in the past decade, with many rock bands and talk show hosts appealing to a broader audience. Though Camarillo-based Salem isn't pushing its Christian format amid other stations' static, the company is well-poised to attract more listeners in search of an alternative.

``There's a big audience out there that is relatively underserved in terms of a Christian radio alternative. And what's great about Salem's strategy is that we have nothing to fear,'' said David A.R. Evans, the company's chief financial officer.

There is certainly nothing to fear at Salem's cluster of Los Angeles radio stations, which broadcast from studios in Glendale. The understated atmosphere belies the highly calculated strategies employed by Salem executives.

Most radio stations survive solely on revenue generated from traditional advertising. At Salem, the company also sells blocks of time to a variety of charitable and religious organizations. Many of these organizations will buy the blocks even when the economy is shaky, providing Salem with nearly 35 percent of its overall revenue.

That formula has proved successful for Salem as the company has operated among the best performing radio-station firms in terms of overall revenue growth during the past three years.

``And with the current environment, it may be serendipitous for the company. Their format is just one more competitive advantage for the company,'' said James Goss, analyst with Barrington Research in Chicago.

In Salem's most recent quarter, net broadcasting revenue increased 12.8 percent, to $45.8 million from $40.6 million in the same period a year ago. The company also posted a net income of $2.1 million, or 9 cents a share, in the fourth quarter, compared with a net loss of about $700,000 in the year-ago period.

By comparison, Salem's - indeed, all of radio's - larger competitor, Clear Channel, generated fourth-quarter revenues of $2.29 billion, versus $2.21 billion in 2002. The San Antonio-based company reported net earnings of $187 million, or 30 cents a share, compared with $184 million, or 30 cents a share, in the year-ago period.

KFSH, known as The Fish, is among Salem's more successful operations, playing mostly adult contemporary-style music. Further blurring the line separating The Fish from other A/C stations is Fish Fest, an outdoor music festival similar to those sponsored by mainstream radio. Fish Fest showcases mostly Christian rock bands, but bolstering the festival's popularity are the bands that teeter between traditional rock and Christian rock. Terry Fahy, general manager of Salem's Los Angeles-based radio stations, said bands like Jars of Clay are attracting those listeners who would normally not listen to a Christian-based station.

Salem has also hired radio personalities from more mainstream stations. Ted Ziegenbusch was the evening host on adult-contemporary KOST-FM (103.5) for 18 years and joined The Fish morning show in 2001. Ziegenbusch will soon be joining KKLA, another Salem station that is primarily devoted to talk programming. Dennis Prager, who is heard on Salem's KRLA, previously worked at talker KABC-AM (790).

Even though Salem has improved its marketability in recent years, the company faces several challenges. Most notably, The Fish cannot be heard throughout Los Angeles. The tower that broadcasts the station sends a signal that is strong in Orange County and only about one-third of Los Angeles. Fahy said the company would like The Fish to reach more listeners, but that is an unlikely scenario especially when the average radio station in Los Angeles costs about $300 million.

Consolidation is yet another obstacle. Considering that the company is almost exclusively interested in the top 25 markets, there are exponentially fewer opportunities for acquisition in these regions. For that reason, the company's acquisition strategy has grown steadily less aggressive in the past three years. In 2001, Salem invested about $117 million in radio station acquisitions, $50 million in 2002 and about $20 million in 2003.

``Right now the biggest challenge is finding good radio station properties at reasonable prices,'' Evans said.

The dwindling supply of radio stations has also helped Salem in that the company has been able to utilize other strategies. They include buying stations in different formats and adapting those stations to suit Salem's core audience. About 40 percent of the company's portfolio is in early development, meaning Salem has a few years before several stations reach maturity.

Looking ahead, the company is more confident about pursuing more acquisitions. Evans cited a Gallup Poll that revealed that more than 60 percent of Americans are members of a church, a statistic that hasn't changed in nearly three decades. And while Christian audiences accounted for 2.1 percent of the market share in 1998, that number has increased nearly 30 percent in the past six years.

``Post-9-11 we decided to scale back a bit, but I think we feel better about the political landscape from an economic standpoint,'' Evans said. ``And from a financial standpoint, we think we are doing very well.''

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

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Photo:

(color) Ted Ziegenbusch joined The Fish (KFSH-FM, 95.9) morning show in 2001, a station that aims to be family-friendly.

John McCoy/Staff Photographer

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SOURCE: Company reports

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