Which Salem? Christian media company is either stalled or ripe for a refocus.

Christian culture can help sell books, videos, cable channels, colleges and even political agendas. Somehow that message hasn't helped Salem Communications Inc. sell its stock on Wall Street.

Shares of the Camarillo-based company, the largest Christian media conglomerate in the nation, have fallen 31 percent since the start of 2006. They now sell in the $12 range.

"The religious audience is large and growing. As the undisputed leader in religious radio broadcasting, Salem stands uniquely positioned for sustainable, industry-leading growth," wrote Frederick Moran, an analyst with Stanford Group Co., a Miami-based wealth management firm, in an Aug. 7 report. "But Salem's growth remains temporarily impaired. Until evidence of its recovery is uncovered, we fear the stock will be stalled."

"Some of the big issues relate not just to Salem but to the entire radio space," said James Goss, an analyst with Barrington Research in Chicago.

Moran gives the stock a hold rating and a target price of $14; Goss rates it as "market perform." Goss explains the recent price slide by noting that historically, Salem's dominant position in the Christian niche allowed it to wade at a higher multiple than other radio broadcasters. The softening of the sector has reduced that advantage and brought Salem back in line with its peers.

"While our business was impacted by the same weak radio advertising market affecting other radio broadcasters, we did manage to grow same-station net revenues by 3 percent--an improvement over the first quarter, but still slower than in previous quarters," said Chief Executive Edward Atsinger III during a conference call on Aug. 7.

Taking into account recent sales, Salem owns 102 radio stations in 39 markets, consisting of 31 mostly music FM stations and 71 AM stations heavy on talk. The company ranks sixth among radio companies in terms of number of stations, according to the latest quarterly filing with the Security & Exchange Commission.

New media forays

Salem controls Christianity.com, SermonSearch.com, ChurchStaffing.com, and the politically oriented Townhall.com. In print, the company owns "Preaching" magazine, several Christian music and entertainment periodicals, and Xulon Press, a digital publisher of Christian books. Salem also programs three channels on XM Satellite Radio and syndicates radio programs to 1,900 affifiate stations. For 2005, company revenues tallied to $211.8 million, a 47 percent increase since 2001. Atsinger owns about 21 percent of the company's stock. Chairman Stuart Epperson owns an identical amount; together they also own 100 percent of special Class B shares, giving them majority-voting power.

Selling 'Fish'

Salem sells three radio formats: Christian music, Christian teaching, and conservative news/talk. The music format carries the name "The Fish" and powers some of the company's biggest stations in Dallas, Sacramento and Los Angeles (KKLA-FM, 99.5).

The Christian teaching format delivers sermons and scripture-based commentary. Sales differ from other radio formats because Christian groups often sponsor an entire block of programming. According to the company, "in 2006, more than 90 percent of Salem's national block programming partners renewed their respective relationships with Salem. As a result, Salem's block programming business tends to be recession resilient and provides a steady stream of revenue and cash flow." Salem has 44 stations in this format that accounted for 47 percent of revenues for the most recent quarter.

The company's 32 news/talk stations contributed only 14 percent to total revenues during the second quarter, but that represents a 19 percent increase since second-quarter 2005.

Talk radio depends on high profile personalities, and Salem has invested heavily to secure conservative-value icons. Marquee names include Dennis Prager, a long-time radio personality in Los Angeles, and new media pundit Hugh Hewitt, also based in Los Angeles. Salem's most popular voices are former Hollywood film critic Michael Medved, heard on 177 stations; Mike Gallagher, heard on 173 stations; and former Secretary of Education Bill Bennett on 152 stations.

Salem grew by acquiring "underperforming stations at reduced prices and then converting them to its formats," said Moran. But the slowdown in the radio market has reversed the acquisition strategy--the company now buys publications and Internet sites while selling radio stations. The company's second-quarter revenues spiked thanks to $15.5 million from these asset divestitures.

Atsinger cited TownHall.com as a model new. media acquisition. The political-activist site had about 12 million page-views in April when Salem bought it. In July the company re-launched it with new features and a major promotion on radio. The site generated about 20 million page-views for the month. Against the declining fortune of radio stocks, Salem's future will hinge on the same kind of cross-medium dexterity that helped TownHall.com.

BY JOEL RUSSELL

Staff Reporter