iHeartMedia 2005 Annual Report Download - page 32

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We manage our operating segments primarily focusing on their operating income, while Corporate expenses,
Gain on disposition of assets - net, Interest expense, Gain (loss) on marketable securities, Equity in earnings of
nonconsolidated affiliates, Other income (expense) – net, Income tax benefit (expense), Minority interest - net of tax,
Discontinued operations and Cumulative effect of a change in accounting principle are managed on a total company
basis and are, therefore, included only in our discussion of consolidated results.
Radio Broadcasting
Our local radio markets are run predominantly by local management teams who control the formats selected for
their programming. The formats are designed to reach audiences with targeted demographic characteristics that appeal
to our advertisers. Our advertising rates are principally based on how many people in a targeted audience listen to our
stations, as measured by an independent ratings service. The size of the market influences rates as well, with larger
markets typically receiving higher rates than smaller markets. Also, our advertising rates are influenced by the time of
day the advertisement airs, with morning and evening drive-time hours typically the highest. Radio advertising contracts
are typically less than one year.
During the first quarter of 2005, we completed the rollout of our Less is More initiative, which lowered the
amount of commercial minutes played per hour by approximately 15% - 20% across our stations. We believe lowering
the amount of commercial minutes can improve our ratings, which will lead to an increase in the size of the audience
listening to our stations. Another key component of Less is More is encouraging advertisers to invest in shorter
advertisements rather than the traditional 60-second spot. Based on our research, we believe that the effectiveness of a
commercial is not related to its length. Because effectiveness is not tied to the length of the advertisement, on a cost per
thousand listeners reached basis, we believe we can provide our advertisers a more efficient investment with our new
shorter commercials than with the traditional 60-second commercials.
Management monitors macro level indicators to assess our radio operations’ performance. Due to the
geographic diversity and autonomy of our markets, we have a multitude of market specific advertising rates and
audience demographics. Therefore, our discussion of the results of operations of our radio broadcasting segment
focuses on the macro level indicators that management monitors to assess our radio segment’s financial condition and
results of operations.
Management looks at our radio operations’ overall revenues as well as local advertising, which is sold
predominately in a station’s local market, and national advertising, which is sold across multiple markets. Local
advertising is sold by our local radio stations’ sales staffs while national advertising is sold, for the most part, through
our national representation firm.
Local advertising, which is our largest source of advertising revenue, and national advertising revenues are
tracked separately, because these revenue streams have different sales forces and respond differently to changes in the
economic environment. Management also looks at radio revenue by market size, as defined by Arbitron. Typically,
larger markets can reach larger audiences with wider demographics than smaller markets. Over half of our radio
revenue and divisional operating expenses comes from our 50 largest markets. Additionally, management reviews our
share of target demographics listening to the radio in an average quarter hour. This metric gauges how well our formats
are attracting and keeping listeners.
A significant portion of our radio segment’s expenses vary in connection with changes in revenue. These
variable expenses primarily relate to costs in our sales department, such as salaries, commissions and bad debt. Our
programming and general and administrative departments incur most of our fixed costs, such as talent costs, rights fees,
utilities and office salaries. Lastly, our highly discretionary costs are in our marketing and promotions department,
which we primarily incur to maintain and/or increase our audience share.
Outdoor Advertising
Our revenues are derived from selling advertising space on the displays that we own or operate in key markets
worldwide, consisting primarily of billboards, street furniture displays and transit displays. We own the majority of our
advertising displays, which typically are located on sites that we either lease or own or for which we have acquired
permanent easements. Our advertising contracts with clients typically outline the number of displays reserved, the
duration of the advertising campaign and the unit price per display. The margins on our billboard contracts tend to be
higher than those on contracts for our other displays.
Generally, our advertising rates are based on the "gross rating points,'' or total number of impressions delivered
expressed as a percentage of a market population, of a display or group of displays. The number of "impressions''
delivered by a display is measured by the number of people passing the site during a defined period of time and, in some