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Time Warner Inc (TWX), Salem Communications Corp (SALM): Broadcasting Company Looking Attractive After Refinancing

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Camarillo, California-based radio broadcasting company Salem Communications Corp (NASDAQ:SALM) recently made two distinct announcements that could dramatically alter investors’ perceptions of the company. For starters, Salem indicated that it would increase its quarterly dividend payments by a whopping 43 percent and reward its shareholders with a full $.05 per quarter.

Time Warner Inc. (TWX)

At the same time, the company has also made definitive plans to refinance more than $200 million in outstanding long-term debt by issuing a massive tender offer. Taken together, these moves provide clear evidence that Salem’s cash flow situation has improved in a sustainable fashion. Although the company’s stock has already reacted favorably to these announcements, it may yet have more room to run. Investors who believe in Salem’s long-term viability as an independent niche broadcaster would do well to look at the company at these levels.

About Salem Communications

Salem Communications is a broadcasting company that operates in several major metropolitan markets across the United States. It primarily provides niche broadcasting services for Christian-focused talk and music programs as well as politically conservative talk radio personalities. However, it is important to note that it shies away from the bombast of many of the more recognizable political radio performers and caters its programming towards a younger, more explicitly religious audience. It also operates a number of online media properties, including GodVine.com, GodTube.com, BibleStudyTools.com and Jesus.org. It also publishes some print magazines and journals for a similar audience. These include Townhall Magazine, Youthworker Magazine and Preaching Magazine. Salem earned $4.5 million on $229.2 million in gross 2012 revenues.

Competitors

Salem Communications Corp (NASDAQ:SALM)’s two closest competitors are the privately held CBS Radio and Clear Channel Communications. However, the company does compete directly with several publicly traded print and online media companies, including Time Warner Inc (NYSE:TWX) and CBS Broadcasting (CBS). Time Warner Inc (NYSE:TWX) dwarfs Salem Communications Corp (NASDAQ:SALM) in many ways. Time Warner has $28 billion in sales vs. Salem’s $229 million. Even Time Warner’s margins are greater than Salem’s. In a sign of the changing print media environment, Time Warner Inc (NYSE:TWX) recently announced its decision to spin off the bulk of its magazine properties. The company appears poised to focus exclusively on its broadcast and online media segments. Although it does not have a significant radio broadcasting presence, any move that Time Warner Inc (NYSE:TWX) makes could have ripple effects for the much-smaller Salem.

Meanwhile, News Corp (NASDAQ:NWS)‘s soon-to-be spun-off Fox Broadcasting sister corporation could make life difficult for Salem as well. Of the major media companies, Fox is by far the most conservative and offers many programming options that compete directly with those offered by Salem Communications Corp (NASDAQ:SALM). While it seems clear that the political media ecosystem is large enough to absorb such competition, it is worth noting that Salem’s position within the religious-media niche is not assured. With News Corp’s $7.8 billion in cash, it could easily takeover its much smaller competitor. News Corp has margins lower than Time Warner but still larger than Salem.

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