Google, known for its cutting-edge Internet software, may be setting its sights on the low-tech radio market, according to one media and entertainment analyst. David Bank, of RBC Capital Markets, issued a note yesterday saying he thinks it would make a lot of sense for Google to take a minority stake in radio, TV and outdoor advertising giant Clear Channel Communications.
The idea might seem strange at first, but there are reasons why such a deal could work, according to Bank. Clear Channel is exploring strategic options. And Google may be gearing up to acquire a large chunk of advertising inventory, as part of a plan to expand beyond its core search business. link. He says Google has been adding "high profile" radio sales people in New York, Washington, Baltimore, Atlanta, and Chicago. It has little radio inventory to sell, though. Bank concludes that Google needs to add inventory, and that Clear Channel is the best option.
Why would Google, of all companies, are about the radio market? Bank says Google has its eyes on the local search market, where it sees an opportunity to sell ads to people looking for nearby goods and services. "The radio market is by definition a local market, deriving 80% of its revenue from local advertising," Bank says. "So the radio market would be a logical add-on for Google."
Google could play a role in a buyout without putting up much cash. Clear Channel has an enterprise value of about $25 billion, suggesting that a "club" of private equity firms and other investors might put in a total of $5 billion to $6 billion in equity. Any one of them could get a small but strategically important stake of, say, 5% or so, by investing $250 million in cash.
Google's stock closed today at $467.50. The stock, which dropped below $350 last winter, has been on a tear because investors believe its expansion into new markets holds promise.