Religion Rocks--So Sayeth Investors

Christian music and radio are defying industry slumps

Posted on the Web site of Salem Communications Corp. (SALM ) is a quotation from the Apostle Paul: "I planted, the workers watered, but God gave the growth."

You can almost hear the collective "amen" of investors in Salem, a relatively tiny Christian radio broadcasting company based in Camarillo, Calif. In the past year, it has outperformed the broader stock market, as well as some of radio's biggest players. By sticking to its religious niche and investing $300 million in two-and-a-half years to expand to 83 stations, Salem is beginning to catch the attention of some of Wall Street's biggest firms. "Because it's so focused on one area, it's really insulated from competition," says Victor B. Miller IV, analyst at Bear, Stearns & Co. He initiated coverage with a "buy" rating on May 7, the same day Salem reported its first-quarter revenues rose 18%, to $35 million.

In an otherwise dismal year for the radio and music industries, hammered by an advertising downturn and digital piracy, respectively, Christian tunes are the surprising high note. The music, once thought to be too preachy and Southern rural to draw significant audiences, accounts today for some of the best growth numbers in radio and music. Christian and gospel album sales rose 13.5% in 2001, to nearly $50 million, vs. a 3% decline for all of music, according to sales-tracker SoundScan Inc. (chart).

The genre has been steadily gaining popularity over the years, but spiritual questions stirred up by September 11 are drawing waves of curious new listeners, say executives. "People are looking for a worship experience that they're not finding by singing hymns in church," says Malcolm L. Mimms, president of Word Entertainment, a Christian label Warner Music Group bought earlier this year for $84 million. Also appealing, at least to younger fans, is that artists no longer fit the stereotype of, say, a hypnotically cheery Pat Boone. Today, Christian crossover acts, such as the dreadlocked and tattooed P.O.D. (Payable on Death), with its heavy rock and rap sound, are among the big sellers. Its latest record, Satellite, released in September, has sold 2.1 million albums.

Success is also a result of hipper marketing and more sophisticated music production. Mimms says he has pared down his artist roster from 45 to 30 in three years to spend more on producing and promoting his bigger artists, who include Amy Grant and Jaci Velasquez. "For years, Christian music had a stigma and couldn't get out of the box," says Ryan Dadd, a consultant to Christian music labels. "These bands today, who look a lot cooler, are saying it's okay to search for faith."

No one is benefiting more from the spiritual urge than Salem, whose radio stations include contemporary Christian music and teach/talk formats. With $140 million in revenues, the broadcaster has seen its shares rise 36% in the past year, vs. a 16% decline at Clear Channel Communications Inc., the industry's biggest player with 1,200 stations (chart).

The way Salem CEO Edward G. Atsinger III sees it, his company's potential listenership is the 40% of Americans who say they attend church at least once a week. "There's a ready market for us," says Atsinger, a conservative evangelical Christian. After buying 32 stations since 2000, Salem is busy converting new stations to Christian formats, either all music or all talk.

As a hedge against an ad downturn, Salem sells "block programming" airtime to nonprofits and ministries. More than 40% of Salem's revenues come from these contracts, which have 5% to 7% annual increases built in. Still, the fastest growth comes from Salem's music stations, 12 of which are branded as The Fish, an early Christian symbol it uses as station logos. In the first quarter, Salem saw 76% revenue growth at these FM stations, and ratings gains of 35% year-over-year. In one of music's worst years in a decade, the genre is giving investors and music execs a little faith.

By Tom Lowry in New York

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