SBS seeks stations, Web sales.

Radio group banks on growing Hispanic demographic to raise stakes for IPO

Spanish Broadcasting System Inc. is hooking its radio stations into the Web via bilingual Spanish-English site LaMusica.com.

SBS has begun a national ad campaign on its stations to call attention to LaMusica.com, according to the company's Aug. 18 Securities and Exchange Commission filing for an initial public offering. SBS hopes to raise $235 million with the IPO later this month.

Although the Internet world is high on LaMusica.com--it is the Internet's most visited Web site for Latino music with more than 3 million hits per month, SBS says--its intended audience, U.S. Hispanics, has limited access to it. Just 26% of U.S. Hispanic households own a computer and only 36% of Hispanics have access to the Internet at home or at work.

SBS bought 80% of LaMusica.com in April. The site allows users to download and buy music, read music and entertainment-business news, participate in chats and subscribe to a free newsletter. SBS intends to add streaming audio from all its stations along with e-mail and personals, the filing says.

SBS also plans to sell advertisers on radio station/Web site deals. With 13 top-ranked FMs that reach 51% of the U.S. Hispanic population, SBS is the nation's second-largest Spanish-language radio broadcaster after Hispanic (formerly Heftel) Broadcasting Corp. When ranked by estimated 1998 revenue, SBS is the nation's No. 15 radio group (B&C, Aug. 30). And SBS is adding eight more FMs to its roster: A $90 million acquisition in Puerto Rico was announced Sept. 22 (see "Changing Hands," page 52).

The Hispanic population of about 34.3 million is "arguably the fastest-growing demographic group in the United States for the next 50 years," says P. Gordon Hodge, a media analyst with Thomas Weisel Partners. By 2005, Hispanics are expected to be the nation's largest minority group, and by 2010 the U.S. is expected to have the second-largest Spanish-speaking population in the world, SBS' filing says.

"This truly is an emerging category," Hodge says. Despite that, Hispanics are "substantially underrepresented in the allocation of media dollars."

While Hispanics constitute nearly 13% of the U.S. population and in 1998 accounted for 7.4% ($380 billion) of U.S. consumer spending, advertisers spend just 1% ($1.7 billion) of their marketing dollars on Spanish-language advertising, according to the SEC filings.

Part of the problem is the fact that the average Hispanic income is "well below" that of the general population, says William Meyers, an analyst with BancBoston Robertson Stephens. But given the population's growth, "the numbers are in your favor."

SBS plans to use the proceeds of its IPO to grow in its existing markets, which include six of the nation's top 10 Hispanic markets, and branch out into other top Hispanic markets. Those markets are attractive because more than 62% of U.S. Hispanics live in those 10 cities, SBS' filing says.

The company's broadcast cash flow margins of around 50% and EBITDA of $30.9 million through June 27 point to a strong operator, "but we are a bit cautious," says David Menlow, president of the IPO Financial Network and editor of the newsletter IPO Frontline.

He cites the combined $2.5 million-plus salaries of SBS founder and Chairman Raul Alarcon Sr. and his son, company President Raul Alarcon Jr. Such high salaries could hurt the company, if investors had more Spanish-language broadcasters to choose from, Menlow says. The company's debt of $172.8 million also is considered high--for now. That will be altered with some proceeds from the IPO.

SBS officials could not be reached, but SEC rules bar them from comment as they prepare for an IPO.

At a glance

Spanish Broadcasting System

Headquarters: Miami

Founded: 1983

Employees: 388 full-time

Top executives (and 1998 pay): Chairman Raul Alarcon Sr. ($607,891); President Raul Alarcon Jr. ($1.96 million plus use of apartment in New York); Senior Vice President/OFO Joseph A. Garcia ($293,846); Vice President of Sales Luis Diaz-Albertini ($225,000); Vice President of Programming Jesus Salas (less than $100,000)

21 FM radio stations (with market's Hispanic population rank): KLAX Los Angeles (1); WCMA, WCOM[*], WCTA[*], WEGM, WIOA[*], WIOB[*], WIOC[*], WMEG, WOYE [*], WZMT[*], WZNT[*] Puerto Rico (2); WPAT, WSKQ New York (3); WCMO, WRMA, WXDJ Miami (4); WLEY Chicago (6); KLEY San Antonio (8); WVMQ Key West; and WZMQ Key Largo (may move to Miami), Fla. (un rated)

(*.)=buying

Other holdings: 80% of JuJu Media Inc., owner of Spanish-English Web site LaMusica.com

Source: SBS S-1 filed Aug. 18 with Securities & Exchange Commission