Heart owner Chrysalis sees shares fall on revenue warning

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Chrysalis, the owner of London's most popular radio station Heart, yesterday sought to reassure investors about its long-term prospects after warning that the drift to online advertising would halt its growth next year.

Shares in the group fell nearly 8 per cent to 125p as Chrysalis reported a 12 per cent decline in its UK radio advertising revenue in September and October.

Richard Huntingford, the Chrysalis chief executive, said: "Online is very much going through its honeymoon phase particularly in youth-oriented marketing. The reality is that people will revert to a more normal media strategy."

The UK radio market has been under significant pressure over the year as internet advertising has grown faster than expected.

Chrysalis forecast that its radio business is unlikely to grow in 2007. That does not bode well for other radio companies, with GCap Media considered the most vulnerable to the sector malaise.

After a strong performance in 2006, Chrysalis believes it can continue to make progress despite the downturn in advertising spend. "We are confident we can continue to outperform regardless of market conditions," Mr Huntingford said.

Over the past year, Chrysalis Radio outperformed its rivals by recording a stable performance compared to a 4 per cent decline across the UK market. Chrysalis owns the Galaxy and Century stations as well as Heart. The company will launch an advertising campaign for Heart FM this week to reinforce its position as the most listened-to station in London.

The bleak outlook for its UK radio business echoes similar comments across the media sector from the likes of the broadcaster ITV, the regional newspaper publisher Trinity Mirror and the advertising company WPP. SMG, the owner of Virgin Radio, has also felt the impact of more advertising moving online.

The news led analysts to scale down growth forecasts for Chrysalis for 2007. However, Richard Menzies-Gow, an analyst at Dresdner Kleinwort, described the share price drop as an overreaction and pointed out that the shares gained 12 per cent in the lead-up to the results.

Mr Huntingford has high hopes for the company's music publishing business and record label Echo, which aims to unearth new talent and maintains publishing rights once those artists move on to larger labels. It also attracts high-profile songwriters to bolster its publishing business. Last week it signed Blur and Gorillaz singer Damon Albarn.

Its publishing business has had a strong year as artists including Thom Yorke, The Raconteurs and Gnarls Barkley achieved chart success. Echo has also benefited from growing sales from new artists like Ray Lamontagne.