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Southern Cross share price drops as star radio presenters quit

Southern Cross Media Group (ASX: SXL) shares slid almost 4% on Monday after the group announced the departure of popular morning-radio presenters Kyle and Jackie O from its 2Day FM radio show. Breakfast radio is a key market for broadcasters and the duo’s last show will be on November 29.

The pair quit after executives at the group allegedly refused to meet some hefty pay demands from controversial shock-jock Sandilands in particular. Audience ratings are key advertising revenue drivers, so the group appears to have taken a calculated gamble in refusing to meet Sandilands contractual demands.

Ironically, the group’s chairman, Max Moore-Wilton, had his own Sandilands moment recently. He told shareholders at the AGM that “sh*t happens” in reference to the suicide of a British nurse who was the on the receiving end of a prank phone call from two 2Day FM presenters. The resultant publicity was said to have had a negative impact on radio share and advertising revenues.

In FY 2013 the group reported a net profit of $96 million, a result that impressed the market and saw the shares catch an updraft. Positive momentum from that result has seen the shares climb more than 30%, as investors also bet that advertising revenue cycles have bottomed out for free-to-air TV and radio.

An overall revenue decrease in FY 2013 was attributed to underperformance in its television business. Southern Cross recently signed a three-year affiliation agreement with the Ten Network (ASX: TEN) and will be hoping that group can deliver on its own transformation.

Foolish takeaway

The mini sell-off shows just how headline-driven share prices and markets can be. The fundamental outlook for this business remains largely the same. In fact, it could be argued management’s refusal to meet excess pay demands shows it is serious about cutting the company’s debt pile and meeting long-term strategic goals. Foolish investors are advised not to get caught up in short-term issues like these.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.