Investing in the terrestrial radio industry increasingly seems reserved for the bravest of souls. Case in point: Radio play Entercom (NYSE:ETM) reported an uninspiring third quarter on several levels.

Entercom's third-quarter net profit decreased 27% to $16.2 million, or $0.41 per share. Third-quarter sales dropped 0.6% to $114.3 million, with same-station revenue down 2%. Operating income fell 7.5%, and operating margin fell 250 basis points to 33.6%.

You can get the full rundown of the quarter through our related Fool by Numbers feature, but a few aspects of Entercom's quarterly results jumped out at me. Entercom's cash stash may have increased by 10% to $14.2 million, but its long-term debt rocketed 34% to $661.2 million, with free cash flow dropping 31%.

Entercom recently bought several radio stations from CBS (NYSE:CBS) for $262 million, and queasy shareholders may now be wondering whether it overpaid. In the fiercely contested radio industry, companies like Entercom not only face competition from traditional rivals like Clear Channel (NYSE:CCU), but also the disruptive influence of satellite radio companies like XM Satellite Radio (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI). Don't forget digital music players like Apple's (NASDAQ:AAPL) iPods, or the vast selection of content available through Internet radio and podcasts, either.

Entercom's a Motley Fool Income Investor selection, and it does have an impressive 6% dividend yield to sweeten the deal for shareholders. In addition, it's been busily repurchasing shares. On the other hand, the company said that its interest expense on its debt is 50% higher on a year-over-year basis, since interest rates are increasing. It also has higher average outstanding debt under its senior credit facility, which it has been using to finance its stock repurchases, pay dividends, and acquire some radio stations in Georgia. I don't quite like the sound of that.

I question whether traditional radio companies can drum up significant growth when faced with such worthy competitors for listeners' ears. (Of course, plenty of people think concerns like mine over terrestrial radio's future are overblown.) Judging from the downward momentum in Entercom's third-quarter results, at present there are good reasons why investors might give the company a fuzzy reception.

Tune your dial to further Foolishness:

  • Brush up on Entercom's third-quarter numbers with Fool by Numbers.
  • Revisit Entercom's deal to acquire some stations from CBS.
  • XM Satellite Radio impressed investors recently.

Entercom is a Motley Fool Income Investor recommendation. XM Satellite Radio is a Motley Fool Rule Breakers pick.

Alyce Lomax does not own shares of any of the companies mentioned.