Tuesday, July 22, 2008

Radio: How much?


How does one determine the actual worth of a radio station today?

There is one certainty. Most are worth less – and far less in some cases and markets – than they were a year ago.

If nothing else, the radio industry proved to be an accurate barometer of where the economy was headed.

Does that P.T. Barnum quote immediately come to mind when you think of those who invested heavily in radio?

Let’s travel back twelve years and six months ago when Bill Clinton got this party started by signing the Telecommunications Act of 1996.

Remember the rallying cries of getting more than ten cents of every ad dollar?

Or the one about “owning” a “captive audience” that has to listen to radio in their car?

How about all that non-traditional revenue that would add so much added value to radio?

In one month – close to $2 billion in radio deals were announced. In just one week, five of the largest radio chains bought eighty-two stations.

To paraphrase Paul Harvey, you already know the rest of the story.

All radio had to do was resist some of the greed when the blue skies began clouding up at the turn of the century.

When it didn’t – and radio entered its Dark Ages – it became an industry of schemes and scams.

Instead of hiring qualified account executives, managers were ordered to hire sales people right off the street. Instead of respected radio station a.e.'s, accounts were getting called on by glorified Tin Men that received no training and knew nothing about selling time.

We’re how many shopping days from July 30 – the day Bain Capital and Thomas H. Lee are scheduled to absorb Clear Channel?

This deal was announced several hundred-thousand Chivases ago – or in a time frame we’re more accustomed to – twenty months ago.
*
Come on, you had to laugh when a couple of the banks that weren’t caught in the web of Bain-Lee’s Black Widow Clear Channel deal – used that very reason to illustrate their solvency – unlike, let’s say, Wachovia, which can't.

Think about it. Those banks were sagging into their cream-cheese based foundations even before they blindly entered into this Clear Channel deal with Bain and Lee. Why didn’t someone tell them the party was over a long, long time ago?

So, let me see if I get this straight. These banks are now trying to find suckers…er…investors to help finance the $17.9 billion leveraged debt buyout. Deutsche Bank AG and Citigroup have been offering $3 bil of that debt to potential investors for low-to-mid 80 cents on the dollar – and that’s down from the 90 cents on the dollar they were peddling back in late March.

Don’t feel bad for the smarmy brothers, Masters Mark and Randall Mays. They’re not headed for the poor house anytime soon.

Sure, they’ve wrecked the old man’s company – but give ‘em a break. According to an SEC filing, CEO Mark and President/CFO Randall will each roll over $10 million – and will each receive - oh, just $20 million of restricted stock when the deal’s wrapped – plus stock options equal to 2.5 percent of the fully diluted shares of the new company.

Even after I read Alec Foege’s Right of the Dial Clear Channel book, I still get the Mays brothers confused. Is Mark bad and Randall evil – or is it the other way around?
*
That’s like the slogan, “Together we can,” which is used by the Institute for Educational Leadership. It’s not to be confused with the Mays family slogan, “Together we con.”

Whatever the case, the obits will be posted and requiems will be sung for the next round of layoffs to be announced from the San Antonio Kremlin headquarters of Clear Channel in another month. You need not shed a tear for the Mays family and their obedient servant John Hogan. They will continue to live long and prosper.

But back to the question at hand: How does one determine the worth of a radio station license?

Cash flow? Projections? Physical plant? Management? Staff – if you have any? Does it have a pulse?

The days of clustering-up a market and putting a price tag on the whole shebang are over.

The original definition of a successful merger is when one and one equals three. Can you name a single radio merger that produced those results?

Don’t you hate it when you’re talking to a group of radio people about Citadel – and one says, “How much life is left in that company?” True story. Worth every penny of its eighty five cents.

We have to get a twenty-first century radio pricing guide readied.

Radio lives in a world where nothing is for sale and everything is for sale. That is, if no one’s buying – is there really anything to sell?

If no one is listening to radio – is anyone really hearing it? For those of us who still believe the radio industry can be salvaged, let’s hope that’s not the case – but we’ll know for certain fairly soon.

New York, L.A., and Chicago – the top three radio markets are switching from Arbitron diaries to go exclusively with the people meter, which reports real-time radio listening. That means whatever radio station you happen to hear – whether it be at home, at work, in the car, at a store, in a waiting room – will be recorded.

Will it show that having a favorite radio station is now just a nostalgic memory?

Will it show that morning drive is losing both the TSL it once did to command premium rate?

And how does one equate the worth of radio when major league radio accounts like A-B, GM, and Coke are pulling their dollars out of radio. Some, like GM, are doing cuts across-the-board. Others, like A-B are redistributing the wealth to other media - including Internet.

What does one do when a radio station’s worth less than what is owed on it?

We already know what that means in the housing and automotive market.
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40 comments:

Anonymous said...

I grew up in the 60s/70s listening to Classic Rock when radio was great. The more I read, especially on the NAB bastards sabotaging the Satrad merger, the more I've come to hate terrestrial radio, which is a shame. The same slimeballs at iBiquity, trying to force HD Radio into Satrad receivers, is beyond comprehension. At this point, I hope that terrestrial radio ends in ruins - now, back to shortwave.

Anonymous said...

Hey Gorman, I know what you are up to. You must have a line of credit and you want to devalue radio for a quick fire sale and pick up a few bargains. If that is true I am with you!!!!!!!

Anonymous said...

Radio is between a rock and a hard place. If they put stations on the block they will be lucky to get half of what they paid for them. If they don't put them on the block they are risking even more losses. Add to that the difficulty to secure credit. The CC/Bain/Lee deal only makes radio look worse considering that radio is the weak sister in that overall deal which includes outdoor, etc.

Anonymous said...

Clear Channel, CBS, Emmis, Citadel ended up with a large number of stations that were originally created by talented people. It did not take long to replace creativity with over-efficiency which led to a decline in TSL and eventually station image. The difference between fast food and radio is that even fast food does regional menus. Radio became as bland as bland could be. If we get people who understand markets especially the difficult ones to buy back into to the radio business it has a chance of coming back. If it ends up that other "investment groups" buy the stations the CBS, CC and others sell it will be the same old ****.

Anonymous said...

FFFFFFF You, Gorman. People like you put others in a panic. You cause runs on banks. You cause fear. Radio is healthy. The economy is affecting everyone and this too shall pass. Gorman, the radio industry does not need to be reminded of its current economic problems. We are faced with unparalleled new competition from iPODS and satrad. Instead of condemning us tell the world we are alive and well and profitable soon.

Anonymous said...

anon 945 PM.....Pull your head out of the May's Brother's ass and take a good luck around...radio is dead and the started the killing spree.

Anonymous said...

they started*

Anonymous said...

The original deregulation buy-up was a land grab where media companies bought up markets to dominate. It didn't matter about past billing or history. Properties were bought with potential and this day forward in mind. It was of course for most a catastrophic failute. I see your point where the next round of buyers will pick and choose with the best properties going first. That will be the only way radio will be able to be sold. Stations with real potential may get a better price based on supply and demand. Everyone will want the best properties on the block. I think it would be a mistake to buy up entire clusters since many of them were simply shoved together in the land grab and did not have compatability. There was also the problem where companies blindly old 80/90s and directional FMs that did not help the clusters they were in. I hope we get some seasoned veterans and new young blood buying into the medium. The younger ones need the mentoring. The days of buying clusters and doing an IPO are long gone.

Anonymous said...

gorman u r not making any friends @cc. on 7/30 bain lee take the pipe. i hope u r rite.

change spared said...

To previous anon.

Makes sense for brokers to go this route too. Some stations will go dark. Daytimers, some AMs, some class As. There are too many radio stations dependent on commercial content. More may go p.i., brokered. At least it is closer to the way it should be. Sellers will still get screwed because radio values are way down and wil be priced accordingly.

Anonymous said...

We have seen the enemy and it is us! With deregulation in '96 big companies spent like drunken sailors on leave snapping up properties like playing a famous Parker Brothers board game. The sugar high of that cool aid has faded as radio has cut and chopped itself into believing that if all you do is run efficiently and on several platforms at a time, you'll succeed. We all know the results of that grande experiment. Fewer people doing more duties allowing less focus on what actually attracts a listening audience. John programmed an incredible station in WMMS. I'm certain that at the time their first thoughts weren't let's make money first. It was never about the technology. It's about the listener experience. Used to be if you build a radio station that was fun and entertaining to listen to the revenues would follow. Of course you actually need human beings to pull this off and today's radio companies don't vaule the people enough to make that happen in most instances. To anonymous 9:45 don't blame John. He's right for calling CC out (and all the lemmings that followed CC off the cliff). Perhaps I'm a little old fashioned here but if we focus on the listener and the product more than the $$ we might actually attract audience, even in the midst of all of the other distractions. If we're not willing to step up and make the effort, than we only have ourselves to blame for the eventual outcome.

Anonymous said...

Paul Jacobs of Jacobs Media delivered at the Public Radio Development and Marketing Conference.

In a nutshell, Gen X and Y want three things from their media: control, variety, choice. They want to control when they watch/listen to it, they don't want to be locked into a few narrow selections, and they want to enjoy that media however they choose, so it needs to work across platform: cell phone, iPod, PC, TiVo, etc.

Radio as we know it provides none of the above for the next generation. And I think many boomers like me feel the same way..

Keep playing 10 spots back to back radio.. You're doing a great job turn people away! Keep voice tracking and playing meaning less sweeper. You're doing a great job..

Anonymous said...

Advertising revenues for radio have been flat for years. Traditional media dollars are being shifted to new media like the Internet. And for the first time Internet advertising revenues are beating radio and the industry has just begun to grow. Internet revenues will come at the expense of radio. Print is dying, but they have a web model that works. Total listening to radio isn't growing it's shrinking. And generation Y & X don't like radio.

I'd say radio has some tough problems ahead. So far the leaders of radio have chosen to continue cutting expenses (employees) have bet on another dead horse (HD radio) and put down it's future (PPM) Their Internet strategy is nothing more than a home page, with banner ads and streaming radio. Another dead and dying horse that needs to be shot. Sales people can't sell their content starved web scam and management can't understand why? And they think web page hits are important. Dumb stupid idiots It's unique views not hits.. Because one page load does not equal one hit it is an inaccurate measure of a websites popularity or web traffic. A more accurate measure of web traffic is how many page views. stop the hype and lies.

Yet they continue to rolling ten spots back to back while sticking their heads in the sand and beating their chest proud like nothing is wrong.

Most people in the business just look at their share and think whats wrong. Mean while good creative people (Radios true assets) are treated like dogs, work endless hours and are paid peanuts. And those are the one's who still have a job.

Others believe the future of radio is being local. At the rate talented people are being shit canned there won't be anyone left to provide local content. Most stations that claim to be local sound more like national networks. And weekend radio is the vast wasteland.

Yet most radio people look at their share and think nothing is wrong. Radio hopes people will get tired of their Ipods and that Internet thing. And sat radio is nothing but a toy. That's what an owner said recently about sat radio. It's just a toy. Talk about sticking your head in the sand.. I'll enjoy watching you lose money and probaly your mind too.

Keep it up.. you're doing a great job!

EX Greater Media said...

To anon 139:

I fully agree with those findings. I do find it odd however that it comes from the very same company (Jacobs Media) that told its clients anything they wanted to hear. Overspotting, no problem. Voice tracking, makes sense overnights/weekends. The real problem is that most consultants told the radio chains what they wanted to hear. When TSL dropped and ratings declined the consultants put the blame on radio for not watching the store - BUT and this is a BIG BUT - also laid blame on new technology. Not me, not me, not me.

Radio management should look back at all the notes, memos, reports, research that they were given by these "leading consultants" over the past twelve years and you will see it was their direction that contributed to the decline in radio.

Isn't it ironic that Fred Jacobs suffers from those senior moments?

Anonymous said...

OK...here's a question: How much does it cost to get a monopoly?

Apparently $20 million.

That's how much Deborah Tate charged to vote for the XM-Sirius merger.

You guys can whine and complain all day about radio, but the real crimes are taking place while you're all taking amongst each other.

All you guys talk about radio like nothing happened between the 60s and 1996. You think everything was great, and then deregulation happened. You all really should read what happened in the 80s and early 90s. That's the missing link in the story.

Anonymous said...

I find it interesting that radio stations are now worth less than what they were 12 years ago. I am not surprised. The price was so overinflated then.

Please, we need real broadcasters shopping when the companies owning them have to unload them.

Anonymous said...

>> OK...here's a question: How much does it cost to get a monopoly?

Apparently $20 million. <<

I agree with the FTC, who spent months studying the issue, and the FCC that there is no monopoly.

Anonymous said...

"I agree with the FTC, who spent months studying the issue, and the FCC that there is no monopoly."

Then you can't count.

Mono means one. That's how many satellite radio companies there will be.

The Justice Department, FTC, and FCC felt there was no monopoly when Clear Channel bought over 1000 radio stations.

Did you agree then?

Anonymous said...

I believe the competition arises from the many other sources to arrive at a listener's home, including terrestrial radio, iPods, etc. It's a multi-tiered battle for the ears, and your logic would mean that Apple has a monopoly on the iPod and shouldn't exist in the marketplace.

Anonymous said...

"Please, we need real broadcasters shopping when the companies owning them have to unload them."

"Real broadcasters" have no money.

And if by chance one gets a station, they'll do a 180 like Randy Michaels.

To put it simply, no one can operate a radio station the way they did years ago in this current environment and stay in business.

Anonymous said...

"It's a multi-tiered battle for the ears"

Then there should be no concern about any concentration of ownership. I believe that's the NAB's point. If XM-Sirius is OK, so is Clear Channel merging with Citadel, and both being bought by Tribune.

Anonymous said...

Why the whining about satrad? They're not the reason terrestrial is waterboarding for the ears. Terrestrial turned a radio loving audience so far away from it's free product that they're willing to pay hundreds for the alternative. So again, why the satrad hate? If it fails, the listeners are going straight to MP3's, internet radio, anything but terrestrial. It is nice you old time radio guys found a cause to rally around, just a shame that cause wasn't innovating your own tired product.

Anonymous said...

Keep up the great blog, John!

Anonymous said...

John, One of your best. Radio did believe its own hype as it campaigned through the NAB to deregulate ownership caps and rules. Had it not lost sight of its original goals which included bringing the rules governing radio into a more modern age but retain certain restriction that allowed a natural growth and maturity from ownership in smaller markets to large we would have seen radio evolve with the times instead of playing this frantic game of catch-up it will never win under its current ownership deals. Lately, the rumor peddlers are circulating a proposed deal where Tribune buys a number of CC and Citadel stations. Dream on. Where would the up side be on that deal. Randy Michaels and his team are making a quick buck dismantling Tribune like scrap metal dealers. The only way radio will survive is for owners to realize a haircut is the easiest way out. Sell lots not clusters. It will mean more transactions and it will also mean more ownership opportunities. Radio is not dead. Hire strong talent and savvy management. Give them the promotional and marketing tools and the ability to marry into new technology and radio will have a different but encouraging future.

Anonymous said...

>> Then there should be no concern about any concentration of ownership. I believe that's the NAB's point. If XM-Sirius is OK, so is Clear Channel merging with Citadel, and both being bought by Tribune. <<

Then the NAB should favor the XM-Sirius merger if it would allow that kind of combination of terrestrial operators.

Anonymous said...

"Then the NAB should favor the XM-Sirius merger if it would allow that kind of combination of terrestrial operators."

But it doesn't. That's the point. The NAB feels satellite is getting a special deal that wouldn't be extended to radio.

Anonymous said...

"Terrestrial turned a radio loving audience so far away from it's free product that they're willing to pay hundreds for the alternative."

Only a very small minority are willing to do that. The same small minority who also like public radio.

"So again, why the satrad hate?"

It's not hate. It's seeking fairness. Nothing wrong with playing fair, is there?

Anonymous said...

"Give them the promotional and marketing tools and the ability to marry into new technology and radio will have a different but encouraging future."

Really? Is that all?

I know stations that did exactly that. Hired top name people, paid top salaries, promoted the hell out of their product, had a killer web site, and still got a 1 share. Now what?

Anonymous said...

Sorry folks, but this is just a consolidating industry that is being worked hard until it's finally ready for the slaughterhouse. There ain't no resurrection coming. Just continued pressure for more money. A few stations will keep swinging for the fences, but most will just continue grinding out whatever they can manage from their existing customers. I know it makes some people sad, but the sooner you face it the easier it will be to move on.

As for the NAB, they knew consolidation would be the end of radio. That's why they opposed it for so long. Same with TV. Eddie Fritts understood that the license to broadcast was the goose laying the golden egg, but you had to keep the goose healthy. That meant keeping enough interesting and diverse stations on the air to keep listeners of all stripes tuning in somewhere. Only through diverse ownership does that happen. But the board that controls the NAB gradually shifted its makeup and its priorities. Long term sustainability was not longer the goal. The station owners wanted big dough. The buyers had dried up and station valuations were topping out. The guys who started radio and their families wanted to sell and move on. So, change came to the NAB, deregulation was ushered in and it caught the eye of the investment bankers who well knew how to work this little game. Consolidate, cut costs, boost margins, consolidate, cut costs, boost margins, consolidate, cut costs, boost margins, etc. Until the merry go round starts slowing down, like it has now. But there's a lot of momentum in this industry, and that means a lot of money to still be wrung out of it.

But there is no pathway back from here to a revitalized industry. No other industry has every accomplished the shift from consolidating investment vehicle back to healthy industry (at least I can't name it, can you?). And my prediction is that radio won't be the first.

Curiousity said...

To anon 1045 AM:

>>
I know stations that did exactly that. Hired top name people, paid top salaries, promoted the hell out of their product, had a killer web site, and still got a 1 share. Now what?<<

Who would that be? I can not think of one station fitting that description since post-1996.

Anonymous said...

---Isn't it ironic that Fred Jacobs suffers from those senior moments?---

It is hard to believe that so many radio leaders like Peter Smyth and Dan Mason still buy his bullcrap.

Anonymous said...

"Who would that be? I can not think of one station fitting that description since post-1996."

Then you're not paying attention.

Anonymous said...

"Consolidate, cut costs, boost margins, consolidate, cut costs, boost margins, consolidate, cut costs, boost margins, etc."

That's funny. Sounds like the recording industry.

It's happening in health care. Have you been to a hospital lately? Try to get a doctor?

Heck, it's even happening in the computer industry.

Anonymous said...

I said ""Who would that be? I can not think of one station fitting that description since post-1996."

You said:

"Then you're not paying attention."

I reply: Bet you can't name even one because there isn't one. Name one station post - 1996 that as you said earlier:
>>did exactly that. Hired top name people, paid top salaries, promoted the hell out of their product, had a killer web site, and still got a 1 share. Now what?<<

Name just one.

Anonymous said...

"Name just one."

You seem fixated for some reason on 1996.

Most stations didn't make any changes at all in their MO until after 2002.

Heck, Clear Channel didn't buy the bulk of their stations until after 1999.

My question to you is why are you so obsessed with 1996?

But if you want me to name one station, I'd suggest WNEW in its Blink period. That was after 1996. They spent tons of money on promotion, with a full compliment of TV ads and bus cards. Poured money into anything and everything they could find, and the whole thing was still born.

Another more recent example would be Movin' in LA. They hired a legend in Rick Dees. They have spared no expense in marketing and promotion. And they get a 1 share.

My point being that you can't market and promote a turkey.

Blink I was there said...

I am responding to the last anonymous but I am not the person that asked the question. The reason I am entering the discussion is because I was at CBS/Infinity when the decision was made to take WNEW-FM to Blink. The original concept, most of it which was conceptualized by Steve Kingston was brilliant and would have worked had CBS/Infinity not installed their committee of experts including Saint Dan Mason to second guess Kingston's every move. The committee botched up the plans Kingston had and when things went wrong Kingston got the blame. Blink was a politically motivated station and one of many during that time at CBS/Infinity under Saint Dan Mason. It is true that Mason was acting under Mel K's orders. Mason could not stand up to Mel K and when the order came down to get Howard on in every CBS market it was rammed through. Ask them how successful it was in Buffalo, Rochester or Detroit. CBS/Infinity in New York was a pressure cooking politically motivated machine that lacked direction and that is why Blink was a failure. Had it been done right it would have been a success.

Anonymous said...

1996 is when the telecom bill was signed into law. If you want to start with the year 2002, go right ahead. Blink, you say? Very short lived. Do you usually give a format six months before dumping it? I never heard Blink and only vaguely familiar with their format and only slightly more familiar with that terrible logo of theirs. I don't remember any TV spots or major campaign around Blink. Even the Post ignored it. Rick Dees on Movin' in LA means nothing. Dees was over years ago and he does his show while half asleep from his farm down south.

Anonymous said...

You asked me to name a station that spent a lot of money and got a 1 share. I gave you two.

If you do a search on WNEW and Blink, you'll see all the articles written about the station, describing all the money they spent on marketing. As I said, you can't spend and market your way to great ratings.

Anonymous said...

Politics have brought down legendary socalled unbeatable radio stations. I think Blink's failure was due to too many cooks and messing with the format. You don't do a marketing campaign if you don't have the product ready. Marketing 101. Regarding Rick Dees. He voice tracked the morning show. How lame is that?

Anonymous said...

"You don't do a marketing campaign if you don't have the product ready."

My point is marketing can't make people listen. You wanted me to name one station, and I gave you two. You want me to name five more?

As for too many cooks, isn't that better than one guy doing the work of five? As I said, no expense was spared on this station. And it failed.

Regarding Dees, he's a legend. Would you turn down Paul Harvey because he didn't want to do his commentary live? Of course not. And his station has spent millions on marketing and promotion to drive attention to his show.

This commentary is about value of radio. But the fact is that even when radio values were high, the amount of money you poured into a station didn't always translate into ratings. And I think it's led to the point of view that you simply can't spend your way to success.

All the knee-jerk bloggers think they have all the answers for radio. But they don't. Because radio wasn't always a slam dunk even when they were employed.