Monday, July 20, 2009

Radio: The San Francisco treat

Were you surprised that one of the biggest radio stories of the week got so little play?

An FM station in San Franciscothe fourth largest radio market - that sold for $33.7 million in 2004 was just sold again – this time for the paltry fire sale price of $6.5 million. That’s minus $27 million and change in just under 5 years.

Here’s the quick back story.

Joe Bayliss, who’d been a sales manager for AMFM/Chancellor and later CBS Radio, started Flying Bear Media, with the backing of Alta Communications, Tailwind Capital, and Weston Presidio.

Its first and – fortunately - only purchase was a Hip-Hop formatted class A FM, KBTB, licensed to Alameda, Calif., in the San Francisco market. The seller, the Spanish Broadcasting System, wrapped the deal in October, 2004.

Citing an expensive and expansive music research study, Bayliss changed KBTB to a dance music format with the identity - Energy 92.7 – and aimed its promotion and marketing toward the Bay area's gay and lesbian audience.

Eventually, it got calls to match its moniker – KNGY.

Its debut received a large amount of publicity from both the straight and gay press in San Francisco, including these articles from the Bay Area Reporter and SF Gate.

But KNGY generated neither ratings nor revenue – and, last week, the private equity investors took the pipe and unloaded it at a deep discounted fire sale price to Ed Stolz, who used his own money to make the purchase.

Stolz made news a few years back when he attempted but failed to back out of a $25 million deal with Entercom for his KWOD/Sacramento, Calif.

Maybe this fire sale was given little play because it was an isolated case since it was just a single station trading owners?

Just write it off as three smaller and overextended private equity firms that sold off a station to someone with cash on hand.

But isn’t that how these things always begin?

The small guys are the first to get whacked. Private equity backers take the hit, and get out from under a toxic deal by selling it off to someone with liquidity.

Face facts. What right-minded lender is going to invest in a business that’s rapidly down trending in revenue and influence?

You know there are other private equity firms combing old FCC records in search of those who sold their radio stations became overnight multi-millionaires following deregulation when station prices jumped anywhere from fifteen to over fifty times cash flow. They want to unload these properties now. No reasonable offer refused. No, scratch reasonable. We'll take anything.

These firms have to get radio off their books before one of the Terri Schiavo chains - Citadel or Radio One implode – and that Armageddon will happen sooner than later.

It awaits a thaw in the frozen credit market.

You also know there are those we like to call real broadcasters who are awaiting their reentry. Some may even be able to buy back properties they sold for ten cents on the dollar – maybe less.

They have the best seats in the house. They have an unobstructed view of the future radio industry profit centers.

They're not encumbered by that inside-looking-out tunnel vision that’s inflicted those currently trying to wheel and deal their way out of this pit of hell. Most of those running radio today will be faced with the option of stepping out of the frying pan and into a white-hot fire or a bubbling caldron of grease. Either way, it won’t be a pretty sight.

It’s a fact that every economic boom puts the crooks at the top. Somewhere along the way, radio forgot what its business is. Its business, like any business, is defined by the want the customer satisfies when he or she uses the product or service. Satisfying the customer should be the mission of every business. In radio’s case it was the all-but-forgotten listener. Radio also forgot that its only real profit center is a client whose check hasn’t bounced.

The real broadcasters know that this time around terrestrial will have to be matched in unique ways with on-line – and its true audience measurement will be a boon – not a bust for radio. They see the many profitable opportunities that lie ahead for new local, regional, and national revenue streams.

Then there’s the, pardon the pun, big one – the San Andreas Fault of radio chains - Clear Channel. What do you say? Mid-September? Flunking Ethics 101 will be the least of Bain and Lee’s problems. When that one goes, the domino theory will become reality – and the radio will have its own version of the Santa Ana winds fanning the fire sales that will sweep the over leveraged chains.

Yes, this comedy is ending the way it was destined to. Hope you like your radio well done.


Anonymous said...

I never understood that deal. It is bad enough for any full power FM to cover the SF market. Why anyone would pay that much for a lower power, poor signal FM was beyond me! It was a stupid illogical move from someone who should have known better. No matter what the niche you NEED TO BE HEARD. I do not know what Stolz sees in this frequency. It is cursed if you ask me. Cursed and worst.

Anonymous said...

Ethics? Radio? Come on, John. Serious, folks. I hope John is right here. If some of the real broadcasters can land good deals and get back in the game and have the budget to hire, market and promote that combined with streaming could breathe new life in the radio industry. Bring on Armageddon.

Anonymous said...

Energy 92.7 is the best station you have not heard. I loved this station when it went on the air but I could barely hear it anywhere. You also have to jump through hoops and chains to get to their streaming audio which only works when it wants to. I hope someone takes this format and puts it on a stronger signal, pleaZZZZZZe!

Anonymous said...

I await their fall especially Lew Dickey's.

Anonymous said...

The bigger they are the harder they will fall. I look forward to the day it happens. Radio lost it when it forgot what its purpose was.

Anonymous said...

from your blog to god's ears. hope you are right about this. i would listen to radio if it provided programming i like. i don't know of anyone who listens to commercial radio anymore. if you told me ten years ago that i would be a regular npr listener and supporter i would have laughed. today, it is the only radio i listen to except for internet radio. my local radio is pitiful. nothing but hits and sh-ts.

Anonymous said...

John, Everyone is so down on our industry. I really do hope you are right. I wasn't piloting this ship. I believe in putting the effort in to building a full service radio station by having the right people, playing the right music and servicing the community. Is that too much to ask? It's my business plan for any radio station to be successful. This was an inspiring article. Thank you.

Anonymous said...

I think there would have to be a major re-regulation of broadcast before the current, albeit failed, models will change.

As long as there are no ownership caps, no requirement to serve the city of license, no minumiums for locally originated programming or news coverage, the game will still be afoot, and those who buy into the remains will still try to make those models succeed.

The current administration has its hands full with the economy and re-inventing health care, so I doubt that FCC reform or broadcast reform is even a part of their plans.

Anonymous said...

I think Gorman is right. I am in a bottom 50 market. Our station is doing well comparitively speaking. The current owners want out. A lot of visitors in the lobby these days. Something is about to happen. We are owned by a larger chain but still much smaller compared to the ones you usually mention. I hope this is a good thing and not more land grabbing.

Anonymous said...

There are other factors that have to be measured into this. How fast the economy recovers. How soon the banks stop hoarding and begin loosening credit. Until then we will be in a holding pattern with only deals similiar to the San Francisco one taking place. Once there is some credit and borrowers will have to qualify I think we will see bargain hunting. The days of bidding for properties are over.

EJHill said...

Here we are pining away, waiting for "real" broadcasters to rescue us. Or is that the government with heavy handed regulation and "localism" rules? Another Anonymous talks of "full service."

You know something? Radio was better with "Fibber McGee and Molly" and "Jack Benny" but they ain't coming back either.

Terrestrial radio is great for political talk and sports. But music punctuated with some blabbering idiot(s) repeating a three-week-old Sarah Palin joke from Letterman isn't going to cut it anymore. And Gorman's dream of internet radio producing a "personality" isn't going to happen either. THE biggest selling point for i-pods and satellite radio is that they eliminate that kind of stuff.

And I love the left-leaners who yearn for a highly regulated industry that demands "localism." Outside of the weather, there is no local for Liberals. Who cares about city government when Washington is asked to provide us our jobs, our health care, our food, our housing and to wipe our wittle wunny noses?

Anonymous said...

John, you present some excellent points.

Understand the grave danger everyone is afraid of is deflation and we are sliding into it. Prices are falling, productivity is falling, jobs continue to disappear and spending power is considerably weakened. Consumer prices are down 1.4% from last year at this time and that is the largest decline since post-war 1950.

The last time we had prolonged deflation was during the Great Depression. Once we get into that trap we will not be able to get out.

Radio station were sold for far more than they were worth so in one case these significant multimillion drops are actually good for that industry but bad for the current owners. But they deserve what is coming to them.

The complexity and what could hurt radio's recovery is a risk of simultaneous deflation and inflation.

It is not so cut and dry. John, you made some valid points which have to be backed by the economic realities of life. I do hope you are right. Your points are valid.

Anonymous said...

I have mixed feelings about this. I disagree with DelColliano that the best we can do is keep the baby boomers. I think it is both broader and more complicated than that. The on line is the future without a doubt but it does help to have a land line which in this case is a terrestrial radio signal. It is not like all radios have disappeared. Give the audience compelling programming and they may listen. It's the may that scares me a bit.

Anonymous said...

Frank Wood has spent the last few years tooling around on his bike in Europe after selling his stations.That is the good news. The bad news is that he may come back now that he can buy back his stations for pennies on the dollar. With Frank Wood comes Randy Michaels and his bloodsucking pirates. So what do we gain? Nothing. The S.O.S. wrapped in a different package. I would like to believe that there are those "real" broadcasters out there. I really want to believe but I can't. There were never that many good owners anyway. John, you were lucky. You worked for Hirsch and had your own business. Some of the other owners in your market were no picnic to work for. I do not see that changing. Radio is dead, dead, dead.

EJHill said...

Here's where we juxtapose! Broadcasting & Cable this morning:

Susan Crawford, special assistant to the President for Science, Technology, and Innovation Policy, gave a shout-out to broadcasters in particular and minority broadcasters in general Monday (July 20), saying the FCC would tackle media ownership issues "early on."

"The administration understands the important role traditional terrestrial broadcasting continues to play," she said... The administration "seeks to encourage opportunites for minorities and women to own radio and television stations. We support the expression of diverse viewpoints as fundamental to the health of our civil society."

Headline from Media Daily News just 7 days earlier, "Minority Broadcasters Urge Federal Bailout."

Nobody listens so we have to have MORE!

What radio REALLY needs is CONTRACTION.

Anonymous said...

I would take some of the worst owners/operators of the past over Mark Mays, Lew Dickey and Dan Mason just to name a few. Even John Tenaglia as crazy as a loon as he was cared about product, cared about content. The problem with deregulation is that it put broadcasting in the same field as any pubic company business. You have to keep opening new stores and buying new radio stations. You have to show continued profit. Eventually it breaks down if you dont have a long range goal and exit strategy.Radio's was buy high, sell low.

Anonymous said...

As someone who got booted from CC in January, I would like to thank Mark & Randall and their broadcast wizardry team for staying solvent long enough for me to collect every single penny of severance owed to me.

I have to admit--I was worried you'd go Chapter 7/11/13 in March or April and manage to f&*k me once more for old times sake...but this is the first promise you have actually kept. Hey, better late than never.

You may now hit the nuclear button and implode into the dustheap of history. And, if my wildest dreams come true, Bain & TLee will sue you 2 twits personally to recoup their losses...or just to slowly drain the life out of you the same as you have drained the life out of some sponsors/employees/the industry.

Anonymous said...

You really think Clear Channel will make to September? I'm already hearing within our stations that the bills are being paid late or not at all. I'm going to laugh my a$$ off when they turn off the electricity to the place.

Anonymous said...

"Frank Wood has spent the last few years tooling around on his bike in Europe after selling his stations.That is the good news. The bad news is that he may come back now that he can buy back his stations for pennies on the dollar. With Frank Wood comes Randy Michaels and his bloodsucking pirates."

Ah yes, Bozo and Benji, the poster boys for narcissistic personality disorder.

Maybe they'll come back home, buy WEBN and Q102 and declare themselves the Kings, Ohio!

Anonymous said...

A lot of dumb deals are unravelling. This is just the beginning, folks.

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