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 Francisco – the 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.
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The Buzzard and the Agora