By Bill Brady
Futures & Options, Inc.
If you have the background and experience–and really know what you’re getting into…
If you have the money to do a deal and operating capital to run your station competitively until you become profitable…
If you utilize sound business fundamentals and don’t overpay for a station…
If you put your ego in “park”…
The last “if” may be the most important one. Over the years, too many bloated egos have crashed and burned on the rocks of radio station ownership. Some were small players who misjudged situations, overpaid for stations, stupidly signed personal guarantees and went bankrupt. Some huge corporate egos have also lost their groups when they tried to pull off acquisitions too big to digest when economic adversity inevitably came along.
A good friend once said to me, “ego is a very delicate thing. The right amount of it can propel you to greatness. Too much will destroy you.”
If you’re tempted to get into station ownership, take a very long walk and honestly analyze what your motivation is. If it’s “pride of ownership” or the desire to be a “player” in the radio business or your local community, take the next exit. Radio ownership is a costly and punishing form of ego indulgence.
Given the looming headwinds for the radio industry, radio ownership in the future is a questionable investment with minimal potential for asset appreciation. Yes, I said it is still a good business for the time being. Radio stations in 2015 can still generate 30% cash flow. But, we can’t stop time and with every passing year there is more competition for media time and ad dollars. And that’s before the “connected car” achieves critical mass.
What then? It won’t happen all at once, but you’ll see cume and time-spent-listening declines accelerate. Marginal FM music formats will disappear due to lack of viability, and FM stations will vacuum up news/talk and sports format opportunities in their markets—leaving AM a wasteland of ethnic, religious and brokered time programming. Something that has already happened in some markets, where the AM band is a desolate place.
That’s a tough thing for me to say. I love AM radio. When my wife and I travel to the West Coast on business, we often drive between the Bay Area and LA on the 101. She likes the scenery on the California coast. My payoff is the opportunity to listen to KNX, KFI, KCBS, KGO and KNBR along the route.
But unless it was a proven performer, should you buy a stand-alone AM radio station in 2014? Only at a steep discount, meaning a low population count multiple or the break-up value of the facility based on what you could get by liquidating any real property (land, buildings, tower sites) and equipment. And I like AM radio. But, outside of a few legendary stations in major markets, the ugly truth is that most AM stations—especially stand-alones—don’t generate any cash flow. If they do, it’s because they do things like paid programming which are more akin to running a brothel than a radio station.
As for FM stations, the prognosis is better for now–as long as you don’t get carried away and overpay for them. But, if what’s happened in digital (primarily mobile) moves to the connected car, radio is in for the battle of its life. The monthly Triton Digital Top 20 Rankers show Pandora and the pure-plays usually own the space with 80% of the audience (active average sessions) with all broadcast radio streams generating less than 20%.
There are possible explanations for this. Broadcast radio’s share of internet listening may be lower because consumers can listen to their favorite stations on-air and don’t have to access web streams. Given the decline of music downloads and the growth of streaming in recent years, it is also likely that some of the listening the pure-plays receive is actually “collection listening.” And people have always listened to their own collections, from the days of vinyl and cassettes to the modern era of downloads and streaming, without it hurting radio. What is confusing to the marketplace is what “bucket” this listening falls into and whether it is additive or a threat to traditional radio, or both.
However, it is critical to convey the potential implications of the situation. As long as broadcast radio owns the dashboard, we remain in a strong position. But the landscape is changing. SiriusXM already has 20 million subscribers. New automotive infotainment stacks, in-car Wi-Fi and docking stations will bring the pure-plays into the car. Even if the current mobile trend doesn’t translate entirely to the connected car, the pure-plays will cut into broadcast radio’s share. As a result, audiences will be smaller, maybe substantially smaller, which will ultimately affect radio’s share of the ad revenue pie.
Given this reality, if you are a station owner and overpay for your properties, you will have severe indigestion. There won’t be enough Prilosec on the planet to help you.
Yet, people have short memories and some crazy prices have been paid for radio stations and groups in the last several years. My advice is to err on the side of caution in this environment.
The price inflation for FM translators is also disturbing or laughable, depending on your point of view. I heard someone refer to translators recently as “metro stations.” I didn’t know whether to laugh or cry. In most cases, translators have signals comparable to college stations; meaning low power, small signals and limited ability to penetrate buildings. And don’t get me going on construction permits which, are not an actual business—just a piece of paper, and are worthless in many circumstances.
After reading this, if you are still considering radio ownership, remember the following. Put your ego in park, use sound business fundamentals—and whatever you do, don’t overpay. This may be a disturbing assessment, but it is a realistic picture of the radio station ownership landscape. At this point in history, no prospective radio owner is served by B.S. and blue sky.
Bill Brady is President/CEO of Futures & Options, Inc., a media investment, ownership and consulting firm based in South Florida. His background includes management positions with Clear Channel, Citadel, Comcast and the Miami Herald. He can be reached at 561-529-2598 or at firstname.lastname@example.org.