Revaluing Radio

Right from the start of radio consolidation, the smart money said these emerging monopolies could never pay back the huge debt they were running up to buy large concentrations of radio stations.

Back then, $100 million sale prices for individual radio properties were not uncommon. Multiples way in excess of ten times were expected. There was so much funny money around that individuals who wanted extra fees were paid millions just for "introducing" seller to buyer.

It was as phony an excuse for paying fees as investment banks, buyers and sellers could come up with.

Did anyone really believe that the debt being incurred in the run up to consolidation could actually be repaid -- or at least satisfied - or -- maybe even just refinanced endlessly.

No one was worried about the end at the beginning.

Their Kool-Aid tasted great and you were anti-radio if you questioned these Young Turks for buying so much on credit that they couldn't really afford.

Especially if something ever went wrong.

Like a recession.

Like the growth of online advertising.

Or the loss of radio's next generation to new technology.


Just before Christmas CBS announced the sale of three Denver radio stations to Wilks Broadcasting for the alleged price of $19 million.

I say alleged because I don't believe CBS will ever see $19 million for the stations.

The usual repricing will take place based on the latest revenue figures before the deal is approved, financed and closed. And because the first quarter should set a record for declining revenue, Wilks would either be crazy or desperate to buy the trio at December's prices.

Unfortunately, CBS President Les Moonves has got a gun to his head -- held by his boss, Sumner Redstone. Redstone is in short pants due to the debt accumulated by Viacom and CBS. He recently considered selling National Amusements (the company he started) as an option to get some breathing room (corrected from earlier editions)

Redstone needs money desperately.

Therefore CBS needs to sell properties. I believe CBS would sell the entire radio group if they could find a buyer at a decent price. You can forget that.

Notice how we're not talking about radio programming, listeners, advertisers, marketing -- none of that -- because it's payback time for the unrealistic deals that were done by consenting adults when times were great.

Now, the economy has tanked. The next generation has slipped away so even without a recession it would not be possible to call radio a growth business. In fact, even on Wall Street where fantasies not only come true but they get financed -- radio is no longer thought of as a growth business.

What's really significant here is that the inflated prices -- multiples -- paid to purchase radio stations are now coming back down to earth. That's a good thing -- except if you were one of the companies that overextended itself to buy them in the first place. So, that $19 million for three stations in Denver could be $12 million or whatever if and when the deal closes.

What's worse is that the industry hasn't seen the bottom for station prices. I honestly can't say I feel sorry for these money grubbing consolidators -- radio was always a mom and pop business (sometimes a very good one and at other times a money losing proposition).

But, now they are screwed.

The reason we haven't seen a peek at more realistic station prices before the CBS announcement in Denver is because radio companies are deeply in denial. They think this will all pass -- just like a recession and even the Great Depression did. Happy days will be here again -- so they think.

But radio station prices have not only been devalued, radio content has been deflowered by reckless operators who just can't bring themselves to believe that the game is over.

They've been caught.

Even the notorious Bernard Madoff admitted to his Ponzi scheme when he was arrested by the Feds a few weeks back. You don't see radio CEOs admitting to anything.

So for those of you who were fired, forced to take on two or three other jobs as a condition for continued employment or run out of radio on a rail, welcome to radio execs hanging precariously over the Raritan River ready to fall in and drown. (I mentioned the Raritan because of its long history of old tires and pollution wending its way downstream in North Jersey).

Radio CEOs are on a limb.

Watch them squirm most of the year ahead.

And as CBS' Moonves is discovering, the only way to sell radio stations going forward is for a lot less money than the acquirer originally paid.

Those mom and pop operators who got out at the top of the market -- you were the real geniuses proving once again that there's a sucker born every minute.

This time the suckers turned out to be the fifteen or so radio CEOs who paid through the nose to wind up taking it in the -- well, I don't have to be that graphic, do I? You know what I'm saying.

So in the year ahead when the Wilks deal closes for what amounts to pennies on the dollar (compared to the original acquisition prices) and radio CEOs desperately look to hang on through more cutbacks and firings, take solace in the old adage that if it's too good to be true, it probably is.

Radio was a modest, mom and pop business.

It defies consolidation -- it begs to be smaller. If the radio industry had remained in the hands of mom and pop operators, I'll bet that one of the station owner's daughters or sons would have figured out a way to make money off the station on cells phones, podcasting and the emerging Internet.

Funny, isn't it?

Not John Hogan. Not Lew Dickey. Not David Field. Or the other radio CEOs. Some mom and pop operator's kid. Betcha!

A topic for discussion in the year ahead is whether radio in any form can make a comeback.

I don't believe it can as a pure terrestrial operation -- I'm sorry.

But the talented people who built radio -- the departed, the currently still-employed but long suffering and the neglected might be able to help owners do what mom and pop's kid might have done -- if only they had the humility and good business sense to do one simple thing.

Listen to the experts.

They're not on Wall Street.

They're in the station.

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