Janine Melnitz: Yeah, it's a sign, all right - "Going out of business".
-- From Ghostbusters
Sooner or later it had to happen.
Citadel, Clear Channel, Cumulus and the other big consolidators weren't just driving down their share prices. They were also killing the value of radio stations.
Of course, we really haven't been able to know just how low prices were really going to sink because so few stations have been sold in this bad economy.
We had the CBS Denver sale -- three stations to Wilkes Broadcasting for $19.5 million. The multiple on that deal was about five times cash flow. That was back in December.
Three or four times cash flow is more reasonable today in an industry stinging from huge declines in advertising revenue.
A few little deals here and there have occurred since but nothing has happened to raise the multiple.
Now we've seen what I believe is going to be the start of a radio station blowout -- companies unloading stations for whatever they can get to raise cash.
Why?
They are in financial trouble.
Look at what just happened in Pittsburgh.
Sheridan Broadcasting which has owned WAMO for 36 years was forced to sell WAMO AM/FM and WPGR-AM for a paltry $8.9 million -- combined. Three for less than the price of one in the old days of consolidation.
In fact, even though WAMO-FM is not a great facility licensed to nearby Beaver Falls, Sheridan probably could have netted $15-18 million just two or three years ago when most groups weren't looking to sell anything.
Sheridan promptly fired 35 full-time employees and put the station on death watch until the new owners could take over.
And the new owner is Joseph Missions -- you can see where this is headed. The formats will change to religion as apparently the only companies with ample money to buy radio stations are religious groups.
Sheridan also owns American Urban Radio Networks -- and I wouldn't be signing any long-term leases, buying cars or otherwise living if I worked there either.
The handy work of the three blind mice -- Hogan, Dickey and Suleman -- is catching up with the radio industry. They got caught moving the cheese! Just like in the Hanna-Barbera cartoon Mr. Jinks -- radio people are soon going to be saying "I hate those meeces to pieces!"
No ... not Pixie and Dixie.
Trixie and Slixie (Dickey and Hogan).
Now if I'm reading this right, you'll be seeing troubled radio groups in short pants start peeling off some assets for sale at whatever they can get. You can bank on it.
They have to because they have made such a mess out of a very good business.
Unlike consolidators, find an operator with no debt service and they're feeling the down economy but they are still cranking out lots of free cash flow. Remember, that's what radio used to do the best before the industry started charging up its credit cards.
Hey, Jerry Lee at B-101 in Philly owns his station. He did almost $30 million last year. Let's say he wears Brioni, has a private jet, five homes and a craving for Beluga caviar -- he's still rolling in dough. Recession? Depression? Not at the Lee household.
No debt.
And a lot of small market operators who are my readers remind me that they are still making money by operating local radio stations without debt. Sorry I had to use that dirty word -- local. I know Fagreed Suleman, Tricky Lew Dickey and John Slogan Hogan think national radio is going to be the new local radio.
All of this doesn't help our industry embarrassment which is how poorly we treat the people who have made radio the asset that Wall Street money had to have in the first place. Now, each day -- more radio people are thrown under the bus. Look at the trades -- it's a business story. But it's more -- it's a commentary on the human condition -- sad to say.
So, here's what's ahead --
1. More station sales for multiples of below 5 times cash flow to willing buyers.
2. Sellers are going to go to closing faster than that guy on the Imodium commercial has to find a bathroom. Why? Well -- because each day the sale remains in the hands of the desperate seller income is likely to drop and the vital financial statistics upon which the deal was crafted could lower the already low sale price.
3. Loyal employees will see their careers end the moment the ink dries on the desperate seller's agreement of sale. Signed, sealed and kicked to the street -- no matter how many years of service.
4. The new "radio" industry will slowly begin to take shape. People buying in to use radio stations to espouse causes, sell their own products or gain influence. The price is right -- low and going lower.
5. For all you radio freaks out there waiting for prices to drop low enough so you can "put a group together and buy one" -- be careful what you wish for. Your fantasy of the radio industry is like mine -- the glory days of yesteryear. But the radio industry is a perilous place to own stations. Consolidators have killed the sector. Plus new technology and changing sociology has occurred while Fagreed has been jet setting all over the country. Owning a radio station in this type of industry is like owning a GM dealership just about anywhere. The U.S. auto business is done -- being part of it makes you done as well. There is no comeback when the industry has been killed by the greedy predators that ran it into the ground.
6. Fagreed would sell large chunks of Citadel if anyone would pay him near what he wants or needs. You think John Slogan Hogan wouldn't take less for more? Tricky Lew Dickey would love to find a buyer for his underperforming properties so he could start taking his half day furloughs. That's not how it will happen. Listen to this. You'll see them chip away here and there -- selling off whatever they need to bring in money. It's like a coke addict desperately pawning things of value to continue feeding their habit.
7. Then, in another year or two the desperate consolidators will in effect be selling off "sticks" because they won't have a lot of local programming on their so-called local stations. This is going to be like playing Monopoly -- easy to cash in. The only problem is soon there will no longer be a Park Place.
Look, I know that Sheridan is a minor player -- and not an influential consolidator. And it may be early to call the trend. But there are ominous signs ahead that says larger groups may have to hold distress sales.
Revenue is critically off -- forget auto advertising, just look to Main Street. And don't confuse collections with billing.
The economy has not recovered and no one can say when it will. We do know that boom times may not be following this recession.
Another indicator is that groups have made just about all the cuts they can make.
I mean, how can you fire more people when you have the minimum number of bodies running your Repeater Radio station?
If you have no more economies of scale ...
No more employees to fire ...
A prolonged recession that shows no sign of letting up ...
The loss of powerful American advertisers like GM, Chrysler and maybe even Ford ...
Who do you call?
Pricebusters!
Ladies and gentleman, sharpen your pencils -- the radio station blowout we've long feared looks like it may now be underway.
For those of you who would prefer to get Jerry's daily posts by email for free, please click here. IMPORTANT: Service doesn't start until you verify an email from "Feedburner" immediately after you sign up (may have to check your filtered mail).
Thanks for forwarding my pieces to your friends and linking to your websites and boards.
