“In recent years, radio has suffered from a 'leverage hangover,'" said Robin Flynn, senior analyst at SNL Kagan. "Back in 2002, equity made up, on average, 76% of total market cap. However, that flipped in 2008, with 73% of total cap representing debt obligations.”
A new SNL Kagan study reveals a huge decline in deal dollar volume in 2008, a trend expected to persist in 2009. Radio station sales dropped significantly from $2.2 billion in 2007 to $932 million in 2008, with the average price per station also falling from $2.9 million to $1.6 million.
SNL Kagan anticipates more forced sales, Chapter 11 reorganizations and declining cash flow multiples in the first half of 2009, as station owners cope with the weak ad market. On a positive note, the study suggests the current environment could open the door for investors to buy their way in at lower benchmarks than possible in the past, earning acceptable rates of equity return despite lower revenue growth.
"Companies are now focused on reducing expenses and debt, and they will emerge from the current economic crisis with a more conservative business model, leading to revenue growth and at least partial recovery in station values off of today's historically depressed levels. With more than 235 million listeners, broadcast radio still remains a viable business in the long term."
Won't we ALL?
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Radio companies have gone through a rugged 2008, not to mention rugged years pretty much since Y2K and the bursting of the dot-com bubble. And 2009 is looking like more of the same. But a number of crystal ball readers see the business starting to at the very least level out in a couple of years, unlike, say, newspapers. The good news for radio, according to observers at TNS Intelligence, is that a lot of radio’s trouble is not because radio is radio, it’s because of what’s happening around the industry – not only is the economy sucking wind, but two of radio’s biggest clients, automobiles and financial companies, are sucking wind at hurricane and tornado levels.
It is expected that the economy will eventually come back, some of radio’s core categories will come back and eventually replacement clients will be found for some those categories that are gone for good.
The return of at least some business, coupled with reduced local competition (particularly from newspapers), lower overhead related to the cuts going on now, and better revenue generation from associated online operations, are expected to help radio at least find a flat space by 2011.
RBR/TVBR observation: Hey – it’s a light at the end of the tunnel! The stations that do the best job of maintaining their bond with their local audiences are going to be the ones that get first pick of the fruited plains on the outside of this bleak cavern.
A survivor’s tale: Living in Chapter 11. “I’ve learned how to do radio for less money, with less overhead and with no loss of quality programming,” says Proactive Communications CEO Jerry Clifton. His company sought bankruptcy protection last year when a deal to sell rhythmic CHR KVPW, Fresno fell through and it faced a balloon payment to EMF
Broadcasting — the group that sold him the station for $2.7 million in 2006. “I got a little aggressive,” Clifton tells Inside Radio, explaining, “It was a ragged-edge deal to begin with and then the economy crashed.” EMF and Proactive have
struck a deal giving the company a year to pay off the debt — otherwise EMF will get KVPW. An upbeat Clifton says Proactive is profitable. “We’ve gone directly to clients instead of relying on ad agencies — this is the way we used to do it
before consolidation.” He’s “pretty close” to closing the door on Chapter 11 as an investor looks to join the company. Even if it doesn’t, Proactive will clear the slate with the sale of now-silent KAZZ, Spokane (107.1). Getting it back on the air will require a transmitter and other equipment after KAZZ’s facility was taken by debtors who seized former sister KQQB-FM (104.5) last year. But broker Ray Rosenblum says he has more than one potential buyer actively interested in the Class C3 FM. For programmer-turned-operator Clifton, the long-term goal is to grow once again. He predicts, “The
big companies are trying to sell their stations and when it all sifts out, there’s going to be more regional companies like there used to be. This is where radio is going.”
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