Tuesday, July 14, 2009

Radio stations are worth 3x BCF. Today.

I have a theory. It is based on over 20 years of carefully observing radio station sale prices. Anecdotal, yes. But I believe it to be valid (and given the time and data, am certain that it would be validated using correlation analysis).

Radio station "stick" cost-per-pop multiples track Broadcast Cash Flow multiples.

For many years, Media Services Group has tracked stick prices (the price of a facility with little to no Broadcast Cash Flow). The measure which we have found to be accurate over time is the value of the cost-per-pop. This value of the multiple is determined by dividing the purchase price of a stick by the population covered by the station's (FM) 60 dBu coverage contour (We use a similar method for AM facilities using the 2.0 mVm contour).

Here's the interesting thing. The cost-per-pop at any given time is almost always equivalent to the cash flow multiple in use at the same time. In other words, if stations are selling at 10x BCF, sticks trade at $10 per pop. In the heady days following deregulation, BCF multiples moved into the high teens to 20x; cost-per-pops for FM sticks were running high teens to 20x, a perfect correlation.

I recently analyzed FM stick sales for the first few months of 2009. They averaged just under $6 per pop. Cash flow deals, few that there were, were running around 6x. This pattern has been consistent for at least two decades.

Today, The New York Times sold WQXR-FM in New York for $45 million. WQXR reaches 15 million people in its 60 dBu contour. Do the math: $3 per pop.

So if my theory holds, radio stations are now worth 3x BCF. All markets are dynamic; they move up and down. And the station trading market (whether based on cash flow multiples or cost-per-pop multiples) has always, and will continue, to move up and down. But I believe that at this moment, we in the radio business live in a 3x BCF world. Time will tell if I am correct.

Those are my thoughts. What are yours?