Thursday, April 30, 2009
If there ever was a time for professional training and development in radio, it is now. The need is particularly dire in the sales departments, where qualified sales candidates are hard to find in all market sizes.
The NAB and RAB should seize this opportunity to capture a major industry resource: make a deal with Kimberly and her team, as well as Clear Channel, to take over and run the training business. And the industry should commit to supporting it by training personnel on an ongoing basis. Perhaps the state broadcasting associations can lend financial support as well.
We can't ignore radio's talent drain to new media and nine years of flat to declining revenue.
David and Jeff: What do you say?
Media Services Group
Wednesday, April 29, 2009
Tuesday, April 28, 2009
Monday, April 27, 2009
Broadcast companies will be divided into two distinct camps by their lenders:
1) Good operators with bad balance sheets
2) Bad operators with bad balance sheets
Fortunately, there are a few operators with good balance sheets, but very few.
Good Operators with Bad Balance Sheets
- Excess debt will be converted to equity; remaining debt will be restructured with payment terms matching the companies' ability to pay.
- Owners will keep a stake and management will keep their jobs and be incentivized to perform under the new arrangement.
Bad Operators with Bad Balance Sheets
- Lenders will adopt a "throw out the bums" mentality.
- Assets will be liquidated, or in some cases, sold to entrepreneurs (and financed by the lender) who know how to make the business work.
So who are the winners and losers?
- Lenders who stay calm, carefully analyze their problems and possible solutions.
- Existing broadcasters without a leverage problem, particularly if they want to grow their business.
- Existing broadcasters who become pro-active in dealing with their problems.
- Entrepreneurs who know how to operate (and have been patiently waiting for a window to get in).
- Attorneys and smart, experienced broadcast restructuring consultants.
- Smart distressed debt buyers who pair up with entrepreneurial operators.
- Over-leveraged and under-operated broadcasting companies.
- Lenders who panic.
- Investors who bought into the over-leveraged and under-operated broadcasting companies.
Those are my thoughts . . . what are yours?
Media Services Group
Saturday, April 25, 2009
Friday, April 24, 2009
Kids simply do not have the same passion for radio and TV that we, the Boomers, had when we were growing up. My focus group (daughters ages 16, 19, and 22) gets their music from multiple sources. And they live via texting, Facebook and iTunes. They are tired of hearing the same dull crap on the radio.
So here is your investment to teach the old dog a few new tricks:
1) Buy an iPhone. Cost: $300
2) Sign up a Twitter account http://www.twitter.com/. Cost: FREE
Search a subject (try your home town or "Radio") and follow some people.
3) Start a Facebook page. http://www.Facebook.com. Cost: FREE
4) Read "What Would Google Do?" http://www.amazon.com/s/ref=nb_ss_gw?url=search-alias%3Dstripbooks&field-keywords=what+would+google+do.
5) Set up a My Yahoo or Alltop page http://www.yahoo.com/ http://www.alltop.com/ with relevant news and blogs. Cost: FREE
6) Seek out and listen to your programming people and make a few local sales calls while you're at it. Cost: FREE
7) Start thinking about how to program your station(s) to get your listening communities truly involved. Cost: PRICELESS
Those are my thoughts . . . what are yours?
Media Services Group
Thursday, April 23, 2009
While overall attendance was down, the Media Services Group suite was very busy. Despite fewer pre-set appointments than usual, we filled two full days of meetings with broadcast station owners, potential buyers, and members of the financial community. My partners and I now have a much better perspective on marketplace conditions than we did prior to the convention.
At present, the trading market is virtually locked up (with the exception of some small market sellers who are willing to seller finance their deals). We have buyers and we have sellers. But there is no credit to finance the transactions; therefore, there are precious few transactions. The logjam will not break until credit returns to the industry.
With so few transactions, station pricing is a guess at best. We believe that if there was liquidity in the marketplace, stations would change hands in the range of 5x to 8x broadcast cash flow. But this is based on anecdotal evidence; there are really no data points to rely on at present.
Mike Andres of BIA predicted an unprecedented number of broadcast loan defaults this year. I believe that most broadcast loans are either already in default or will be in default by the end of the year (though some loans have been renegotiated with relief extended nine to twelve months).
Media Services Group expects a number of engagements in the coming months assisting borrowers and lenders in the restructuring of many of these problem loans. Look for a lot of debt being converted to equity. There will likely be some liquidations. While this will be a long and painful process, solid broadcast companies should emerge at the end with balance sheets and debt structures favorable to future growth.
We also believe that a number of funds specializing in distressed debt will be negotiating with the banks to buy broadcasters’ paper at deep discounts. It could provide them with a cheap entry into the broadcast space and generate significant returns once the business regains its footing. However, holders of existing equity, beware.
Bottom line: very stormy seas ahead with smooth sailing ahead for those companies able to stay afloat until the storm passes. This will be a much longer and deeper problem than the one many of us suffered in the early 90’s. Now is a great time to assemble your team to help navigate the tempest. It will soon be time for “all hands on deck.”
Those are my thoughts . . . what are yours?
Media Services Group
Wednesday, April 22, 2009
I want to single out one winner, Bud Walters. I worked for him at his first radio station while I was in high school. He is a great broadcaster and a great guy. He gives a lot back to the industry. I am proud to be his friend, and pleased that he was selected as one of this year's honorees.
And while I'm extending kudos, let me add that the Broadcasters Foundation is a great organization. They support broadcasters in need. It is a great cause. Remember them in your giving. http://www.broadcastersfoundation.org/
Media Services Group
Monday, April 20, 2009
If you're looking for Media Services Group, we're at the Bellagio (suite # 32057). Suite traffic from prospective buyers and sellers is off; probably the lowest traffic in twenty years of NAB's.
On the positive side, great dinner at Ferraro's (West Flamingo) Saturday night.
Attended the Garvey Schubert Barer breakfast this morning. Thanks to Erwin Krasnow for the hospitality. It was well attended. Ivan Braiker spoke about Hip Cricket (texting).
Banks are scarce. Not sure that any of them are doing any new lending. Some job casualties in the media lending ranks. Bad.
Attended the opening reception. David Rehr spoke about Radio 2020 and Radio Heard Here; discussed the digtal TV transition and mobile TV.
Interesting time for the business. Radio is being re-set.
Media Services Group
Friday, April 17, 2009
A group of successful radio industry executives (owners, researchers, digital media, program consultants, and brokers) convened in Hilton Head a couple of weeks to ponder the future of the radio industry. I was fortunate to have been invited by the group’s host, Jim Hooker. Jim spent his career as a sales and organizational development consultant and as owner and CEO of Pride Communications, a group of ten radio properties in the suburban Chicago market that he sold in 2000 to NextMedia. Susan Hooker, Jim’s wife, and a former Motorola executive, conducted the two-day session, which focused on the development of several possible directions the industry could take in the next ten to fifteen years. She had conducted similar sessions for Motorola business leaders in past years.
Last week’s session followed an exercise Susan conducted in 1995 which accurately predicted a scenario of deregulation and consolidation resulting in an initial rapid escalation in radio station values, but also warned of a “Nightmare Scenario” in which a general homogenization of program content, declining audiences, and an increase in competition from on-line advertising, could result in significant problems for radio’s business model. That 1995 scenario work proved to be such an accurate predictor of today’s challenges to the radio industry that several people who participated in that session proposed the recent Hilton Head meeting.
Scenario planning is complementary to strategic planning, but different in that is focuses on what is most uncertain about the environment in which a business will have to operate. The purpose is to develop a number of alternative possible future scenarios, based upon the interplay of the most powerful and most uncertain of those forces that will impact the future of the business over an extended period of time (typically ten to fifteen years). Scenario planning legitimizes talking about those things that we worry might happen, but are totally out of our control. In fact the dimensions of scenarios are, by definition, forces that are uncontrollable, uncertain and will have a powerful impact on the business whose future is being contemplated.
The driving forces guiding the future course of the radio industry, as identified by the Hilton Head participants were:
1.) The state of the economy and whether or not it would return to growth in retail sales and revenue in the service sectors.
2.) The adoption rate of the “Digital Revolution” by the public and the rate at which equipment manufacturers and radio broadcasters integrate complementary technologies into their offerings.
3.) The development of local content by broadcasters as they exploit their current and future delivery platforms and the acceptance of that newly enriched content by the “listener communities” that broadcasters serve.
Over the course of the two-day meeting four potential scenarios for radio’s future were developed based on the interplay of these driving forces. The scenarios were shaped by the rate of adoption of new content, digital delivery augmentation of existing AM and FM radio signals and the overall improvement in the economic factors that shape the retail environment which is a major driver of radio revenues.
One of the conditions driving the future of the industry remains a huge variable. The leverage of the large public broadcasting groups, who control a vast majority of the industry revenues and who have been laboring to dramatically reduce costs in the current economic environment, represent a potentially negative impact on the industry’s performance and innovation. The consensus of the group was that this operating reality in the industry has not been a catalyst for innovation. Quite the contrary, this trend of squeezing out costs to try to improve the bottom line has created a downward spiral of less innovative programming and more homogeneous offerings. Risk taking has been squeezed out, making radio much less interesting to our audiences.
While back office consolidation was believed to have been worthwhile across the industry, programming consolidation was largely believed to have gone too far. The unintended consequence of consolidation may have been to have “killed the goose that laid the golden egg.” The potential breakup of some of the major groups could serve to either stimulate new investment and innovation or result in a disruptive realignment of station operation and direction.
Currently, there is a major disparity of operating results from smaller local and regional broadcasters and the largest 50 radio markets where the public companies have a clear dominance. This difference makes fertile ground for experimentation in the 50+ markets, which may be where radio’s renaissance will begin.
In looking forward to 2020, there is another possible “Nightmare Scenario,” in which economic stagflation, the “Digital Revolution,” and listeners’ evolving preferences work against the radio industry, making it exceedingly difficult for radio companies to survive and thrive.
But there is also a potential brighter future in which economic growth, technological advances by broadcasters, equipment and software manufacturers, and listener preferences will evolve in such a way that radio will thrive once again. What kind of advances might take hold that would spur a radio renaissance? If radio can become interactive, with its content available when and how listeners want it via podcasts or streaming, and open to listener input via messaging and texting as well as voice, with personalities who can captivate the imaginations of their audiences once again, then radio will have a very happy future. Look for this to occur first in some of the second and third tier markets rather than the top 50.
How will the group know which scenario is actually unfolding? We developed some twenty metrics that will be collected and tracked quarterly over the coming years . . . So stay tuned.
Thursday, April 16, 2009
Click at the bottom of this post for the whole study, but here are some quick takeaways:
AM/FM radio has broad impact in the new digital world
- 92% of Americans 12+ use AM/FM radio each week
- One in five say AM/FM radio has a big impact on their lives
- Radio's "Total Impact" is second only to cell phones among audio devices/media
- Eight in 10 Americans say they will continue to listen to AM/FM radio as much as they do now despite increasing advancements in technology
- Online radio users spend more time with radio overall, not less
Recent Growth in Online Radio Usage is Promising
- An estimated 42 million tune to online radio on a weekly basis, which is more than twice the number from 2005
- The key radio demographic of 35 to 54 year olds are becoming more frequent online listeners
Radio's Digital Platforms Provide Advertisers with New Touch Points to Reach Desirable Targets
- Radio's digital platform users are a highly attractive segment
- Online radio users are well-educated, upper income, full-time employed and digitally savvy consumers
- Broadcasters are providing an increasingly wide variety of digital options for advertisers and new methods to connect ROI with media spend
Americans are Exercising More Control Over Their Use of Media
- Americans are increasingly enhancing their use of traditional media with new ways to control how, when and where they consume information and entertainment
Consumers Expect to Find Their Content Online
- Broadband access is the norm
- Media not meeting consumer expectations will suffer
- Pulling digital audio streams will accelerate adoption of alternative choices
Consumers Want Expanded Media Options in Their Cars
- One-third of Americans say they are interested in online radio in their cars
- Satellite radio continues to add subscribers
- iPod and podcast usage continues to grow with more car radios with auxiliary jacks
Audio Content Providers Should Not Ignore the Explosion of Online Video
- Radio station web sites must embrace online video
- Use of online video exceeds online radio
- Two-thirds of monthly online radio users also watched online video in the past month
Media Should Accelerate Efforts to Get Their Content on Mobile Phones
- Mobile phones are the next frontier
- Content providers should find ways onto mobile phones
Little Evidence to Date of Significant Interest or Uptake for HD Radio
- Awareness has not changed substantially
- Value proposition not clear to consumers
Social Networking is Now Mainstream
- One in three Americans (12+) and 2/3 of teens and 18-24s now have a profile on a social networking site
- Social networking is a vital communication channel for consumers; content providers should find ways to tap the power of this new digital platform
Take the time to read the entire presentation.
Media Services Group
As you might suspect, borrowers and lenders have two very different perspectives of the workout process. Without taking sides, I will attempt to present an overview.
The broadcaster wants to restructure the loan(s) on terms which allow him to pay back the obligation from the business’ free cash flow. Generally, they want to buy time. This often means deferred payment terms, a lower interest rate, debt forgiveness, equity infusion, and possibly asset sales. An alternative (but a difficult one when credit is “frozen” as it is now) is to simply refinance the loan with a new lender.
The broadcaster takes the position that the current problems are a “bump in the road,” and given time, effort, and flexibility on the part of the lender, everything will work out just fine.
If the lender refuses to negotiate acceptable restructured terms, the war escalates. A Chapter 11 bankruptcy filing is in the broadcaster’s arsenal to stave off foreclosure (at least temporarily).
Lenders simply want their money back. And they don’t much care how it happens. Ideally, they would like to see the borrower/broadcaster refinance their debt with a new institution. Failing that, they want the assets sold . . . immediately. If the broadcaster refuses to cooperate (in their view), the lender might take steps to have a receiver appointed, charging the receiver to liquidate the company.
If the lender believes that the problems are temporary, they may agree to restructure the note, generally collecting fees for the restructure agreement, and usually with provisions that they will be made “whole,” perhaps getting additonal security.
Lenders often (but not always) want to avoid the bankruptcy court. At times, they can negotiate a forbearance agreement with the borrower to agree to allow a receiver to be appointed, perhaps with the broadcaster’s agreement as to who the receiver will be.
And now, a word from our sponsor. The choice of a receiver is critical. The ideal receiver has M & A transaction experience as well as station operating expertise. That is a rare combination. You can probably count on one hand the number of firms serving the broadcasting industry who have that expertise (Media Services Group is one; Larry Patrick’s company is another). Unfortunately, a number of “consultants” hang out their shingles in every downturn; check the track records before hiring workout expertise.
Those are my thoughts, what are yours?
Wednesday, April 15, 2009
Tuesday, April 14, 2009
BIA Advisory Services Sees Growth in Radio Valuations Dependent on Industry’s Ability to Transform into an Expanded Operation
At the risk of appearing self-serving (as I am a media broker), here are some thoughts on hiring a professional to sell your Radio/TV assets.
Should you hire a broker in the first place? There is a reason that the media brokerage practice exists, and it parallels that of real estate. Sellers have learned over time that media brokers provide a basket of services which net more value in a sale than any possible commission saved by trying to do a deal “direct.” Sellers have a business to run; in most cases, they simply do not have the time to run a sale process. Often too, buyers and sellers often clash, particularly if they are competitors. A media broker provides an often necessary buffer zone in the negotiating process.
Good media brokers understand the financial markets and how to best structure a deal that will actually get to the closing table. They have negotiating experience and usually, a relationship with the prospective buyer. They have a track record in working with counsel to complete the transaction documents (and work out business issue problems between the buyer and seller directly, which counsel often cannot do since they have to interact with opposing counsel). And most brokers provide escrow services, usually at no charge. Enough of the sales pitch.
What do you look for?
Integrity, honesty, and discretion.
Nothing beats experience. Choose a professional who has completed a lot of deals. Brokerage is a tough business; it takes a long time to get really good at it. Pare down your list of broker prospects to those who have proven track records.
Choose a busy broker. Deal flow brings deal flow. A busy broker knows the active buyers and the active financial participants.
Get recommendations. Talk with the brokers’ most recent clients. Ask your colleagues in the business for referrals.
Look for a broker who understands finance.
Look for a broker who understands your digital revenue initiatives. This is a new area for many broadcasters. A broker must be able to explain to buyers the benefits of digital revenue (which may not yet be apparent from your P & L’s).
Avoid brokers who promise a purchase price which defies logic. Many potential sale processes have gone awry when the seller hires a broker who promises a “sky high” price after ignoring broker prospects who presented honest expectations.
Look for a brokerage firm who is visible in the broadcasting community. If a broker operates in the shadows, he/she is probably not the ideal choice to get your project in front of the most able buyers.
Have a “beauty contest.” Narrow your list to the top three, and invite them in for presentations. The cream will rise to the top.
Monday, April 13, 2009
1. "Leverage our National Talent"
2. "Live and Local"
Let's take a closer look at the two paths.
"Leverage our National Talent"
- Syndicated big talent/national footprint
- Big margins/low expenses
- Smaller sales force
- Hit the numbers or you're gone
- "Ad Council" PSAs
- Strict adherence to tried and tested format rules
- "One to Many" programming strategy
- Heavy reliance on national revenue
- Talent involved in the communities
- News departments staffed with news people
- Good margins (but much lower than the first scenario)
- Keep adding salespeople so long as the incremental revenue is greater than the incremental expense
- Budgets are flexible; management is responsive to local opportunities
- Local PSAs
- Will break the format "rules" if prudent
- "One to One" programming strategy
- Heavy reliance on local revenue
Both strategies may work. But I'm betting on "Live and Local," especially in smaller and mid-size markets. Those are my thoughts; what are yours?
Friday, April 10, 2009
Thursday, April 9, 2009
If you like the blog, then please either 1) click to Follow, or 2) add my RSS fee by clicking "Subscribe to Posts." I encourage you to comment on any entries. Or you can email me at: George@MediaServicesGroup.com
If you belong to LinkedIn (and we know each other), let's get together there as well: http://www.linkedin.com/in/georgerreed
And last but not least, if you Twitter information on the radio and/or TV industries: http://twitter.com/GeorgeReedRadio
Wednesday, April 8, 2009
The Media Services Group partners and associates will once again be holding court at the Bellagio. To schedule a confidential meeting, email: George@MediaServicesGroup.com or give me a call at 904-285-3239.
I look forward to seeing you there.
Monday, April 6, 2009
Private and public radio companies alike are going to have to restructure their balance sheets. There is no way that the current anemic revenue growth will allow most radio companies to meet their debt covenants in 2009. That, coupled with the difficulty of shedding assets at a multiple higher than their leverage multiple, paints a dire picture for 2009.
On the plus side (for the broadcasters at least), most lenders recognize the fact that fire-selling assets in the current environment makes no sense. It will make their bad situations worse. That leaves them with two options: 1) either negotiate a workout with the existing stakeholders and management, or 2) foreclose, appoint a receiver, and try to hold on until times improve. In the majority of cases, existing management is the best management, so it is time to hit the negotiating tables.
Cumulus Media Partners has already been to the table. They recently proposed to swap senior subordinated debt for a combined debt/equity package. I do not think that the noteholders have many options and predict that the deal will be successful. If it fails, there will probably be a trip to the bankruptcy court. And I predict that this deal is only one of many to come. Note: the outcome of this deal should become public soon, but thus far I have not seen an announcement.
Sunday, April 5, 2009
Those are my thoughts. What are yours?
Saturday, April 4, 2009
Wednesday, April 1, 2009
Fast forward to today. Many, if not most, papers are losing money. Bankruptcies are rampant. Century old dailies are being shut down. Revenues from most local papers’ Internet efforts are paltry.
Two things happened. Papers failed to control their costs (often by failing to deal effectively with their unions). And they failed to develop and implement effective Internet strategies. Remember when many tried to sell subscriptions to their Internet sites? Many failed to realize the simple truth that Internet content is free; ad supported models were the only way to go. Look what happened when most of the classified advertising migrated to Craigslist; gone, and never to return.
Newspapers had the opportunity to reinvent their sales forces and rethink their strategic direction. It didn’t happen. Are radio and TV broadcasters the next to make the same mistake?
News from the Internet Advertising Bureau points to a 10.6% growth in ‘net revenue last year. $23.4 billion in revenue placed the Internet ahead of radio and cable TV, and rapidly gaining on local TV and newspapers.
Newspapers killed newspapers; the Internet could have been the salvation instead of simply the beneficiary. SNL Kagan predicts Radio/TV revenue declines for at least the next five years in a new report. Broadcasting’s leaders need to coalesce around an industry wide strategy to begin thinking like digital businesses with big, local loudspeakers. How about adding this as an agenda item at the next NAB Board meeting?
Those are my thoughts. What are yours?
The credit crunch has virtually stopped station trading. The "When will this end?" question comes up daily. The short answer: When liquidity returns to the credit markets. And clearly, no one, not even the administration, knows the answer.
However, perhaps we can learn something from history. The last major credit freeze took place in the early 1990's. You may remember the "Highly Leveraged Transaction ('HLT')" fiasco. Banks quit lending to broadcasters, and many called their existing loans. Station trading, other than distress sales, ground to a halt. Prices plummeted on those few trades that did occur.
That debacle lasted some 18 months. If you define the "start" of the current freeze at the time banks started pulling back, we have already exceed the 18 months. If you define the "start" as the beginning of the recession (two negative growth GDP quarters), we have a while to go.
But here is a guideline: watch the stock market. Unfortunately, it is best viewed from a rear view mirror. But the market tends to be a leading indicator. Once it appears to have put in a bottom, look for things to improve in the subsequent six months. Market watchers might suggest watching the 200 day moving average of the Dow; once the moving average begins to move north, we could be on our way to recovery.
Those are my thoughts? What are yours?