Restructuring An Entire Industry (Radio)

If predictions from the NAB Show are correct (and I believe they might be), the radio industry will undergo a complete financial restructuring in the next 12 to 24 months. A massive amount of debt will be converted to equity and/or written off. Yet there will be winners and losers.

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?

Winners

• 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.

Losers

• 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?

George
Media Services Group
http://www.blogger.com/www.MediaServicesGroup.com

Las Vegas (NAB) in the Rear View Mirror

Following a number of meetings with lenders, investors, and broadcasters during the NAB Show, let me share some thoughts and observations.

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?

George Reed
Media Services Group

Re-inventing radio

Radio has been a resilient medium for many years. Attacks have come from TV, eight track tape players, CB radio, cassette tapes, CD's, and now iPods and the Internet. In the past, the medium has always bounced back by re-inventing itself. Will the industry do it this time?

I maintain that re-invention is critical in two completely different areas: 1) Financial and 2) Defining the business that we are really in. We will deal with the Financial side in a separate blog post soon. Today, I want to talk about the business that we are in.

Radio broadcasters need to embrace the idea of operating as digital businesses that just happen to own radio stations. The stations can drive traffic (quite effectively) to the digital offerings. Those include streaming (including streaming to smart phones), web sites, blogs, social networking sites (like Facebook), and podcasts. The problem for most of us is that we just don't "get" all of the digital offerings. But it is time to start thinking about not our audiences, but our communities. And to recognize the fact that our communities are best reached online.

So where do you start. As someone on the very upper end of the 25-54 demo, embracing these new opportunities did not come naturally. But let me share some resources for you as a starting point. If you read these books and follow the related websites, you will be off to a very good start:

• What Would Google Do?

Jeff Jarvis

Related website:

http://www.buzzmachine.com/

• The Long Tail

Chris Anderson

Related website:

http://www.thelongtail.com/

• Grown Up Digital

Don Tapscott

Related website:

http://www.grownupdigital.com/index.php/category/brand/

• groundswell

Charlene Li and Josh Bernoff

Related website:

http:///blogs.forrester.com/groundswell/

• Making Waves: Radio on the Verge

Mark Ramsey

Related website:

http://www.hear2.com/

And the last of your homework, but certainly not the least, is to join Facebook, sign up for Twitter, and check out a few blogs. If we are going to re-invent, we have to understand why and how.

Those are my thoughts. What are yours?

George