We have had more than one client ask “is radio going to be worth anything in the future?” And our carefully studied, but qualified answer is “certainly”. But there are qualifications: It’s going to be a long rebound, in fact a slow growth as opposed to a rebound, and we frankly hope we never get back to the “greater fool” days of four and five years ago. That may sound harsh or not very bright, but here’s how we see it…for what it’s worth.There are a lot of owners out there who are looking at bankruptcies, receivership, trustee situations, work-outs, you name it, simply because they can not service debt, pay creditors, and continue to operate, much less show any kind of return of investment. Why? Because they simply paid too much for their stations in the first place, not because they are “bad guys” who don’t want to pay.
Why did they pay too much? Was the value truly there? Or were they convincing themselves that they could make magic happen (and change the laws of gravity while they were at it) simply through brute force? Could it be that access to easy money led to a “broadcast bubble?” Why would buyers believe they could create triple or quadruple digit growth when the marketplace was growing at a fixed rate? Why would buyers think they could increase a station or cluster of stations’ revenues by 20% per year? Did they truly believe the other owners in the market would be willing to roll over and play dead?
Cap rates of 10 to 12 percent are not realistic. The growth is not there. Entering into financing deals with upfront due diligence fees, debt placement fees, management fees, 12% to 15% interest rates, and a three-year balloon is bad business.
Cap rates of 7 to 9 percent don’t make a lot of sense either. When we conduct a pre-acquisition analysis for a client, we take into consideration the revenue in the market, the market share, the true cost of money, and the rate of return after calculating a realistic sources and uses of funds. The old saw about “figures lying and liars figuring” is as true today as the day it was first uttered.
We can fool our bankers, our investors, our competitors; but to fool ourselves is disastrous. It’s time to flush all this bad paper out, settle debts, and bring it all down to earth and a realistic assessment of what this business of ours can do. No more speculation, no more overly-leveraged acquisitions. Return our business to a sound financial foundation and the business will take care of itself nicely and while we’re at it provide the best bang for the advertising buck the retail establishment will ever find while still serving the public interest.
That’s 30 For Now…For What It’s Worth