Broadcast Station Acquisitions: MYTH No. 11: Consolidation Always Rules

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Erwin KrasnowDoug-FerberBishop Cheenby Erwin G. Krasnow, Doug Ferber & Bishop Cheen


Deal flow speaks volumes about the entrepreneurial appetite for broadcast properties, and with the FCC’s broadcast incentive auction drawing closer, Garvey Schubert Barer attorney Erwin G. Krasnow ([email protected]), DEFcom Advisors CEO Doug Ferber ([email protected]) and SNL Kagan Analyst/Consultant Bishop Cheen ([email protected]) have written an extensive commentary de-bunking common auction myths. Previously, they covered the myth that under-stationed markets are attractive.

Here, the trio discuss the myth that consolidation always rules.

If you are a fan of Monty Python, you may recall Mr. Creosote from the 2003 film “The Meaning of Life.” Mr. Creosote, a grotesque fictional character, literally ate until he “…couldn’t eat another bite” but was convinced by the maître d’ to have just one “thin mint.” After consuming the “thin mint,” the character explodes all over the restaurant patrons.

In a rapidly consolidating media landscape, there has been a near obsession with scale. Beefing up, however, is not an automatic winning strategy. There are numerous markets where the simple AM/FM combo is still the market leader for revenue share against competing radio clusters, each with three, four or five stations. Likewise in TV, a single station can still beat multiple duopolies. There is also the notion that duopolies or clusters can compete with a lot less sales staff, programming professionals, talent, and administrative support. But there are dozens of unfortunate instances in which it is apparent that sales people cannot sell multiple formats, or maximize the cost per rating point of both the big four network affiliate and the sixth ranked independent station.

Many think that consolidation has created an environment where broadcasters are using more inventory to garner larger shares of shrinking budgets. In the past, radio and TV sales executives would add bonus weight to schedules in order to make campaigns more rating-efficient for media buyers and their advertisers. In today’s media environment, entire stations are given away as bonus weight — “If you buy the proposed schedule on KXXX, we will match it with an identical campaign on KYYY.”

The truth is in most specialized markets, sales people are good at selling targeted products — e.g., pots, or pans, but not necessarily both…and forget about covers to pots and pans. There are also too many situations where a cluster underperforms due to bad management resulting in multiple poorly performing stations rather than just one. As many investors can attest, it is a lot easier to buy stations than it is to manage them.

While well-managed stations — stand-alone or duopolies — are always the goal, there tends to be a competitive advantage in well managed clustered operations. Consolidation can generate savings in overhead by combining back office operations, including traffic, billing, engineering and production. In addition, the more stations a company owns the more bargaining leverage it has in negotiating higher retransmission consent fees and programming deals with networks and syndicates.

Having said that, there are regulations in place that require stations to negotiate in good faith without overstepping the legal bounds of anti-competitive practices. The Wheeler FCC has been taking a tough stance on joint sales and shared service agreements. The best advice is to consult with an experienced broadcast attorney to understand where the boundaries are. For a detailed account of the effects of consolidation on the radio industry, we suggest reading Barry Drake’s new book, 40 Years 40,000 Sales Calls (100% of the proceeds benefits the Broadcasters Foundation of America to help broadcasters in acute need).

Next time, the authors will cover the myth that a station’s culture is perishable.

Erwin Krasnow co-chairs the Communications Group of Garvey Schubert Barer, is Washington counsel to the Media Financial Management Association and former NAB general counsel. He has represented sellers and buyers of broadcasting, cable, tower and telecommunications properties in transactions totaling in excess of $21 billion. Reach him at: [email protected]/

Doug Ferber began his career as an entry level sales trainee for Bonneville International Corporation in 1984. After milestone assignments with Capital Cities/ABC and Interep National Radio Sales, Doug has brokered more than 50 transactions valued at over $400,000,000. He founded DEFcom Advisors, LLC, a Media Financial Consultancy Company, in 2009. Reach him at: [email protected]/

Bishop Cheen writes the “CAPITAL Letters” blog for SNL Kagan, is a consultant for Kagan Media Appraisals on valuations, expert witness and other financially focused assignments. He also teaches seminars and online courses (for the SNL Knowledge Center) on trends, economics, and valuations in the media/telecom industries. Bishop retired from Wells Fargo in 2012 as a managing director and senior analyst. Reach him at: [email protected]/