Like it or not, broadcasters who are trying to deal with the worst ad recession ever seen are joined at the hip to their lenders, who are also in a world of hurt. Former banker Tom McCool talked with RBR/TVBR about what each side should be focusing on – and what it will take to bring back the broadcast financing market.
“What we’re trying to do is help either the banks or the media companies deal with the current situation – trying to figure out both from an operational standpoint and a valuation standpoint what they can do to either turn around [the operation] or just go off the air,” McCool said of the new company, Palatine Portfolio Advisors, that he recently formed with veteran broadcasters Paul Robinson and Robert Long. The problems that stations are facing are well known to RBR/TVBR readers, but the lenders are also having to deal with the situation as well. “Neither party knows what to do,” said McCool, who spent much of his career at PNC Bank.
For broadcasters struggling with over-leveraged situations, McCool says what they should be doing is concentrating on where their strengths lie – “really focusing on what their brands are and what their name is and trying to focus on those core activities and try to get rid of the stuff that’s losing money on a regular basis.” That’s a tough decision, but he says groups may need to just close up some of their worst-performing stations. “Some of these stations that they operate are zombies, really. All it is is expense for them. They probably need to shut those down,” he said.
As for any return to significant station transaction activity, McCool noted that there is still quit a gap between the bid and ask for station. We asked, how do you figure next year’s cash flow? “Good question. That’s really one of the hard parts in determining what the value of the place is. I think that’s going to be a real test for a lot of people, trying to both figure out what their existing ad revenue base is going to erode, but whether there’s also a way to create some additional revenue,” the ex-banker said.
What about television? Are TV companies better positioned because of retrans? “I think so. I think they’ve got more avenues to make some money from both advertisers and from licensing. I think they’re actually in better shape than a lot of the radio broadcasters are,” McCool said.
How will this shake out? “It’s going to be a struggle for [broadcasters] until we get to a point where somebody can actually apply a valuation model to a steady stream of income and tell you this is what they can do. Until they really work out how the Internet and other advertising models are going to work for them, it’s going to be hard,” he said.
What will bring lenders back? “You can go back 20 years and ask the same question. Nobody was in the business then. Everybody was doing workouts. Within five years the industry was back on its feet and people were lending. It’s likely to go in much the same way here. You get one or two deals back on their feet and bankers – I speak as one – bankers tend to be a herd, once one is back in the business the rest will follow. But it takes stability and being able to predict where cash flows are going to be,” McCool told us.
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