RBR analysis: Some prime radio properties on the market


Parting with some prime radio real estate is the price that Clear Channel must pay, but only six stations, under the DOJ antitrust decision that clears the way for the company’s private equity buyout. So it’s full steam ahead to a closing next month as buyers line up to pick up the castoffs in San Francisco, Houston, Cincinnati and Las Vegas.

According to a research note from Bear Stearns analyst Victor Miller, DOJ is requiring CCU to sell one Spanish language station in San Francisco, which would be KSJO-FM. In Houston it must divest one English station, either KHMX-FM or KTBZ-FM, and its one Spanish station, KLOL-FM. In Cincinnati it has to part with two English stations – either the combination of WLW-AM and WKFS-FM, or the combination of WOFX-FM and WNNF-FM. And finally, in Las Vegas CCU has to divest its one Spanish station, KWID-FM.

Right off the bat you can rule out Cumulus Media Partners or Univision as buyers, since it is the overlapping ownership stakes in those companies by Thomas H. Lee Partners and Bain Capital that has the DOJ worried about market dominance.

Let’s take a look at the stations up for sale and the potential buyers in each market.

San Francisco, Arbitron market #4: First off, the antitrust lawyers at DOJ have demonstrated time and time again that they don’t know the first thing about how the radio business actually works. In this case, they assume quite incorrectly that formats are forever. Thus, Clear Channel needs a buyer who will maintain a Spanish format on KSJO-FM – if not Spanish Oldies, at least some Spanish format to maintain competition with Univision. The logical buyer is Spanish Broadcasting System, which owns KRZZ-FM and could expand to two stations in the market. The problem there is that investors are already mad enough at Raul Alarcon for his Mega TV project and could go ballistic if he decides to make a big radio purchase. BIAfn shows KSJO with 7.6 million in 2006 revenues and that likely didn’t change much in just-completed 2007. Separated from the CCU cluster, SBS might be able to maintain a 40% or so cash flow margin, but anyone buying it to be a standalone would have more overhead to deal with. A 12 multiple only gets this to 36 million, so it’s really a question of stick value. It wasn’t long ago that a San Francisco stick was worth 90 million or more, but that is going to be considerably less today, especially when you have to keep it Spanish so CCU can satisfy the DOJ.

Houston, #6: Who has the cohones to buy KLOL-FM and keep a Spanish format on it as a standalone up against the giant clusters of Univision and Liberman, neither of which can buy it (unless Liberman wants to do a chain-reaction deal and offload a lesser FM signal)? BIAfn shows the station with 15.5 million in billings for its Spanish Reggaeton format, so a pretty good revenue performer. Hot AC KHMX-FM has 16.5 million and Modern Rock KTBZ-FM 11.4 million. So start the bidding at 60 million for KTBZ, 70 million for KLOL and 75 million for KHMX. We don’t see CBS as a buyer, so unless Cox Radio is expansion oriented it doesn’t seem likely there will be an in-market buyer.

Cincinnati, #28: Bobby Lawrence on line one! The CEO of Local TV LLC and his long-time partner Randy Michaels, now focused primarily on running the broadcast and Internet properties of Tribune Company (but also providing some services to Local TV via a new Tribune subsidiary), have a lot of history with Cincinnati radio and also want to launch Local Radio as a partner to the TV company. Bobby and Randy have to be salivating at the possibility of owning WLW-AM again. But will CCU part with the 50kw blowtorch, which BIAfn listed with a market-topping 24.2 million in revenues? CHR WKFS-FM had only a bit over four million. The alternative combination is Classic Rock WOFX-FM at 8.4 million and Hot AC WNNF-FM, which checked in with 6.8 million under its previous calls, WVMX-FM. News/Talk/Sports WLW is a high-overhead operation to keep those billings so high. Our rough estimate is bidding of 85 million and up for door #1 and 70 million plus for door #2. Bonneville might be an in-market bidder, but more likely Bobby Lawrence will be competing with groups looking to get a strong foothold in another market. Perhaps someone like Greater Media or maybe Entercom might want to return to Cincinnati after swapping its previous cluster to Bonneville.

Las Vegas, #32: Univision already has considerable competition in Spanish radio from Entravision, but the DOJ’s mathematical models apparently concluded that Mexican KWID-FM, with billings that BIAfn put at 3.5 million, created the potential for ad pricing control in cahoots with Univision. Never mind that the whole idea doesn’t make any sense and that Univision has been trying to sell its three Las Vegas stations. The sale price for KWID will be pocket change as far as Clear Channel is concerned and DOJ’s concerns about this market can really be called no more than making a mole hill (certainly not a mountain) out of an ant hill. If the buyer is anyone other than Entravision, would they be willing to pay even 10 million?

RBR/TVBR observation: The true irony of this is that Clear Channel had led the charge by general market broadcasters to get into the fast-growing Hispanic radio market and create new competition. So, the DOJ’s Antitrust Division is actually moving to decrease competition in the Spanish radio marketplace in three markets, by forcing a sale to either an existing competitor or a new entrant who will be a weaker, standalone competitor than Clear Channel was with its English-Spanish clusters. Your tax dollars at work.

See the pdf attachment below for Victor Miller’s analysis of how this all plays into Clear Channel preparing to close its going private buyout.