Over the past year, radio station prices have been falling like laid off media bankers. We all know the reasons why – the perfect storm of secular and cyclical forces which have come to a head at the worst possible time. After years of establishing itself in the mainstream, the Internet and other competing forms of information and entertainment have undercut radio’s dominance for listeners and advertisers while key advertising sectors – like autos and real estate – have evaporated, along with a lot of jobs. In my humble opinion, I wouldn’t expect any improvement in the cyclical issues until, possibly, 2012. The secular issues are another matter. While licensed media claims the overwhelming majority of ad dollars, there are many more viable choices out there. And after years of consolidation, automation and homogenization to rationalize mountains of debt and investor returns, listeners are tuning out. This has created a vicious cycle where broadcasters can’t innovate even if they wanted to because they’re worried about next month’s interest payment.
Valuing radio stations now is mostly speculation because there have been so few trades to establish reliable benchmarks. But if the trickle of activity in markets like New York, San Francisco, Denver, Seattle and Portland is any indication, double digit BCF multiples have become single digit multiples, and double digit dollars per pop have dropped to a buck or two. There is considerable consternation about the WQXR-FM deal in New York valued at $45 million or $2.90 per pop when a major market class B FM going for less than $100 million was unthinkable a year ago. While there is no question that single digit BCF or per pop multiples are probably the new “normal”, the WQXR deal should be viewed with a grain of salt. The seller, The New York Times, apparently felt an obligation to the local community to preserve the classical format, still a mainstay in high-brow markets like New York, Boston and San Francisco. In all likelihood, if preserving the format was not an issue the price would have probably been much higher. There are other examples in recent trades where motivated sellers were forced to capitulate on price to satisfy the demands of their constituents – and I don’t mean listeners.
Which begs the question: where are prices going? Some people may disagree but I see no basis for the double-digit valuations of the past. The value premium for licensed media – limited inventory, oligopolistic pricing, recurring revenue – is under assault. But that doesn’t mean that the business will dry up and blow away either, as some believe it will. Once the business digs itself out from under a pile of debt and has an opportunity to innovate and re-connect with the local community, it should be a good solid business in the new media hierarchy. It just won’t enjoy the dominance it once did. In the meantime, if you have money, now is certainly a great time to be buying radio.
John Brooks was until recently a media banker with Wells Fargo Foothill.