Earlier
this week a news item appeared in Forbes
magazine [link] about the recent Chapter 11 bankruptcy filings by iHeart Media
and Cumulus Media. Apparently both companies will need to shed some its
stations to raise money to satisfy creditors before the companies can emerge
from bankruptcy.
This
is an important new development for public radio companies. For many years, the
lack of available full-market signals at affordable prices has kept public
radio broadcasters from adding new noncommercial formats that are needed in
their markets.
Gene
Ely, a contributing writer to Forbes, put it this way in his article:
Expect to see a dramatic
shedding of radio stations, likely hundreds, many at rock-bottom prices. Never
mind statements put out by the company that stations will not be sold off.
That’s intended to quell fears among employees and stem any flood of talent.
Currently
iHeart owns around 850 stations and Cumulus owns 600. Many of these stations
were acquired during the hyper consolidation era in the late 1990s and early
2000s. Because of the massive debt they acquired during consolidation they
operated the stations as cheaply as possible. Higher paid employees, new
program development, research and promotion were slashed. The air-sound was
dumbed down, local programs were scratched and station value fell.
Image courtesy All Access Media |
Now
the whole business environment has changed. Hyper consolidation has stopped,
many new competitors on multiple platforms have emerged and local service is
now essential. For the past several years prices have dropped.
In other words, it has become a buyer’s market.
According
to Ely, iHeart, Cumulus and several other debt-ridden companies must become
leaner to survive. Companies with
stations in their portfolios that don’t produce positive cash flow (and there
are many of these) will need to go. If more and more stations are being sold,
sale prices will fall even further.
This
is what happened earlier in March when Educational Media Foundation (EMP)
scooped up The Loop in Chicago for a garage sale price.
Shedding
under-performing stations will soon be a top priority for iHeart and Cumulus.
Ely says that “several hundred” stations will sold, many just to get them off
the books.
This
creates a huge opportunity for public radio broadcasters. Like EMF, public
radio operators have very little debt and quite few noncom organizations can
come up with the cold, hard cash iHeart and Cumulus need immediately. This is the
time for public radio to add new service.
THREE MARKETS WHERE
ADDITIONAL NONCOM FORMATS WILL SUCCEED: HOUSTON, ATLANTA & CINCINNATI
Lets
look at the February Nielsen PPM ratings and one-year trends for three big
markets that are missing key noncommercial public radio formats.
HOUSTON FORMAT
OPPORTUNITIES: Classical and Triple A
John
Proffitt and KUHF made a valiant attempt to establish KUHA as a fulltime
Classical music station but they paid way too much ($9.5 million) for the
frequency. KUHA typically had between 150,000 and 200,000 estimated weekly
listeners who enthusiastically supported the station.
Unfortunately
that large number of listeners could not generate enough revenue to sustain the
station. KUHA began shutting down in August 2015. Since KUHA vanished, KUHF has
aired Classical music on its HD2 channel with disappointing results.
There
is no Triple A station in the market.
STATIONS THAT MIGHT
BECOME AVAILABLE:
KTRH
(iHeartMedia)
KROI
(Radio One)
ATLANTA FORMAT
OPPORTUNITIES: Classical and Triple A
For
many years WABE was a dual format station and made a significant effort to
maintain Classical music on the station.
However, the arrival of Georgia Public Broadcasting’s WRAS three years
ago caused WABE to focus only NPR News/Talk programming. Now there is no
Classical music on the Atlanta dial.
Atlanta
is one of the nation’s great music markets. There would be a huge out-pouring of
support for a Classical station.
The
need for a “music discovery” Triple A station is perhaps even larger. Though
there are at least four alt-rock stations in the market, no one is specializing
in Triple A. This is hard to believe in
the city the raised and nurtured artists like REM.
ATLANTA STATIONS THAT
MIGHT BECOME AVAILABLE:
WRDG
(iHeartMedia)
WBZY
(iHeartMedia)
WYAY
(Cumulus)
CINCINNATI FORMAT
OPPORTUNITY: Triple A
Since
the much beloved Triple A station WNKU was sold, no other station has brought
Triple A back. The organization that does reestablish Triple A in Cincinnati
will receive healthy doses of love and support.
CINCINNATI STATIONS THAT
MIGHT BECOME AVAILABLE:
WNNF
(Cumulus)
WFTK
(Cumulus)
That Forbes article is utter nonsense. Putting aside for a moment the fact that Forbes' website is a clickbait factory these days, there's not a shred of sourcing anywhere in the story. Nothing to even hint at why the author thinks these outrageous claims. In short: it's all wishful thinking masquerading as "analysis".
ReplyDeleteA simple examination of what the tax burden will be to iHeart or Cumulus were they to "sell off" at "fire sale" prices, compared to what those licenses would garnish on the open market, quickly destroys all of the already-thin logic holding the article together. If either of them hold a "fire sale" they'll end up LOSING a lot of money. That doesn't make a whole lot of sense to the creditors, who are looking to maximize their return on their investment.
It *IS* possible that you'll see some swaps going on. But only swaps (which avoid incurring taxes) and probably only on small scales. There's not a whole lot of fat in either IHM nor Cumulus' inventory these days; they've already gotten rid of those signals over the last ten years.
Aaron, taxes do not apply in a bankruptcy....survival does. If you have a money loser, that you've written down, you can unload the 'turkey' or even 'donate' it, and your balance sheet looks better, as a result. There are a pile of money losing sticks in both company's inventory. Class A's on rented towers, for example. Weak sister station doing a simulcast of another rimshot on the other side of the market. Today, for example, one of my bankrupt competitors is selling spots at $5, just to fill up the schedule. Those folks they are selling ads to, will NEVER go back to $14 or $18, not now, not in a year, not in three years...not in a format flip. And, that's what it will take, for them to 'break even', out of bankruptcy. And, Aaron, Cumulus is swimming 'under water' in signals that have no audience / no billings and they will NOT get swapped out. That's why they aren't filling out the final engineering on some AM translators, and haven't paid some landlords since January....because they can't figure a way to make them financially viable, after the bankruptcy court approves their deals. Remember, BOTH companies are now controlled by the folks that are owed gobs of money. The bondholders have already taken a bath. They are NOT going to operate long-term and lose more money. (Yes, this includes contracts for Limbaugh and Hannity on the IHRTQ side!)
ReplyDelete