Buying or Building a Radio Station
The process involved in the purchase of an existing radio facility is fairly complex. There is much to take into consideration. For one thing, it is rarely a quick and easy procedure because the FCC must approve of all station transfers (sales).
According to radio station acquisition expert Erwin G. Krasnow, “The due diligence process involved in the acquisition of a radio station typically includes a review of the general economic and operational conditions, as well as such areas as the financial and accounting systems, programming, technical facilities, legal matters, marketing, employee benefits, and personnel and environmental matters. The objective of due diligence is to obtain information that will (a) influence the decision of whether or not to proceed with the acquisition; and (b) have an effect on the purchase price or working capital adjustment.”
Purchasing a broadcast property is unlike any other kind of acquisition because of the unique nature of the business. It is important to keep in mind that in the end a station owner does not own a frequency. An operator is merely granted permission (a license) to propagate a signal for a prescribed period of time (7 years) and then must reapply to continue broadcasting. If an individual wishes to create a station from scratch, an application for a CP must be filled out and submitted to the FCC. This too is quite involved and requires special expertise; it is necessary to determine whether a new station can be accommodated on the existing broadcast bands in the area of proposed operation.
If it can be proven that an available frequency exists and that no interference will occur, a CP may be granted. The applicant is then given a specified amount of time (usually 18 months) to commence and complete construction. Before proceeding with a CP request, it is incumbent on the applicant to meet all of the criteria for station ownership set by the FCC. A new station must apply to the FCC for call letter acquisition. The station may request a particular set of calls, offer an existing station (possessing the calls it wants) a deal to transfer their calls to it, or take whatever the FCC issues it. Meanwhile, a station receives its frequency (kHz/MHz) from the FCC based on what is available in the allocation table for a particular market. Radio company CEO Robin Martin offers the following criteria for station acquisition.
1. The attractiveness and strength of the market: I view this criterion from the perspective of general economic health and growth, the number of outlets and competitiveness of radio and other media in the market, and the general livability of the market (a measure of whether the owner would like to visit often or live in the market).
2. The signal coverage of the station: Not every station must be a Class B or C FM facility or a 50,000-W AM, but to be competitive in the target market, the tower location and height, combined with the authorized power, must be sufficiently optimized for the signal to reach the business and residential areas of the market with a signal that penetrates buildings and overcomes topographical obstructions so the average listener, in a car, at work, or home can listen on an average or subpar receiver. If listeners or advertisers can’t hear the station clearly, the station can’t expect to earn their loyalty even under the best of management.
3. The reputation and legacy of the station: A key test of success in my due diligence of a station is the longevity of the sales force. The longer the average tenure of the incumbents and the more people on the sales force with over 5 years of service with the station, the greater the likelihood the station is well-regarded and successful in the marketplace. Another measure of this same success is the compensation of the middle half of the sales force. Disregarding both the best performers and the new recruits, higher compensation of the middle of the pack sales people indicates that the station has strong relationships with its advertisers as evidenced by their high renewal rate and great number of success stories (i.e., the station’s advertising brings customers to the store). The success of the station and its competent management, along with the resulting good compensation, means that sales people like working at the station.
4. The consistency of financial and ratings performance: Long and steady growth in sales, cash flow, and ratings are a better predictor of future performance than recent or occasional sales spikes that propel performance up over a short period. Numerous changes in programming or promotional strategy, in rate philosophy, or in staff all indicate an unstable organization in search of the next new thing to the detriment of listeners and advertisers. The results of station performance will be uneven and unpredictable.
If the target station is a startup or a turnaround, however, only the first two criteria apply meaningfully. The other main considerations for this type of purchase would be the strength of the management team, the reasonableness of the well-researched business plan, and the depth of finances the new owner brings to the deal.
Note:
1. Radio managers face greater challenges than ever due to new audio competition and station consolidation. In addition, radio’s unique character requires that station managers deal with a wide variety of talents and personalities.
2. The authoritarian approach to management implies that the general manager makes all of the policy decisions. The collaborative approach allows the general manager to involve other station staff in the formation of policy. The hybrid or chiefcollaborator approach combines elements of both the authoritarian and collaborative management models. The chief-collaborator management approach is most prevalent in radio today.
3. To attain management status, an individual needs a solid formal education and practical experience in many areas of station operation – especially sales
4. Key managerial functions include operating in a manner that produces the greatest profit, meeting corporate expectations, formulating station policy and seeing to its implementation, hiring and retaining good people, inspiring staff to do their best, training new employees, maintaining communication with all departments to ensure an excellent air product, and keeping an eye toward the future, especially in terms of how new technological applications, such as Web sites and HD, can enhance profitability.
5. Station clustering and consolidation have changed the personnel landscape at stations as radio groups often concentrate the operation of several stations in one central location. Some of the positions in a station cluster include a market manager, director of sales, general sales manager, director of operations, and controller 6. In noncluster station environments, the operations manager is second only to the general manager at those outlets that have established this position. This individual supervises administrative staff, helps develop and implement station policy, handles departmental budgeting, functions as regulatory watchdog, and works as liaison with the community.
7. The program director is responsible for format, hires and manages air staff, schedules airshifts, monitors air-product quality, keeps abreast of competition, maintains the music library, complies with FCC rules, and directs the efforts of news and public affairs. The sales manager heads the sales staff, works with the station’s rep company, assigns account lists to sales people, establishes sales quotas, coordinates sales promotions, and develops sales materials and rate cards. The chief engineer operates within the FCC technical parameters; purchases, repairs, and maintains equipment; monitors signal fidelity; adapts studios for programming needs; sets up remote broadcasts; and works closely with programming.
8. Managers hire individuals who possess a solid formal education, strong professional experience, ambition, a positive attitude, reliability, humility, honesty, self-respect, patience, enthusiasm, discipline, creativity, logic, and compassion.
9. Says consultant Ed Shane, “The new radio paradigm is ‘manager as financial expert.’”
10. Radio provides entertainment to the public and, in turn, sells the audience it attracts to advertisers. It is the station manager who must ensure a profit, but he or she must also maintain product integrity.