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800.275.2840 MORE NEWS» insideradio.com THE MOST TRUSTED NEWS IN RADIO THURSDAY, JANUARY 8, 2015 Radio 2015: Inventory may slow pace of deal-making. The number of stations sold last year increased and dealmakers say the multiples paid for prime FM signals ticked higher by half a point by the time 2014 drew to a close. In the months to come, for the first time in several years the biggest hurdle for potential buyers may be too little inventory up for sale. “Certainly inventory is a big concern, and if the market slows down in 2015 it will because of inventory,” Patrick Communications managing partner Greg Guy says. “With the buyers who are out there, if there is not quality inventory, I don’t see them dipping down and buying lesser inventory just to buy.” Media Services Group managing director George Reed agrees inventory will be 2015’s biggest challenge. “There are buyers out there who have money and an appetite for deals and the challenge is going to be to find the kinds of deals that they Radio 2015: All this are looking for,” he says. Broker Michael Bergner sees similar market conditions. “There are a bunch week Inside Radio of small and middle market consolidators that are all trying to get bigger and I don’t see the inventory will examine the biggest issues facing out there to sustain that push,” he says. Why is there less for sale? Brokers say the proverbial low- broadcasters, along hanging deals have largely come to market, due to financial backers who ended up with companies with trends to be on as part of post-recession restructuring having already sold off most of their assets. “We’ve come to the lookout for in the the end of the restructuring cycle and the obvious sellers have already sold in 2013 or 2014,” Media coming year. Venture Partners managing director Bill Fanning says. “There are still a few out there, but they are fewer and far between.” Supply, demand and why multiples could inch up. It’s basic economics: less supply will drive prices up. But brokers say more than in the past, buyers are also demanding stations with existing cash flow on which to build their business plan. As a result, there’s little appetite for second-tier clusters or stick deals. The challenge is operators are less likely to sell such lucrative stations. “That’s the challenge, and that supply-and-demand problem also puts a little pressure on pricing,” Media Services Group’s George Reed says. The marketplace already witnessed multiples for prime properties edge higher during the past year, but a continued increase isn’t expected. Broker Michael Bergner predicts that dynamic will create a pricing floor in 2015. “There is strong demand and there’s competition for certain deals, so that’s a positive as far as the deal market is concerned,” he says. Bergner thinks that if the radio industry were showing more revenue growth, station trading multiples could be in the 10- to 12-times cash flow range rather than its current 6- to 8-times. “From a valuation standpoint, good clusters, the first and second tier stations in rated markets, multiples are increasing and the world is getting better,” Patrick Communications’ Greg Guy says. “For third or fourth tier stations or single station owners, it’s still really tough out because people who do have money typically won’t spend it on those assets.” The hardest sale in 2015 remains AM radio. The biggest single-station sale last year wasn’t for an FM. Instead, Family Radio paid $12.95 million for directional 50,000-watt WQEW (1560) in New York as part of the Radio Disney sell-off. But brokers say that doesn’t signal any turnaround in buyer appetites for AM stations. “There is still some market, as illustrated by the Radio Disney sale, but AMs are going to continue to be under pressure,” Media Venture Partners managing director Bill Fanning predicts. “As part of clusters, they’ll still trade. But standalone sticks are tough — it’s just not a core asset for most owners.” The consensus among dealmakers is that AM values will continue to decline, especially for stations with weak signals or shrinking advertising sales. Many religious and ethnic operators are increasingly FM-focused, they explain. [email protected] | 800.275.2840 PG 1 NEWS insideradio.com THURSDAY, JANUARY 8, 2015 “Unfortunately, AM is a real challenged business right now and there is no indication that will change,” broker Michael Bergner says. He points out it’s especially hard to get lenders to put their money behind a broadcaster willing to take on the challenge. “The problem with AM is you have to come up with a business plan that makes money,” Bergner says, “and other than leasing your station to a time broker, there’s no format that works.” The FCC has yet to follow through with any lifeline to AM stations, and some brokers now believe by the time they do take action it may be too late for some operators. Slow growth doesn’t scare off today’s buyers. Only the brave are still standing. That’s how one dealmaker jokingly describes today’s radio market. While an intentional exaggeration, brokers say it’s not far off point as investors dabbling in radio have moved on in the post-recession world. So when industry revenue went negative in third quarter, it had little effect on deal-making. “It’s caused people to pause and maybe restrained multiples a little bit,” Media Venture Partners managing director Bill Fanning says. “But as long as we hold the trend line in the plus-two to minus-two range, there shouldn’t be much of an impact.” It’s a different sort of economic indicator that could send a chill through the market. Buyers are currently able to get loans at historically low interest rates, and that’s kept buyers on the hunt. “The spigots are wide open, so that’s keeping things going. If that were to disappear, all bets are off for the deal market,” broker Michael Bergner says. The broker community says most expect interest rates to tick up slightly this year, without having much of an impact. It’s a bigger economic shock that Media Services Group managing director George Reed says keeps brokers up at night. “There has always been a relationship between radio deals and interest rates and an upward trending interest rate environment is not particularly a good thing,” he says. Inside Radio Readers’ Survey: Off-air revenue keeps adding up for many stations. Industry revenue data has shown off-air events, from bridal shows and job fairs, to concerts and holiday festivities, have been growing at a faster pace than on-air sales. One reason may be a record number of stations report dipping into the NTR well. More than four in five (82%) of readers taking part in Inside Radio’s annual year-end survey say their station or cluster made money from off-air events last year. What’s just as noteworthy is the number of stations attributing a larger share of their sales revenue to NTR. Nearly one-in-ten (9%) say 11% or more of their total billings were from off-air. That’s up two points from a year earlier. And 16% indicate 7% to 10% of their billings came from events, up three points from the prior year. More than a third (35%) of respondents say 1% to 3% of revenue comes from NTR, while nearly a quarter (22%) attribute 4% to 6% of total 2014 revenue to it. Yet despite its growth trend, 18% of readers say their station received no revenue from off-air events. Mobile dollars grow, but building remains the order of the day. A record number of stations say mobile became a “significant contributor” to their bottom line in 2014. Among people taking the Inside Radio survey, 8% said it was a major moneymaker, up 33% from a year earlier. Nearly a third of readers say they’re seeing mobile generating at least some revenue at their cluster, a figure that’s roughly on par with the two prior years. But with the mobile marketplace still rapidly evolving, the largest number of readers — 36% — says their station is still trying to determine the best way to sell a mobile platform to clients, the same number as in 2012 and 2013. With new inventory and options to integrate, from selling geo- targeting ads to mobile display ads, it’s not surprising to see a quarter (26%) of readers label their station in build mode for another year. Radio 2015 continues — including more from our year-end survey — in tomorrow’s Inside Radio. CBS Radio angles to be go-to place for podcasts. Compared to streaming music services, the on demand market for spoken word audio has just a handful of players, including Podcast One, iHeartRadio Talk, NPR One and Stitcher. Now one of radio’s largest producers of news, talk and sports is angling to be the go-to place for podcasts. CBS Radio CEO Dan Mason says yesterday’s launch of Play.it is both a response to changing consumer behavior — listeners want to hear [email protected] | 800.275.2840 PG 2 NEWS insideradio.com THURSDAY, JANUARY 8, 2015 their favorite shows on their schedule, not the station’s — and a way to aggregate a large number of podcasts in one central location. CBS is drawing on its major personalities to populate the podcast network, like Boomer & Carton, Danny Bonaduce and Kevin & Bean, and programing from its TV network like “48 Hours” and “60 Minutes.” “This is not just about repurposing shows, it’s about the content that will be made specifically for this platform,” Mason tells Inside Radio.