Best state/ market to start in the business of radio

[broadcastguy]

As the title says, what state/ market do you think is the best choice to start managing a station? I have experience managing stations outside the US and I would like to make my way into a station (or two) here. The case is I have some funds and a friend willing to put some money to buy a station (two if possible), we are talking about $600k between the two of us. Doesn't matter where in the states, the only condition is that the station has to be profitable enough to pay for itself in 5 to 10 years.

I know it's a long shot and kinda risky, but as other member said before "I'd rather fail, than not of tried".

 

[davideduardo]

As the title says, what state/ market do you think is the best choice to start managing a station? I have experience managing stations outside the US and I would like to make my way into a station (or two) here. The case is I have some funds and a friend willing to put some money to buy a station (two if possible), we are talking about $600k between the two of us. Doesn't matter where in the states, the only condition is that the station has to be profitable enough to pay for itself in 5 to 10 years.

I know it's a long shot and kinda risky, but as other member said before "I'd rather fail, than not of tried".

$600 k is not going to get you much of a station. If you want a profitable one, consider that FM's are going for about 6-7 times broadcast cash flow (pretax and pre-depreciation profit) so you are talking about a station that might be making $80 to $100 k profit... and then with no real estate. And it would likely be in a smaller market.

It is tough today to have a stand-alone single station in a competitive market. Even many non-rated markets have cluster operators who take much of the revenue and have considerable resources.

$600 k might get you to a $2.5 million dollar station via financing, but you'd need to factor in your initial working capital as most sales leave the receivables to the previous owner so you would have to carry the station 60-90 days until those "net 30" invoices from your first month are paid. And if you have an asset sale deal, you'd need to deal with initial payments for new insurance policies, etc., as well as legal and related "start up" costs.

If your experience outside the US is in very large markets, you have to consider if you would like living in a town of 20,000 or similar, which is about what your capital would get you into (unless you want an AM or a rimshot in a slightly larger market).

 

[broadcastguy]

Thanks for your quick answer David. Yes, the idea is an FM or a fulltime AM with a translator. I guess the best shot would be to look to a not small at all market, buy a station that's not making a profit at the moment due to format, lack of proper management, lack of interest (owner retiring, etc) of whatever reason is and to run it very lean until turning it profitable. I bet the stick price will be way lower than the profit x6 rate.

 

[broadcastguy]

So... Lets see if I got this straight... By the rule of 6x a station selling for $1.000.000 makes a profit of $166.000/ year or $13888/ month give or take? That's the final profit after taking away running costs/ taxes?

 

[Kelly A]

I think given the flux of the advertising and media markets today, buying a stand alone small market radio station is on par with opening a restaurant in that same size market. In spite of being able to buy radio properties at depressed pricing as compared with twelve years ago, the deck is stacked against you for having what by any measure, what could be considered a successful business.

Just curious; what is your motivation for becoming an owner/licensee of a small market station? What are your qualifications? How many years have you been in broadcasting? Do you have a history in ad sales?

Look, I'm not trying to pee on your dream, but you need to look at any opportunity in this business with clarity before potentially ruining your life. If your motivation is because of the belief your idea for a particular personal format preference is a money maker, you're delusional. If you believe a community and the advertisers will beat a path to your door because you own the local radio station, you're kidding yourself. If you think you'll become some local community media mogul, starting out in small market radio, considering all the competition for media dollars these days? You're nuts.

Hey, it's your life and your money. Either way, you shouldn't rely on a handful of people on a radio discussion board for advise. If you find a menu of stations for sale, spend some time, research the market and do a full boat business plan for each station. Don't just make it about owning a station in general. Market to market can have wide variables that can spell success or disaster.

 

[broadcastguy]

Well, first thanks for your word of advice, I'm going to answer to your questions one by one.

I think given the flux of the advertising and media markets today, buying a stand alone small market radio station is on par with opening a restaurant in that same size market. In spite of being able to buy radio properties at depressed pricing as compared with twelve years ago, the deck is stacked against you for having what by any measure, what could be considered a successful business.

I understand that one sole station will have a hard time surviving, my idea is to buy (if possible) at least 2 stations and make them the most profitable format possible, this after a market study from a media broker/ media planner.

Just curious; what is your motivation for becoming an owner/licensee of a small market station? What are your qualifications? How many years have you been in broadcasting? Do you have a history in ad sales?

My principal motivation is to be my own boss, I'm tired of dealing with suits, micro managers and people who think that owning and running a radio station is the same as owning and running a gas station. My work experience in radio broadcast goes from vacuuming the studio to managing a couple of stations. I've been in the radio business for 12 years. Yes, I do have a history in ad sales.

Look, I'm not trying to pee on your dream, but you need to look at any opportunity in this business with clarity before potentially ruining your life.

That's why I'm not running to buy a small AM in the middle of nowhere!

If your motivation is because of the belief your idea for a particular personal format preference is a money maker, you're delusional. If you believe a community and the advertisers will beat a path to your door because you own the local radio station, you're kidding yourself. If you think you'll become some local community media mogul, starting out in small market radio, considering all the competition for media dollars these days? You're nuts.

I know that the format I like most will not work, so no, I don't want to own a station so I can listen to my favorite music in my own radio and be the cool guy with my friends. I know the advertisers won't run to me, by the contrary, they'll run from me, is part of the game I guess. I know that in any small market is quite difficult to become a media mogul so no, that's not my motivation either.

Hey, it's your life and your money. Either way, you shouldn't rely on a handful of people on a radio discussion board for advise. If you find a menu of stations for sale, spend some time, research the market and do a full boat business plan for each station. Don't just make it about owning a station in general. Market to market can have wide variables that can spell success or disaster.

Thanks for the advice, I'm asking here because I see most of you guys are veterans with a year or two in the radio business and many of you own or used to own stations.
Right now I'm studying 5 markets, their stations, who owns them, their demos, how many dollars there, etc.

Last thing I would like to point is how curious is that almost every person I talk to about this idea comes with the same answer "local radio won't get you any money", "it's a waste of time" but besides some low power daytime AM'ers I don't see no small market station owner returning their license to the FCC or desperately selling their stations for pennies. Maybe it's just me!

 

[davideduardo]

So... Lets see if I got this straight... By the rule of 6x a station selling for $1.000.000 makes a profit of $166.000/ year or $13888/ month give or take? That's the final profit after taking away running costs/ taxes?

Not a profit, but broadcast cash flow. That is before taxes, amortization, depreciation and interest expense.

 

[b-turner]

Small market radio is tough just like large markets. I have worked in both small and large market stations. I would take a small market over large market any day for several reasons:
1) You deal directly with decision makers one on one
2) While you have newspapers, shoppers, cable and other stations, you have fewer competitors overall
3) It is easier to be a significant small market station than a ratings topper in a large market

Granted you work all the time, if not in the office at various local activities you are expected to be a part of. Chances are your station will always be less than you wanted it to be or the format may not be your cup of tea or both but a real radio guy knows radio is about community in small market radio.

Rich is a funny word. Many think monetary only but fulfilling is another 'rich'. To understand your efforts provided a needed service and that you are doing for the community and pulling a paycheck to boot is pretty sweet in my book. To hold the reigns on that station gives you the ability to create that 'richness'.

In looking at markets, I would suggest you not only look at the market from a competitive angle and from an economic perspective but select those few for your short list and rate the community health. I'm talking a community that has the ability to come together for everyone's mutual benefit, a strong sense of place or community, strong volunteerism and an underlying need to support the community. I have known newspaper publishers and broadcasters in towns where the community was divided, there was no community pride and such. Some towns have a we're local and you are not syndrome. The figures generally don't show this part. You actually have to meet and greet and look at the community has accomplished over the years. If a town has a strong sense of identity, unites to work on projects, feels they need each other and embraces new neighbors, you might have a wonderful community where running a radio station will survive and serve it's community well.

Obviously a stable population, stable business community, not lots of lost retail dollars leaking from your county and a community not reliant on one thing for its prosperity should be things to look at.

Who has owned the station and their reputation in the community is important to know. I looked at one station where the owner and his wife had done so much for their community they could have easily won citizens of the year every year. The station did what it did in part because of the owner and his wife and their reputation in the community they had lived in all their lives. A new owner, new to the town, would not reach the sales figures this owner did. At least not for several years at a minimum.

 

[Groove1670]

Small market criteria:
Have backup cash reserves
Prepare to work 12-18 hour days
You will need to oversee Sales, traffic, programming, and engineering
You will spend most of your time on the street networking
Sales experience is a must. If you are a programmer or a DJ who wants a radio station, take the money to the race track. You will get a better return.
Be prepared to get doors shut in your face, but also there will be bright spots too.
There will be weeks that you will lose one or two BIG clients (I had one client who shut the doors, and another lost in a fire), and you will scramble to pick up the lost revenue.
Budget! Figure in costs for equipment failures, legal and engineering fees, music fees, regulatory fees, insurance, rents, power and so on.

The first 24-36 months (like any other business startup or acquisition) will be difficult.

and that is easy part.

 

[broadcastguy]

Great, thanks Groove1670. Curious about what is the hard part then?

 

[Groove1670]

The challenge everyday

 

[b-turner]

Oh yes, there are wonderful war stories that will keep fellow broadcasters mesmerized when they learn of the struggles of a station owner. If only every employee could grasp that!

I can say I have experienced much the same and that is from a sales position, not an ownership position. Where I was it meant selling all day, copywriting and production at night and getting thoroughly beat up by clients on some days. There were some that were so wonderful too.

For example, I had two businesses where I was told to never come back. My boss said I had to visit both of those businesses weekly. I told them my boss said I have to stop by weekly and I couldn't lie to him but that I'd just come to their door, try to make eye contact and leave. In a couple of weeks I was let back in. In a few weeks we were talking, not about advertising by getting to know one another. Five years later they were my favorite accounts and would not make an advertising move in any media without talking to me first for my advice. Even after I went to the next station, they insisted on using me on their spots.

Jumping in the deep end is never easy but just staying with it delivers rewards down the road. You'll never win them all but those where you do earn their trust is all that truly matters. There were many days I didn't look forward to the next but there were always days I was inspired and encouraged. Certainly the first year was hard but it became easier. You just have to decide you won't quit and realize each no gets you closer to that yes.

And I might add, I know what the bottom of the barrel looks like or the feeling you are on the edge of falling off the financial cliff and losing your footing, but it all turns out okay although the fight is never won and continues daily.

If you wonder why station owners are so fiercely protective of their stations, this is why. The cost paid has been hard fought, shaky and sometimes down right impossible but they beat the odds. I think you have to live that to 'get it'.

 

[davideduardo]

A new owner, new to the town, would not reach the sales figures this owner did. At least not for several years at a minimum.

Also consider that an owner who is not part of the regional culture of the area will have a harder time building relationships. I'm not just thinking of a person from Boston buying a station in Meridian, MS, but also even someone from the "Big City" of Denver going to Sheridan,WY, and trying to fit in.

 

[K.M. Richards]

Also consider that an owner who is not part of the regional culture of the area will have a harder time building relationships. I'm not just thinking of a person from Boston buying a station in Meridian, MS, but also even someone from the "Big City" of Denver going to Sheridan,WY, and trying to fit in.

Funny you should mention Denver, since that's where the people who bought the station in Ventura, CA that I programmed for a couple of years each side of 1980 were from. Had no idea how to serve the market they were now in. The PD did mornings, thinking himself to be a personality (he wasn't; the midday guy should have been in that time slot). Broke the AM/FM simulcast of the first real AC in the market which was doing great in the ratings to go very traditional MOR on the AM (in 1981-82?) and Beautiful Music on the FM (with four such stations already established in the market from L.A. to the south, and a fifth from Santa Barbara to the north, plus an in-market station whose ratings were falling and was only a year away at that point from going CHR). A two-hour local sports talk show in afternoon drive when the local news/talker had just cancelled theirs because of low listener participation.

Literally all the clients they inherited cancelled within the first two weeks. Their idea of trying to save the accounts was to have their GM tell them how great they had been in Denver. He was repeatedly reminded he was in Ventura now.

The new FM format went away within six months, along with the AM PD and his airstaff. A modified version of the AC format they had dumped was again simulcast, using as many of the old airstaffers as they could get to come back. Didn't help and they filed bankruptcy less than two years after buying the station.

New owners went AOR, then split the AM off to an oldies format. In 1984, FM went CHR and I came back for about six months, first doing weekends, then mornings, then PD again. Even though our corporate offices wanted the station to go more AC, the idiot GM rebelled against my following those orders, brought in a consultant who thought he was going to dictate rather than consult. I left, station went dark less than a year later, ended up going back on the air as "Easy 96.7" and eventually sold to a regional outfit who does nothing but Spanish-language CHR.

There's a nice horror story about the inability to fit in to a market you don't already know ... and which also doesn't know you.

 

[broadcastguy]

Also consider that an owner who is not part of the regional culture of the area will have a harder time building relationships. I'm not just thinking of a person from Boston buying a station in Meridian, MS, but also even someone from the "Big City" of Denver going to Sheridan,WY, and trying to fit in.

I was raised at the beach/ countryside and then went to the city to study and work, so I feel pretty comfortable in both worlds, if you ask me at this time of my life I prefer a small city, preferably near a beach.
I'm guessing here, but in case I go on with this my idea is to hire a local well known, experienced salesman, if there's any, and work back to back with him/ her.

I don't mind getting my hands dirty with jobs that a CEO/ Manager from a bigger city wouldn't do, I've done it before to save other's money, why I wouldn't do it to save mine?

b-turner I get your point and I've been there too, between a demanding boss that wants that account and threaten to fire me if I don't get it and a client that tells me in the face "don't come back ever, I don't buy radio advertising, don't waste your time", it's an interesting moment. More than once I went home frustrated, yelling in the car, even crying or asking to myself why the hell when I was a teenager instead of going to College and become a lawyer I decided to be around radio consoles, vinyls and CD players, but every time I go to a station I feel at home (you know the feeling), so I think that's why.

Don't get me wrong, I've been thinking about other possibilities, a franchise or whatever, but the thing is I think I'm good at what I do, I like it and I've been here for more than a decade so I'm kinda used to it.

 

[davideduardo]

I'm guessing here, but in case I go on with this my idea is to hire a local well known, experienced salesman, if there's any, and work back to back with him/ her.

At single stations the size your capital budget will permit, the owner is generally the general manager and the sales manager. Think of it this way: any seller good enough to merit consideration can likely come up with a way of making some deals with friends in the community to buy the station themselves. So much of the "selling" function is with the manager... and that includes civic club membership, CofC, and whatever else goes on in the community that brings the local business folks together.

 

[davideduardo]

Sales experience is a must. If you are a programmer or a DJ who wants a radio station, take the money to the race track. You will get a better return.

Either you know sales, or you learn it really fast.

I was a programmer "wannabe" and found that the only way I could program in a nice size market (around 1,000,000) was to build a new station and put on a format that had never been done by any of the 30-some existing stations.

I had to learn sales really fast, including both agency sales and direct sales. But the first 6 months were really rough and I almost ran out of money.

And you can only learn sales if you have an aptitude for dealing with the objections and turn-downs and like to help clients improve their business.

The kind of rejection you deal with is illustrated by one big client that had a sign in his reception area that said, "If your business is advertising, my door is closed" I got one of those 3-foot-high miniature doors that hardware stores have to demonstrate locksets, and made a card that said, "If your business is sales, our door is always open". It was delivered to him by messenger. I got an appointment and a sale. But it takes a lot of "glass is half full" perspective to deal with tough cookies like that.

 

[b-turner]

Actually, the boss wasn't on my case. Funny war story here: A managing partner was brought in to a rather high billing AM/FM combo that was losing money. They had gone a year or two without a GM, so both the Operations and Sales Manager thought they might get to fill that chair. Both were not happy when a partner was brought in to manage. The first day the longtime sales staff of two quit. I was hired within a few days of this, given 40 accounts to visit (all had done business in the past) and sent to the streets. The two salespeople that left created a rumor that the GM and I were gay lovers from the big city and our ploy was to pull every dollar as possible from the town. In fact, one of those two clients told me this much later. That client believed every word because they had bought from that salesperson for over a decade. I learned once they realized we both had wives, lived in town and not what the rumor was, they came around. It was a long build up as half the station's billing left with the pair that had been with the station. My boss, that new partner, managed to trim the fat and survive without letting anyone go although when a few left, they weren't replaced.

After 5 years I took another position and my boss was so cool he coached me on the right questions to ask and analyzed their answers to make sure I was getting in to a good position. Stopped in a few years back, visited the station and a few favorite clients (the all remembered me which was cool since it had been years). The station was doing quite well, walking circles around the competition. In fact a couple of the guys I had worked with then were still at the station.

 

[b-turner]

I love the story about door being closed to advertising. You are right. It takes a positive attitude. I recall one guy who said if I was selling he wasn't buying. I said I was there to make sure his success continued. I guess that worked. In a few weeks he gave me a shot. Maybe he saw something in me that reminded him of himself, I don't know.

I even had a guy say if he bought from me would I leave him alone. I told him I had good news and bad news. The bad news was if he didn't buy I'd still come by but the good news was if he bought I'd come by to make sure I was working hard for him. He said there was no way for him to win and I said only if he bought from me.

 

[Groove1670]

Also consider that an owner who is not part of the regional culture of the area will have a harder time building relationships. I'm not just thinking of a person from Boston buying a station in Meridian, MS, but also even someone from the "Big City" of Denver going to Sheridan,WY, and trying to fit in.

LOL. Meridian Ms. is my market, and yes you would be eaten alive. Don't know about Denver to Sheridan. When I was in the Keys we had a few City Folks migrate from Miami. That was sometimes a hit or miss. They realized the culture and pace was much slower. You didn't wear a suit around town or residents thought you were the IRS or FBI, and wanted nothing to do with you.