Citadel: It's official

[SirRoxalot]

'Guru, I'm well aware of who Eugene Debs was, and of the implication intended by Mr. Eduardo. I'm also well aware that stockholders buy into a company for a variety of reasons. Some like to play the churn - attempt to read a volatile market, buy in at the low point, and sell at the high point. Others prefer to buy stock in companies that offer more stable stock prices and substantial dividends, offering steady income from their investment and a potential for real (not manipulated) growth in value.

The problem for the last 15 years has been the sucker play - financial and investment professionals who make money based on the number and/or amount of TRANSACTIONS. They've created churn, which has artificially inflated stock prices. The real value of companies lagged behind. Bankers - who once again earned bonuses based on the number and/or size of deals - approved loans that they KNEW were unwise in order to earn their bonuses, then bundled that worthless paper with other, better deals and sold them off to a different group of suckers - earning ANOTHER bonus in the process.

What's the current recession about? It's truly a correction. In radio, the selling price of stations is dropping back to pre-1996 numbers, and is being based on potential reach, not cash flow. Other industries are seeing similar corrections.

 

[davideduardo]

What's the current recession about? It's truly a correction. In radio, the selling price of stations is dropping back to pre-1996 numbers, and is being based on potential reach, not cash flow. Other industries are seeing similar corrections.

I have no idea what "potential reach" is... this is radio, not an oilfield.

Stations are being bought on a variety of factors including market billing trends, station history and expenses, power ratio if the purchaser intends to keep a station in format, and, of course, both leading and trailing EBITDA indexed against market billings and the economy.

Multiples are well below the 1985-1995 range, even when based on declines in BCF due to the recession. All you have to do is look at the recent major makret sales in Denver (CBS) and Portland (To former Citadelian Larry Wilson) to see that we value FMs at early 80's multiples and AMs are generally considered excess bagage (Look at KMOX in the PPM!!!!)

 

[davideduardo]

Substitute "steel companies" for "radio" or "stations" and this could have been written by Eugene Debs.

Oh, please do cite me a Eugene Debs quote on that subject. I'm apparently not familiar enough with his writings.

Please reread my post, particularly the part that says "could have..."

 

[TheBigA]

Here's another shocker to add more dismay to your world.. Probably 75% of the public shareholders of publically traded coporations are either not involved in, nor have ever worked in the business they (partially own).

What makes matters worse is that, due to declining interest rates, the best place for someone to put retirement money is the stock market. So we have what are called "institutional investors." State and union pension funds. Insurance companies. IRA and 401Ks. 50 years ago, some of those institional investors owned radio stations. The Chicago Federation of Labor owned WCFL. Numerous insurance companies owned radio stations. Now radio is a bad investment. That's not good. But the idea that stockholders are bad and greedy misers ignores the fact that a large percentage of people in this country own stock in some way, whether knowingly or unknowingly. And that had greatly changed the way stock-based companies operate.

Then again, in terms of broadcasting, I don't see huge differences in the way privately held stations run their stations, and Clear Channel hasn't become more generous since leaving the stock market. The fact is the commercial radio is a business, not a hobby. The goal is to make more money. If that's seen as being greedy, so be it. But when you are the one who has put your personal money in the pot, you want to see it increase.

 

[TheBigA]

They've created churn, which has artificially inflated stock prices. The real value of companies lagged behind.

I think this whole view over-simplifies the situation.

In the 80s, we had a situation where the FCC was overlicensing the spectrum. Clearly, it's cheaper to start a radio station than to buy one. But by the early 90s, the spectrum was pretty much full in most markets with population. So the only way to get a radio station was to buy an existing station. That made those licenses more valuable. Supply & demand, and the FCC created this new demand, and the increase in station price. Now, the situation is simple: NO demand. No one can get credit to buy radio, because the banks aren't lending. No demand means price falls. Personally, I don't see this as a correction. I see it as a depression. Just the real estate these stations have alone is worth more than the selling price. But no one can get money. Those who can, operate in a new reality of falling station values and falling ad rates. That will not lead to growth or investment in content. It leads to speculators who buy stations cheap, operate them cheaply, and hope someday for a chance to sell at a profit. I don't see that as an improvement.

 

[TVradioguru]

As with what happenned in the late 40's and 50's when radio was devalued due to the large, evil, greedy corporations which started radio, moved their interest to television, radio will find it's place and value once again.

Now the latest shiny object is the Internet, and the original wireless media source radio, is having to adapt to the latest round of competition and societal tastes. Is radio going through another round of devaluations because of increased competition and technology? Of course, and chances are AM radio will go the way of the dinosaur in the process.

That being said, I maintain this latest swing of radio reinventing itself isn't any individual nor evil, greedy, shareholder nor corporate fault. Everything evolves. One can sit back and play the blame game wishing for the good old days (as you choose to remember them), or one can look at the opportunties ahead and adapt accordingly. That, is what's going on today. Radio is hardly broken, it's just evolving.

 

[adma]

Radio is hardly broken, it's just evolving.

Though to get into semantics, one could just as well point to the medium we're working on as proof that "typewriters are hardly broken, they're just evolving".

 

[HowardMBurgers]

Actually you made the Guru's point.. What format is the keyboard you typed that message on?

 

[adma]

Well, I wasn't precisely disproving his point. But if you show me a laptop manufactured by Smith-Corona or Olympia, then...

 

[HowardMBurgers]

Not a laptop anymore, but perhaps you've heard of IBM? I believe they used to be famous for typewriters.

 

[bossbill]

Easy now. I still have my Selectric II.

 

[HowardMBurgers]

I do as well! At least once or twice a year I fire it up to fill out a form since my handwriting is so bad.