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Dallas Radio and the economy

S

spymovie7

I originally started out at UTA as a Radio-TV major, but changed to Marketing, and received a BBA.

With the things going on in the Economy right now, I thought I’d present a business scenario that one of the professors described one day in one of my classes. It’s an example of free enterprise, and a phenomenon called “the money multiplier effect.”

Let’s say, for example, that ten of the local media outlets had a meeting and decided to make a $250,000 donation to the Red Cross. Each of the ten outlets put $25,000 on the table.

The person presiding over the meeting took the money, and cut WFAA a check for $250,000.

WFAA then took the sum, and bought a $250,000 advertising schedule from K104 Radio.

K104 Radio then took the money, and did the same thing by purchasing an advertising schedule from the Star-Telegram.

The Star-Telegram then took the money, and bought an advertising schedule from 98.7 KLUV. And so on…

Finally, the tenth media outlet, KSCS, spent the money on an advertising schedule with the first media outlet, WFAA.

WFAA then donated the $250,000 to the Red Cross.

Thus, each station donated $25,000 in cash – yet each sold $250,000 in advertising, and each received $250,000 in advertising.

They were all better off. They all made a profit. And a generous donation was made to charity. Essentially, they earned the money for the donation through reciprocity and free enterprise.

Why not call another meeting, and do that again next Tuesday?
 
Great idea, except it doesn't take into acccount the cost of each transaction.
The salesman's commission.
The bookkeeper's salary.
The continuity staff.
The announcer.
The copywriter.
The elecricty to run the transmitter.
The paper for the forms.
The board operator to play the spots.
And the buy is made with post-tax dollars, while the station receives pre-tax dollars.
Are you sure you earned a BBS?
 
grantchester said:
Great idea, except it doesn't take into acccount the cost of each transaction...
Click to expand...


Not to mention the loss of revenue from the air time/newsprint that was used to advertise the schedules.

dr
 
Check your bottom line. Each station has nothing to show for the $250,000 buy. Not one $1 was left at the station to go toward salaries and other operating costs.
 
The "flaw" in the original scenario that you're trying to describe is called "opportunity cost."

For example, all of the airtime that say, CBS-11, offered in exchange was time that might have been sold to some other advertiser for cash.

However, it's only a true "opportunity cost" when the station is sold out 24/7 -- and in today's economy, that's not the case.

I once discussed a radio sales model like this with Hymen Chiles when I was working at K104. He used the expression, "It's a wash."

This type of thing actually does happen in Dallas Radio all the time. A restaurant might allow the station employees to eat there in exchange for some commerical spots in lieu of cash. I know. I've been there. I've eaten some of those lunches. That throws the expression, "There is no free lunch" out the window.

No free lunch? Well, I had a few when I was working in Radio...
 
Joe King said:
The "flaw" in the original scenario that you're trying to describe is called "opportunity cost."

For example, all of the airtime that say, CBS-11, offered in exchange was time that might have been sold to some other advertiser for cash.

However, it's only a true "opportunity cost" when the station is sold out 24/7 -- and in today's economy, that's not the case.

I once discussed a radio sales model like this with Hymen Chiles when I was working at K104. He used the expression, "It's a wash."

This type of thing actually does happen in Dallas Radio all the time. A restaurant might allow the station employees to eat there in exchange for some commerical spots in lieu of cash. I know. I've been there. I've eaten some of those lunches. That throws the expression, "There is no free lunch" out the window.

No free lunch? Well, I had a few when I was working in Radio...
Click to expand...

Uh.. no.. that's called trade advertising. Stations do that all the time. The station gets something it needs in exchange for air time. There's no free lunch at all. That airtime is valuable and I can assure you it is accounted for on the books.

The lunch may have been free to you, but it was paid for by the station with airtime.
 
That airtime is valuable -- and so is the lunch.

Regarding how it is accounted for on the books, one of the financial statements is the Income Statement.

The Income Statement details Revenues, Expenses, Accounts Receivable, and Accounts Payable.

Do you think they create an account called "El Chico Lunches Receivable" as an Asset?
 
Hey, aren't you the same guy who tried to get me in that pyramid scam years ago??
 
He's gonna fix Arbitron first by going after PPM, then he'll nationalize radio and fix everything else. What a guy. I also heard he's into tree farming, you know, the kind that start with little ACORNS.
 
Another aspect of this is the difference between Fixed Costs and Mixed Costs.

A Fixed Cost is something like rent, utilities, salaried employees. Each month, these are going to be the same.

A Mixed Cost is something that increases with each product or service produced. For example, raw materials or hourly payroll might increase for a manufacturer as production increases.

When a radio station's advertising schedule is not sold out, the cost of airing some commercials in this fashion is negligible. The production director is salaried, and the station is going to be on the air 24/7 anyway.

Thus, the Mixed Cost of airing those commercials is negligible; yet the value created for the media outlet you are advertising remains the same as that paid by the clients who are purchasing your airtime for money.
 
ROFLMAO! What a daisy chain!

Since each media outlet spends as much as it receives the net result is that each outlet is out $25,000 for their donation to the Red Cross.
 
Joe King said:
A Mixed Cost is something that increases with each product or service produced. For example, raw materials or hourly payroll might increase for a manufacturer as production increases.

When a radio station's advertising schedule is not sold out, the cost of airing some commercials in this fashion is negligible. The production director is salaried, and the station is going to be on the air 24/7 anyway.

Thus, the Mixed Cost of airing those commercials is negligible; yet the value created for the media outlet you are advertising remains the same as that paid by the clients who are purchasing your airtime for money.
Click to expand...

So if the mixed cost is negligible, and the station has paid their fixed costs, than airing that commercial is what some of us refer to as "profit". Assuming someone is paying for it. In this case, if all you're doing is trading spots, there's not an actual cash profit involved.
 
Joe King said:
Let’s say, for example, that ten of the local media outlets had a meeting and decided to make a $250,000 donation to the Red Cross. Each of the ten outlets put $25,000 on the table.

The person presiding over the meeting took the money, and cut WFAA a check for $250,000.

WFAA then took the sum, and bought a $250,000 advertising schedule from K104 Radio.

K104 Radio then took the money, and did the same thing by purchasing an advertising schedule from the Star-Telegram.
(snip)Thus, each station donated $25,000 in cash – yet each sold $250,000 in advertising, and each received $250,000 in advertising.

They were all better off. They all made a profit.
Click to expand...
Maybe you could explain your theory again, slowly. Because the way I understand this is that K104 kicks in 25 grand. Then they get a 250K ad buy from WFAA but spend 250K on the FWST.

I don't know what you degreed people call that but that's what I call a 'wash'. And they're still out the 25 grand up front. So in your brillianttheory, where EXACTLY is the profit?

The advertsing booked from WFAA? Only a profit if there's not a quid pro quo to spend that same 250K with the FWST.

So you're the one with the degree, tell me how spending 25K leads to a profit anywhere on that balance sheet....
 
Joe King said:
Do you think they create an account called "El Chico Lunches Receivable" as an Asset?
Click to expand...

First off, the El Chico lunches wouldn't be a receivable would it? If you trade airtime for lunch certificates, what is the 'receivable' on the stations end? More like it's an account payable, in that you'd have a trade agreement that would say 1000 dollars in tex-mex in trade for 2000 dollars in airtime usable 6a-12a, M-Su, airtime to be used in 1st quarter 2009.


And do they call that trade script an asset? If their accountants are halfway decent, yes they do.
Because why it might not seem like much for some lunches, let's say you've got a deal with a local car dealership that gets the on-air and/or engineering staff vehicles.

Let's say you (the station) are paying for a 30K "conversion van" that you're going to use as a remote truck. Don't you have to account for that 30K in airtime somehow? Isn't that promise to run that airtime (either for teh tex-mex or the van) a liability until the transaction actually occurs?

Now it might have a neutral effect on your balance sheet, (because you have a 30K asset (van) AND a 30K liability (the promise to run 'free' airtime)

(and for those of you that may not think those trade cert's are an asset think of it this way. a 100 dollar bill is an asset, right? If you take that 100 dollar bill and buy yourself 100 dollars in Mickey D's gift certificates, it's still an asset on your books. With every happy meal you buy you're using up an asset, but it's still an asset. An illiquid asset (because you can't spend it anywhere other than MCD's) but trade certificates are an asset nonetheless...)
 
I keep getting this mental image of putting all those jerks into a circle...
Actually, even if the fixed costs don't apply to the deal, adding one more commercial means that's one more minute listeners will tune out, and one less minute to play Benny and the Jets, or one less clever double entendre joke.
 
In regard to trading free lunches for the station DJs in regard to advertising spots, the accounting entries would actually be like this:

When El Chico pays cash for advertising, you would debit Cash, and credit Advertising Services.

If El Chico trades free lunches, you would debit Meals & Entertainment, and credit Advertising Services.

Regarding the question of how many dollars, it's really an option to the station whether you want to put it on the books at full ratecard price, agency discount, or some other value that essentially like "wholesale."

Don't forget that revenue can be taxed. Sometimes, you might want to be prudent; other times, you might want to record it at full price. Revenue minus Expenses equals Net Income or Net Loss. El Chico's lunches still count as a form of Revenue; it's simply not cash.
 
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