Minority Ownership Proposals

[TheBigA]

I read two articles today that got me thinking. The first was the one in R-I about 26 radio licenses that went unsold at an FCC auction. The second was this from RBR:

http://rbr.com/coalition-renews-appeal-for-fcc-action-on-diversity/

For years, the FCC has been giving lip service to minorities in terms of ownership diversity. The reality is that there isn't much the FCC can do here as long as it costs money to buy and operate radio stations. Unless they're willing to set up a minority loan program, or give away unsold licences for free, the problem will remain. What about those unsold licenses in rural areas? Why not give them to minorities? What about all the AMs that are going dark? The bigger problem for any owner, minority or otherwise, is the cost of operation far exceeds the cost of the license. You can buy a radio license for less than the price of a small house. But the operation cost could 10 times that amount annually. Everyone would like more minority radio ownership. No one is preventing that from happening. Minorities can see the huge potential pitfalls in owning a station, and are choosing not to throw their money away. Perhaps they're smarter than the big companies who are now billions of dollars in debt.

 

[w00t]

No one should get any precedence over anyone else when purchasing a license.

You either have a business plan and can afford it or you don't. Nothing is stopping minorities owners from ponying up and purchasing.

 

[borderblaster]

When there was a minority/female preference, it was easy enough to just put the wife's name on the application, or find a minority to be a partner. For that matter, that's how in the 7/7/7 days people had more than the prescribed number of stations "my brother in law owns the other 3".

 

[TheBigA]

There's an inherent contradiction in American broadcasting, where the airwaves are owned by the public, but licensed to private for-profit businesses. So while the government wants to assist in providing opportunity to minorities, it can't really do so in the area of running a business, unless it's willing to provide loans.

 

[Goat Rodeo Cowboy]

No one should get any precedence over anyone else when purchasing a license.

You either have a business plan and can afford it or you don't. Nothing is stopping minorities owners from ponying up and purchasing.

That is the rhetoric of the day.... but as a nation when push comes to shove... we don't buy that.

If 15% of the population is Black, we have this American concept that probably 15% of the people in Congress should be Black, that 15% of the businesses in America should be owned by Blacks and 15% of the broadcast licenses should be owned by Blacks. What are we now??? 20, maybe 22 per cent hispanic? There is something wrong with the licensing process and something wrong with the BUSINESS process and something wrong with the investment capital business if we are not somewhere near 20% hispanic operated broadcast stations.

Out of all this push-and-shove over a supposed "War on Women"... this week the chatter began: Until 50% of the Congressmen and Senators are female, there is something wrong with the political process in this country.

This is going to be a political year like nothing we have ever seen before in our history.

 

[TheBigA]

How much minority representation is there among the five FCC Commissioners?

 

[Goat Rodeo Cowboy]

How much minority representation is there among the five FCC Commissioners?

I went poking around the web, including the FCC site. I take it we are currently operating with only THREE active commissioners?

 

[TheBigA]

I went poking around the web, including the FCC site. I take it we are currently operating with only THREE active commissioners?

Correct. Congress isn't approving anything Obama does, including nominations to agencies.

 

[davideduardo]

No one should get any precedence over anyone else when purchasing a license.

When current and recent conditions have made it hard to achieve equal standing, there is a certain responsibility of the judicial branch to help tilt the scale towards equality.

When, in Arizona, you can still be stopped for "Driving While Hispanic," there is something in the system that needs a the nudge of correction.

The incentives we had some years back, consisting of seller tax credits to encourage the consideration of minority purchasers and the "discounting" of sale prices, made entry a bit easier to buy a station. But the purchaser still needed a good business plan and the right skills to make the deal work... which is fair.

 

[MickeyD]

How much minority representation is there among the five FCC Commissioners?

Just one black commisioner. A Senator's daughter.

 

[FreddyE1977]

What about those unsold licenses in rural areas? Why not give them to minorities?

State College, Pennsylvania is something like 0.02% black. They have a helluva time recruiting
minorities to Penn State because frankly they just don't want to be there.

So what minority is going to want to operate a radio station in a place like that?

 

[TheBigA]

Which is why business proposals built around agendas usually go nowhere. Or an agenda built around a business. Because at the end of the day, a radio station is a business, not a government program. Clear Channel has already donated several rural AMs to minority groups, and I haven't heard anything more about those stations.

 

[TomT]

I've built two of my radio stations, the first in a town of 2400, the second in a town of 5,000--with two competing FM's. Bought my 3rd station--but I had assigned that channel just before the Commission decided to go to the auction process. The winner of that auction sold the station to me 9 years later.

If you really want an opportunity for diversity, put back national ownership caps on radio.

Will mean more stations for sale, with realistic prospects for survival. But I said "opportunity," not a handout. What the loud mouths want is a hand out, with a guarantee of business.

Fine. Go extort a McDonald's franchise.

 

[TexasTom]

If you really want an opportunity for diversity, put back national ownership caps on radio.

Will mean more stations for sale, with realistic prospects for survival. But I said "opportunity," not a handout.

I agree.

The best way to achieve any kind of ownership diversity is to maximize the opportunities to acquire or start stations. And national caps would open up a lot of opportunities by ensuring that desirable stations aren't just locked up by a relative handful of owners -- and that when stations change hands it's not just as part of large mergers or acquisitions of large groups of stations.

Right now, the NAB is arguing the opposite -- that not only should we not reimpose national caps, but that we should eliminate the local caps that currently exist. My gut feeling is that if the NAB got what they want, the result would ultimately be an even weaker broadcast radio business. Why? Because the absence of competition and new blood in the business does have negative consequences.

 

[TheBigA]

And national caps would open up a lot of opportunities by ensuring that desirable stations aren't just locked up by a relative handful of owners -- and that when stations change hands it's not just as part of large mergers or acquisitions of large groups of stations.

Sorry, but there just aren't enough qualified owners. Same problem as they had in 1992. It costs a lot of money to run radio stations, and American companies don't like to be in the property management business. If foreigners could buy US radio, you might have a case. But given the current economy, the return on investment isn't worth it.

 

[TomT]

Define "qualified."

There are very few entities with the connections and financial clout to buy 300 stations. There are many more who could absorb 6 or 12 additional stations added to a small group.

During the height of the recession-2009--we were able to obtain financing & SBA approval to bid on a cluster. The deal did not go through because the seller tried ratcheting the price up. We weren't going to play that game, not in a down market, nor where the multiples on sales did not justify their asking price. So we eventually bought another property. The seller has since "left the marketplace" because it is now essentially beholden to the banks, who have everything tied up.

Re-imposing caps would not force sales immediately--those big companies would be grandfathered. But, if you watch the trades, it is apparent that these same companies are very much "over-leveraged," having paid too much for many of their properties. Eventually the dam would break, ice would melt, and a lowered national cap would result in more opportunities for qualified smaller group owners to add stations, and new entrants to build new groups.

 

[TheBigA]

During the height of the recession-2009--we were able to obtain financing & SBA approval to bid on a cluster.

How did you get SBA financing? My understanding is that it can't be applied to broadcasting properties. That's one of the issues that's come up in the hearings on minority ownership. Minority groups can't get standard financing, and there are no gov't programs that apply.

Eventually the dam would break, ice would melt, and a lowered national cap would result in more opportunities for qualified smaller group owners to add stations, and new entrants to build new groups.

I think the marketplace itself will cause that to happen. No need for changing regulations. At one time, Cleare Channel owned more than 1000 stations. They're now down to 850, and are looking to sell a couple hundred more. Most of the larger companies, like CBS, have been selling off clusters. And prices now are about where they were 20 years ago. And if ownership is too much trouble, simply do what Disney did in New York City and sign an LMA.

 

[TexasTom]

Sorry, but there just aren't enough qualified owners. Same problem as they had in 1992. It costs a lot of money to run radio stations, and American companies don't like to be in the property management business. If foreigners could buy US radio, you might have a case. But given the current economy, the return on investment isn't worth it.

Um, no. It's not the operating costs that keep many owners out of broadcast station ownership, but rather the acquisition costs. After passage of the Telecom Act, I watched station prices skyrocket massively -- and while they've come down significantly in the past decade, major and medium market prices are still substantially bloated up as a consequence of a handful of large companies chasing these properties.

Seeing station valuations come down somewhat impresses me as good in more than one way. Not only does it open up ownership to more entities, but it also makes operating those stations as something other than cash cows more viable, since the purchase price does to some extent determine the way that a station will be operated in order to extract maximum cash to justify that price. How many stations have had their airstaff gutted even though the station was profitable? Unfortunately, when a big media company came in and paid an astronomical multiple for that station, they looked to justify the price by increasing margins -- which was done by increasing spot loads while simultaneously cutting operating costs.

 

[TexasTom]

How did you get SBA financing? My understanding is that it can't be applied to broadcasting properties. That's one of the issues that's come up in the hearings on minority ownership. Minority groups can't get standard financing, and there are no gov't programs that apply.

That SBA prohibition on financing media companies (it also applied to newspapers) was lifted a number of years back, so it is at least theoretically possible to get an SBA loan for a broadcast property today. I've been given to understand that it's not easy (because banks that do SBA loans and the people working for the SBA don't understand the broadcasting business), so I am sure that Tom T worked hard to arrange that financing.

 

[TheBigA]

Unfortunately, when a big media company came in and paid an astronomical multiple for that station, they looked to justify the price by increasing margins -- which was done by increasing spot loads while simultaneously cutting operating costs.

That may have been true ten years ago, but you can't increase margins today by increasing spot loads. And spot rates have been dropping over the past four years. That's why station prices have dropped by as much as 70%.