Should I Buy This Radio Station?

[everydayguy]

Background: A new 6kw FM -- new studio equipment and new transmitter/antenna included -- just signed on a month ago, no revenue, minimal staff. It has a reasonable tower lease and a cheap office lease and is for sale for under $ 175k.

Market: A county with 50,000 people that is growing steadily in an area with a good economy. The nearest larger market is 60 miles away.

Competition: A daily newspaper and five local commercial FM's are already operating in this county. Some signals from the larger market are heard here. A few format holes exist, so not many unique programming options. Most of the local FM's use satellite-fed programming.

Question: Assuming we have a solid marketing plan and can build a good sales team, does this seem like a potentially good purchase? Or is there too much existing competition?

 

[borderblaster]

I'd be hesitant with the 5 FMs already there. How many owners for the other 5 stations?

 

[Bill Betten]

I assume this is in TX?

 

[everydayguy]

Only two owners for the five existing stations.

 

[Goat Rodeo Cowboy]

50,000 population split among five stations? That would scare me.

 

[Chuck]

That is going to be tough. Are you already well connected with the community, or are you an outsider? In small markets, that makes a big difference.

 

[everydayguy]

Chuck, I'm not connected to the community but I do have a potential GM/GSM who lives there and has been connected for many years. This would be a case of absentee ownership but I would still be only a few hours drive away from the station.

 

[TomZ]

Do you think there is a good opportunity to exit this investment when/if you wish to move your money elsewhere?

 

[PTBoardOp94]

Based on the limited information provided, I could see this working profitably -- but only if there is a legitimate format opening to serve. Probably not going to turn a profit doing standards, all due respect to Chuck

The major city in your county is likely to have enough business competition that there is a reasonable advertising budget at many businesses. If you can pull in good ratings, money can start to flow from major corporations like Dollar General that use radio advertising.

 

[Chuck]

Based on the limited information provided, I could see this working profitably -- but only if there is a legitimate format opening to serve. Probably not going to turn a profit doing standards, all due respect to Chuck
The major city in your county is likely to have enough business competition that there is a reasonable advertising budget at many businesses. If you can pull in good ratings, money can start to flow from major corporations like Dollar General that use radio advertising.

Let's do a little math here. If you hire a GM, what will he cost? How about other staff members, or is he the Lone Ranger? Add to that rent, utilities, general office expenses, music licensing, FCC regulatory fees, property tax, insurance, debt service, etc. Do you need to replace any equipment? How is your EAS box? Is it CAP capable? How is the paint on the tower? What kind of shape is the rest of the equipment? You’d better budget for equipment maintenance and repairs, as well as replacement of major items like the transmitter, etc. What are you going to do for programming? You can barter for a satellite service, but it may not be compelling enough to attract a lot of listeners. That just depends on what else is in the market. You may be better off doing it yourself, but that costs money. A conservative guess is it will cost you at least $10,000 per month to break even. It all adds up rather quickly.

Do you know what the “going rate” for spots is in the community? To get started, you will probably have to be less expensive than your competition. You have to sell a lot of spots at $5.00 to $10.00 to make your monthly expenses. Can you do that in a community of 50,000? Maybe, but is going to be tough. I’d be the last person to tell you not to do this, but just walk into it with your eyes wide open. It is not an easy business, and being an absentee owner puts you at a real disadvantage.

 

[Chuck]

I should have re-read the original post before making my last one. Since the equipment is relatively new, then you can probably "ride for free" at least for a while. Keep in mind that is does break and still needs maintenance. Nothing is quite as exciting as getting hit by lightning. It can, and probably will, happen. You just never know when.

Even with relatively new equipment, you still need to do your "due diligence" before entering into an agreement. Lots of people put new stations on the air using 15-20 year old transmitters and STL's. You need to check that.

 

[ChiefOperator]

Good for you trying to get your own station! Let me throw in my 2 cents.

Here are a few things I recommend you think about. I’m not trying to discourage you; instead, I’m offering some thoughts based on what I know of the business.

Why are you doing this? Is it for love of radio and you’re willing to travel any bumpy roads? Or is it strictly an investment? If it’s love of radio, then it’s a lot easier to weather storms (mentally especially) than if you’re focusing on a specific return as an investment.

First, you really need to determine your monthly expenses just to keep the station on the air Remember, if your revenue doesn’t pay the bills, you might have to make up the difference. Are you doing this alone or will you have partners?

Next, you really need to look a REALISTIC look at what your billing is going to be. Some things to keep in mind: You’re actually competing against more than five other stations because the larger market stations are heard in your town.

We live in an era of radio groups and, for the most part, they may take the national advertising. You may need to rely on local stores for your billing. What is the retail landscape there? Local stores or just chains? If the landscape is merely chains, be cautious. You may not get buys unless you have high enough numbers for national sales. Look very closely at the retail in this town and honestly ask which merchants would buy from you.

The GM is good, but what if he quits? Would you be able to replace him?

Good luck

 

[TheBigA]

Some really good posts in this thread and I agree with all of them.

As I've said in other posts, the opeating expenses will exceed the purchase price, so you need to be prepared for that. Don't know what your capitalization is, but we were in the hole for a million before money started coming in. Part of that was we had to buy equipment and we chose to buy (rather than rent) a building. A million goes quickly when you have major ticket items to purchase. We started with a staff of five, and expanded to ten in two years. We did a lot of trade deals, but we were in a much bigger market. Five existing stations in a small market is tough, but it's hardly the worst. I've seen smaller markets with more stations, so I wouldn't be disuaded by that. It's hard to be efficient with only one station, so you need to build multiple income streams. Look for other sources of revenue besides on air advertising. That might even include renting studio time! Think about all the people and companies in town you can work with. It's about the deals you can make, and the relationships you can build. Hopefully, the other stations aren't as aggressive.

 

[ChiefOperator]

Look for other sources of revenue besides on air advertising. That might even include renting studio time! Think about all the people and companies in town you can work with. It's about the deals you can make, and the relationships you can build. Hopefully, the other stations aren't as aggressive.

Great points! An AM that I engineer sells it weekend shows to various local vendors. The hosts of the garden show, computer show, and others pay the station to be on the air. Generates good revenue. Don't overlook these opportunities.

And, yes, the relationships that you build are key. The successful small town stations that I know do more than sell advertising. They build a relationship and take an active interest in the success of the merchant.

 

[Groove1670]

If you are buying the station outright (without a note) your costs should be minimal. However have at least a year of operating funds under your belt.

With the exception of the transmitter, transmission line & antenna. I would go with the used equipment route, upgrade as revenue allows.

 

[JustPastBuffalo]

How much of your own money are you putting down? How much are you financing and at what interest? Some very wise money people would tell you that there are ways to invest $175k (or whatever you're putting on the table) and get a better return on investment.

In a market/city of 50,000 with five other stations owned by two operators, you're the odd man out if your format becomes successful and one of the other multi-station clusters takes you on, especially if they have a 50 kw FM against your 6 kw. Are you going to be the vocal-local-yokel or try to be big city slick? Can you equal or out-slick the two group operators?

The other concern is how much local revenue does the newspaper take out of the market compared to the existing five FMs? Where's your revenue going to come from? Can you take a bite out of the print pie and the competing radio groups. Many good points made thus far in this thread, especially the poster who asked: What's your exit strategy?

Bon chance!

 

[TheBigA]

Can you take a bite out of the print pie and the competing radio groups.

I'd ask a different question: Are there potential revenue sources who aren't being in the game yet? Who haven't been asked? To me, finding new money is the biggest victory.

 

[everydayguy]

I'm the original poster and I'd like to thank everyone who offered me their advice.

There are some great suggestions here and many things for me to think about before I decide whether or not to take the plunge.

One factor that may or not have any bearing is that this station will reach a fairly large and growing retirement area. According to the latest census, more than one-third of the population is over the age of 50 and there are many, many residents who are age 60-plus.

Yet the existing radio stations here are all either Hot Country, Hot AC or Classic Rock.

Since there are no ad agency buys here due to the small pop count, could a station targeting older listeners with Easy Listening, Adult Standards or Soft AC appeal to enough local advertisers to make this thing work?

I have a hunch that we could develop a loyal following among people who'd like a "softer" music mix and coverage of local events geared to their interests, but would this attract enough advertisers to keep the lights on?

 

[Goat Rodeo Cowboy]

I have a hunch that we could develop a loyal following among people who'd like a "softer" music mix and coverage of local events geared to their interests, but would this attract enough advertisers to keep the lights on?

My memory of things BigA has written tells me he normally is not high on the idea of programming to the older demo. But in your case, it could be that the older demo is possiby your "found money".

If that route loos feasible to you, the next question is, where do you find a mentor or two who understand and appreciate that market.

 

[Chuck]

I have a hunch that we could develop a loyal following among people who'd like a "softer" music mix and coverage of local events geared to their interests, but would this attract enough advertisers to keep the lights on?

Well, that's what I've been doing for several years in East Texas. It has worked and the station is profitable. So yes, it is possible, but you probably won't get rich either. The secret is to bring people back to radio who have long ago abandoned it. That isn't as easy as it sounds and it takes time to get established. You are welcome to listen on line at www.kzqx.com Maybe you will get some ideas.

Incidentally, Arbitron publishes a list of formats, and how they do in market share on average. You can find it on their web site. At least, it gives you a good idea what to expect for your chosen format, which should help you develop your business plan.