Tipping Point?

[SirRoxalot]

Radio Info is reporting that Regent is in danger of default. Bank of America considers their year-end statement concerns over their ability to continue paying their debts a "technical default" and is bring the hammer down on them.

If Regent can't renegotiate their debt, BoA may force them into bankruptcy. Regent has made significant moves to shore up the company recently. See Radio Business Report for more info.

If they can renegotiate the terms of the loan, it's likely to cost them even more in the long run, and impose strict restrictions - much like Citadel's recent "renegotiation" of debt covenants.

Citadel & Regent are staring default in the face. Cox looks like it will go private. Clear Channel continues to struggle.

The question is, are we nearing a tipping point? If one goes bankrupt, will that spark a "run on the bank" that will take down other groups in quick succession?

What's worse, watching cash-strapped companies continue to struggle to keep their heads above water in an ocean of debt, or facing the vagaries of bankruptcy, which could potentially put radio properties in the hands of new owners who don't have an unreasonable debt load?

 

[TheBigA]

If one goes bankrupt, will that spark a "run on the bank" that will take down other groups in quick succession?

Simple answer: No. There is no one "bank." In Regent's case, they have the misfortune of working with Bank of America, who are actually in worse shape than Regent. That's really the story here. It's not the radio companies who are in trouble, but their lenders.

What's worse, watching cash-strapped companies continue to struggle to keep their heads above water in an ocean of debt, or facing the vagaries of bankruptcy, which could potentially put radio properties in the hands of new owners who don't have an unreasonable debt load?

New owners wouldn't get the stations for free. Unless they have a source of cash that could cover their costs, the new owners would be faced with a lot of debt. The goal of the court would be to raise enough money to cover the debt, so the price for the stations wouldn't be "fire sale." If the new owners follow your direction, they'd have to hire a lot of staff, which would further put them in a hole. And the outlook in the advertising market doesn't appear to be improving any time soon.

 

[SirRoxalot]

Anybody buying radio stations at this point is going to pay a LOT less than these troubled companies did. They'll have a LOT less debt, which means a lot less of their cash flow goes to debt service.

Smart operators will invest in programming and technologies that will increase their revenue. The current operators are simply dying a slow, painful death, watching their revenues decline as they cut programming and pay an ever-increasing percentage of their revenue to the people holding their notes.

 

[TheBigA]

Anybody buying radio stations at this point is going to pay a LOT less than these troubled companies did. They'll have a LOT less debt, which means a lot less of their cash flow goes to debt service.

They will also have a whole lot less revenue to spend on programming or technologies, because no matter what they do, they will have less money coming in. In fact, the only companies that are investing in technologies are the biggest ones. Name one small local operator with a unique digital strategy. And even if they develop a digital strategy, it won't make up for their losses on the broadcasting side. It won't matter who owns these stations. The new reality is finding a way to do more with less.

 

[SirRoxalot]

No matter what they do, they're likely to have less revenue in the short term. If they have to use that revenue solely to pay debt service, there's no chance that they'll be able to expand their reach or even maintain current content.

A new owner with less debt would have a greater percentage of their revenue available to invest in the product, and perhaps expand their reach and content offerings.

Reality is that there are several companies that just aren't going to make it. What's the point in postponing the inevitable - except to line the pockets of a few fat cats at the top?

 

[TheBigA]

A new owner with less debt would have a greater percentage of their revenue available to invest in the product, and perhaps expand their reach and content offerings.

Or (and this is more likely) a great percentage available to stuff in their pockets.

Once again, give me an example of a small local owner with limited debt who is currently investing lots of money in new content offerings. Someone who's hiring staff, or building new web initiatives.

What's the point in postponing the inevitable - except to line the pockets of a few fat cats at the top?

We've gone through this many times before, and no one's pockets are being lined here. Farid would get paid the same money whether he's employed or not. The point in postponing it is bankruptcy is not a good thing.

 

[SirRoxalot]

Who said anything about "small local owners" buying up stations? There are groups out there who AREN'T in bankruptcy, are actually operating efficiently, and didn't overpay for the stations that they own.

There are also local owners who sold successful stations and groups to the consolidators for so much money that they could make more on the interest than they could make operating the stations. Some of them want to get back into the game, and have the money to do it if the price is right. You might be surprised at how innovative people are who've had time to sit back and look at the big picture without having to sweat bullets about day-to-day operations.

Radio is broken. There's no returning to the past, but there is hope for the future IF somebody can put money into innovation. You can't do that if you're broke.

 

[TheBigA]

Who said anything about "small local owners" buying up stations? There are groups out there who AREN'T in bankruptcy, are actually operating efficiently, and didn't overpay for the stations that they own.

There are also a lot of companies that aren't public, so you actually have no idea about their financial situation. I know of two private radio companies that didn't overpay for stations, and are also cutting employees and programming. You may be surprised who is really in trouble, and who is not.

You might be surprised at how innovative people are who've had time to sit back and look at the big picture without having to sweat bullets about day-to-day operations.

Ironically, the ones who have bought their old stations back (including my innovative friend Craig Fox) are NOT rushing out and hiring lots of staff or investing in programming or digital strategies.

For the third time, I'll ask you to give me one example of ANYONE with low or no debt who is investing in innovative ideas.

There's no returning to the past, but there is hope for the future IF somebody can put money into innovation. You can't do that if you're broke.

That's a big "if." People won't put money into innovation if they're not going to make it back. Right now, as I said, the margin on innovative ideas is much smaller than the status quo. Even though the status quo is not growing.

 

[Stewy]

Radio is going through something it hasn't before now because in the previous very deep recessions/depressions of the 1890's and 1930 it wasn't yet a viable industry (obviously). In general, in those periods, oligopolies formed then were de-formed (broken apart/fell apart) and once again did well again under different and smaller structures. Radio is beyond the tipping point, it is in the de-forming stage. It is just that the present de-formed big owner groups can't stand to look in the mirror at the haircut they'll have to take which will expose their previously hidden (shall I say it?) deformities.

Spring is here, weather has improved on the court house steps so I'll see you folks here soon. Rox is posting righteously above.

 

[SirRoxalot]

If radio doesn't evolve, revenue will continue to shrink. If revenue continues to shrink, the borrowers won't be able to make their debt payments, and the value of stations will continue to shrink. If the people who are owed billions of dollars determine that they'll get more of their original investment by liquidating now instead of waiting for values to fall even farther, bankruptcy will come.

It's better to get 25 cents on the dollar and invest it in something that has growth potential than it is to get 15 cents on the dollar in a couple of years, or leave it invested in an industry that has no growth potential and can't pay back its loans. Radio has NO growth potential if they can't innovate, and they can't innovate if all of their profit goes to the bank to pay back loans.