THREE MUST-HAVE INGREDIENTS FOR A SUCCESSFUL STATION PURCHASE
There is nothing simple (or cheap) about buying a radio station, regardless of its location or financial health. In today’s market plenty of stations are for sale at prices that look inviting. But there’s a trap here for the over-enthusiastic. It will spring if the three most important factors in buying a station are overlooked.
It’s easy for first-time buyers to fall into that trap, too. That’s because, despite the down economy and proliferation of new media, the prospect of owning a radio station still carries a certain glamour, a bit of sizzle. And why not? When you turn on the station, wonderful sounds gush forth. It’s cool. Which is why when potential partners—especially non-broadcasters—consider joining a station buying group, one of the first questions they ask is: “What is your format going to be?”
My answer: “I don’t know and I don’t care”.
Establishing a station’s brand with its format is certainly important. But in the early stages of the hunt, it really doesn’t matter very much because format is one of those ingredients that you can always change if it doesn’t work.
There are three elements in the success of any station that are true make-or-break items. Two of them can be changed but not without large investments in time, money and blood pressure. The first, though, needs to be in place up front.
I call them “McLeod’s Rule of Three”.
The One-Two-Three Punch That Makes Or Breaks A Radio Station
Here are the three most important factors to consider when looking for a radio station. If these aren’t covered you’ll be looking up at the world from the bottom of a very deep well:
- MONEY
- MARKET
- FACILITY
Let’s take a look.
1. Money
Fact: You’re going to need more money than you think you will. Maybe a lot more. It’s the nature of business acquisitions that expenses will pop up everywhere that were not apparent at first glance. This will be the briefest Rule of Three because it’s pretty black-and-white. Either you have a well-thought-out business plan or you don’t. Either you have more money than you think you’ll need or you don’t.
That said, there’s always the question: How much is enough?
Unless the station(s) you want to buy are pumping out solid cash flow month after month and their market looks like it can sustain and grow that level of business, the expenses of buying the station are just part of what’s needed. There are also operating and capital expenses. Simply put, operating expenses keep the lights turned on and people in the building. The capital budget is for equipment, construction and other things that will sustain and improve your business.
Twice the money you think you’ll need is not extravagant. Even more is prudent.
2. Market
This means the size, location and economic health of the station’s primary service area. But it’s more than that. Put bluntly, there might be a reason you can afford to even look at that station right now, which is probably that it isn’t performing well financially. Does that mean it’s under-performing? Or is that the best it can do?
Knowing the difference can make you very happy or very broke.
If the station is under-performing financially, does its market-of-license have the potential for a turnaround? You’ll never perform more important due diligence than this. In an economic slowdown it’s more important than ever to ask hard questions and take long looks at any market you’re interested in entering.
You have to dig for the info you need. The local Chamber of Commerce is not your friend here. For it, the area is a corker of a business opportunity with a wonderful outlook—and did we mention the schools? Grab some brochures if you like but look elsewhere for hard, actionable economic information.
Many states have economic development departments or something similar. They’re good sources of hard information concerning an area’s population trends, spending habits and capabilities and employment. The U.S. Census Bureau is a fount of valuable demographic statistics.
Get your hands on as much information as you can. Dig deep. It’s vital to get a firm grip on how a market is trending. Yes, times may be a bit lean right now in the local business community but how should they be in three years? In five? In a decade? That info is at the heart of your business plan. (You do have a formal business plan, right?)
Another key element in deciding on a market’s viability is good old boots-on-the-ground personal observation. I know investors who only want numbers and don’t want to be distracted by how the place looks, how well the business district and residential neighborhoods are kept up, whether there are hiking trails or lakes. Not me. I want to meet the place in person.
A few days on stakeout duty will tell you a lot about your potential market. If the business district is attractive, it means a strong shopping environment. Remember, you’re going to live or die on that retail community. Chatting with business owners will tell you a lot, too. If they’re talking about the future in positive terms, that means a lot. Ditto if it’s nothing but gloom, despair and agony.
If the market doesn’t look like it will produce the level of business you need, there is always the possibility of upgrading or moving to a nearby market that’s healthier. It takes time, money, engineering and the FCC but it can sometimes be done.
Which brings us to:
3. Facility
How well does your proposed radio property cover the market? If your stick is close or your wattage robust, you’re good.
If, like lots of FM licenses that have been granted over the last thirty years, your City of License
Simple rule: Go there and listen. If your FM signal is “fringe” or your AM swims in static, you’re going to struggle against all the nice clean signals in your market.
BUT THE BROKER SAYS THE STATION HAS BEEN UPGRADED!
Great—probably. A number of stations on the market now are listed as having recent upgrades to transmission facilities, studios or both. That’s a common way to improve a property’s value at sale time. Upgrades could save you time and money. OR create headaches if they aren’t done right. There’s a reason a station under-performs. It could be the economy. It could also be the current ownership!
Apply “McLeod’s Rule of Three” to any station acquisition you’re considering. There are good deals out there right now. In fact, this is one of the best times in history to buy a radio station IF you know the right questions to ask going in.
It’s like when a savvy investor asks a broker, “Okay, this stock is cheap. But is it a bargain? Does it have value?” You can always play with the format later on.
MONDAY on The Monday Sales Blast: How your salespeople could close a sale even though they’re doing a Client Needs Analysis!
