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IHeartRadio in big trouble

I am scared to jump in on this. You guys have a nice conversation going. I think everyone on this board that is trying to understand all these looming financial issues for the big guys certainly needs to know just how expensive it is to just operate a radio station and all the insane headaches that accompany it. BigA and/or David - maybe a rundown of what all the typical expenses are is in order to enlighten people to just what all it takes, exclusive of staff and loans/debts.

BTW, I have never know anyone who got money from the SBA that didn't live to regret the experience and still do NOT know of any one who got a "loan" that remotely resembled what they applied for or in a reasonably quick fashion. Anything government related is guaranteed to only benefit.....
 
Tibbs4 said:
I am scared to jump in on this. You guys have a nice conversation going. I think everyone on this board that is trying to understand all these looming financial issues for the big guys certainly needs to know just how expensive it is to just operate a radio station and all the insane headaches that accompany it. BigA and/or David - maybe a rundown of what all the typical expenses are is in order to enlighten people to just what all it takes, exclusive of staff and loans/debts.
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Let's just ballpark a typical mid-tier LA station rated somewhere from 5th to 15th in the market. Revenues of $25 million to $30 million, operating margin of about 40% in today's environment. That means a profit of an average of around (pre tax) $9 million. That also means that there are expenses of around $18,000,000 or $1,500,000 a month.

Start with the approximately 4% for music licensing on the revenue. That's around a million bucks for ASCAP, SESAC and Irving's new organization.

Sales expense can be, even after the cuts of the last years in seller commissions, about 22% to 25% including agency and rep commissions. So let's try for about $7,000,000 in sales cost.

Just in two categories we have $8 million in expenses.

Then do staff (on air, management, engineering, back office, programming), benefits, FICA, rent or lease of transmitter sites and studio locations (with a decent studio location and a Mt Wilson site, there can be a half-million or more just in each station's rental costs), insurance, ratings, utilities, travel, legal, corporate overhead, promotions, contests, advertising, maintenance, direct capital expense costs (those that are not amortized), computers, software fees (not insignificant for applications for billing, traffic, music scheduling) and on and on right down to supplies and janitorial.

For some reason, it's thought that the DJs are the bulk of expenses. Unless you have a really big morning show (Seacrest or Handel or the KROQ Team) its things like selling costs that are the largest items.
 
Tibbs4 said:
BTW, I have never know anyone who got money from the SBA that didn't live to regret the experience and still do NOT know of any one who got a "loan" that remotely resembled what they applied for or in a reasonably quick fashion. Anything government related is guaranteed to only benefit.....
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That's fine, but if you're a small local group, the investment money has to come from somewhere. You can try to bypass the government, but that means going to a bank. That means either putting up your personal property as collateral ( your home, your life insurance, your other assets), or it means using the station as collateral. The one that you're attempting to buy. Banks at this point in the economy don't consider radio stations to be safe risks. That might not have been the case back in the 60s and 70s, but it is now.

This is why it helps, if you're a small local group looking to buy radio stations, to be able to qualify for an SBA loan. Especially if the goal is to have some kind of "mom & pop" style ownership. Or perhaps you're an owner of another successful business with spare profits to invest. But if that's what we're talking about, it's unlikely that such a person has radio programming knowledge or expertise in running a government-regulated business. This is why so few on-air types end up buying radio stations. They don't have access to investment money. They've spent most of their lives living hand-to-mouth, and don't have any collateral. Those who have multi-million dollar incomes, like Rush, Ryan, or Howard, aren't using their millions to buy radio stations the way entertainers did in the 60s. Why? Their financial people tell them radio stations are bad investments. At one time, on-air guys like Curt Gowdy or Pat Sajak owned radio stations. We don't see it much any more. It's just not something that a single owner without corporate backing can handle. This is why we smile and shake our heads when people talk about iHeart selling its stations to small local groups and returning to live and local programming. It ignores 40 years of history and the realities of running a regulated business in the 21st century.
 
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I grew up watching my Dad sweat out a few tough years in the farm fuel and fertilizer business. SBA financed. Some of his counterparts didn't make it through the 80s. If he hadn't bought used equipment and facilities for a small fraction of the price of new, he'd been a casualty too.

There are some junker stations in the small to micro market category that might represent a good target for an individual to come in with SBA financing. With a handful of exceptions, these are not iHeart markets.
 
joebtsflk1 said:
There are some junker stations in the small to micro market category that might represent a good target for an individual to come in with SBA financing. With a handful of exceptions, these are not iHeart markets.
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As we've said, it will take a change in SBA policy for this to happen. Any idea how to get a government agency to change its policies? The FCC doesn't seem to know.
 
TheBigA said:
As we've said, it will take a change in SBA policy for this to happen. Any idea how to get a government agency to change its policies? The FCC doesn't seem to know.
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Have to say I'm confused. Back in the height of the old docket 80-90 days, the lack of SBA financing was a major stumbling block. I thought this had been relaxed in recent years, but I'll admit I'm out of the loop on such matters.
 
Like BigA said, the SBA is simply an agency overloaded with insane requirements, mountains of paperwork and many roadblocks. I have never had to use them since my first attempt at something back in the mid 1990's. Thankfully, the single-station owner saw that I was seriously trying and not too bad of a scam artist and offered to finance the deal.
It is not easy running a "mom and pop" station, with a small signal and a format that is pretty much designed to be of little interest to the big companies. It does work, though, because, as David and BigA have also mentioned, the agencies are not overly interested in buying anything older folks like or stations that do not submit $$$ to be a part of the PPM or have 100kw signal. It all actually makes decent business sense in today's radio world. Save the money on ratings, electricity on signal and just hit the streets. So, in essence, you have to design a format FOR actual local listeners and those local listeners own businesses that hopefully eventually buy the ads and you build the platform from the ground up. Regulated businesses.... don't get me started on that, these days, BigA. The "day job" that helped originally fund the fun project for people's ears has gotten even more loaded down with rules and regulations and stress. It makes me mad as hell, but actually breaks my heart more that so many control freaks have managed to kill so many industries with needless clamp downs. But, no matter what, your business (radio or not) has to be fun and have a heart and soul. The people will generally show up in droves if they just know you actually appreciate them.
 
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Tibbs4 said:
So, in essence, you have to design a format FOR actual local listeners and those local listeners own businesses that hopefully eventually buy the ads and you build the platform from the ground up.
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Of course this is not to say that the big corporate stations aren't designed FOR actual local listeners. Because they are. They have local offices, local staffs (albeit, fewer than a few years ago), and local advertising. But sure, there are gaps in the format window that people with some extra cash and a lot of patience can have fun with. Your buddy at Hippie Radio is one of them. But if iHeart put a few of its stations on the block, I doubt there would be enough people like him who would have the money and heart to buy them.
 
Tibbs4 said:
Like BigA said, the SBA is simply an agency overloaded with insane requirements, mountains of paperwork and many roadblocks.
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Not sure BigA was being that dramatic, nor would I go so far as labeling the SBA application process as "insane", but there definitely are significant hurdles that wouldn't be an easy reach for someone looking to finance a broadcast station property. Ultimately SBA wants a reasonable business plan and something that gives the review committee reasonable assurances that you can pay the loan(s) back. Problem is, its hard to articulate the benefits of investing in a radio or TV facility, when most can't guarantee the margins SBA wants to see. As BigA said; Just talking about super-serving the local community, won't pay the bills.

I'll use an example of one of my recently-sold stations: Small market, county population around 138,000. Recession hits in 2008 and all the investment in the area dries up. Retail stores fold up shop, restaurants are there, but either don't want to, or unable to pay you for the spots they bought. Big resort closes, so there goes that advertising and like a lot of similar communities, the economy is slow to recover. What did we do? Religious organization makes an offer we can't refuse. Now the only FM station licensed to that community is religious non commercial. The local community was up in arms, and we heard about it. But when we pointed out, that like them, we can't survive by giving away advertising, there was nothing else to complain about.
 
Kelly A said:
But when we pointed out, that like them, we can't survive by giving away advertising, there was nothing else to complain about.
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Great example. So many mythologists who look forward to the day iheart collapses, and the return of small local owners act as though it's still the 1970s, nothing else has changed, small local stores are in large supply, nobody owns computers or cell phones, and the 2008 crash never happened.
 
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