Monday, January 07, 2008

Public Radio Needs a Sugar Daddy - II

Not long ago I wrote up an idea I had (see original post) about a pubradio station buying a commercial radio outlet in a market and wringing it for all its worth to support the pubradio mission.

In the interim I've had some fascinating conversations with several knowledgeable people about this. Nothing was exactly said in confidence...but there was trade expertise involved, so I'll keep it brief and somewhat vague.

The upshot is that the idea itself is not a bad one...the problem chiefly lies in two places: how commercial signals are typically valued at a sale, and the economies of scale inherent to most commercial stations (which are part of dozens of other stations across the country, all owned by one company).

When they're sold, commercial stations are usually valued as a factor of their annual revenue. So if a station has no money coming in the door, it's worth much less than a station with a healthy sales booking. This makes sense; rather than just estimating what a signal is worth based on its audience or wattage - you get to the meat of the issue. The upshot is that even with major players like Clear Channel selling off lots of properties in small and medium markets, it doesn't translate into firesale prices for stations. Oh sure, maybe it takes the edge off, but if a station is profitable, it will be expensive to buy.

The flip side to that is where the economies of scale come in. By which I mean that if a station is unprofitable, you might be able to buy it cheaply (well, cheaper) but you will have to invest much more start-up capital to build the listenership to make it profitable. That's hard to do when you're competing for ad dollars against the local Entercom or CBS Radio outlet that has the ability to sell spots on a national level, and can consolidate its sales force so that it's got a dozen guys covering your market. Sure they're covering every market in that quadrant of the entire US, but it's still out-staffing your one- or two-man operation, hands-down.

So ultimately, the problem is that there's not really a free lunch here like I thought their might have been. This isn't to say the idea can't fact, for a larger station that already has the economy of scale somewhat in place, the idea can work handily...but it's not a slam-dunk; it will take serious bucks to start, many years to see any return on investment, and it's never really going to be a giant cash-cow.

However, I will add this caveat: if you can find a station available for firesale prices (it's rare, but it does happen now and then) you're eliminated half the battle; this idea starts becoming a heck of an attractive option. In such a case, I would suggest you contact the good folks at Public Radio Capital and talk to them about it.

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