Re: [IRCA] KXEL deserves a reprimand or license revocation

[Scott Fybush <scott@xxxxxxxxxx>]

Mike McKenna wrote:
> Scott and the group,  I love radio just as much as all of us.
> However -- the rules have changed.   It does NOT matter if you are
> "on the air" or not.  Even a dark station license is worth more than
> an entire year of commercials.   The FCC auctions make the "license
> worth more than the entire assets of the station.   5 stations in the
> Central Valley of California have been silent for over 7 years.   Yet
> sale value is over 7 million dollars.   The "stick" value is more
> than what any station can ever make "selling Ads".  It doesn't matter
> any more -- if a local broadcaster "serves the public good".  You can
> get on the old soap box if you wish -- but broadcasting - itself does
> not matter.   It's the license to broadcast that does. 

With all due respect...what in the world are you trying to say?

If a station's been dark for over 12 months, it no longer has a license 
as a matter of law. There's no asset to sell.

Yes, there's such a thing as "stick value." Yes, there are people out 
there crazy enough to bid ridiculous amounts of money for new FM 
construction permits that won't ever be anything more than rimshots in 
overcrowded markets, or AM signals with 50 kW days, 230 watts at night, 
aimed out at sea. That's nothing new. There's always been a "greater 
fool" out there. (If there weren't, a certain high-powered AM in Rhode 
Island would have gone dark years ago.)

And yes, there are some broadcasters - national religious networks, 
mainly - whose only interest is in the "sticks" they're acquiring. They 
buy the stations, shut down the local studios, and plug into the 
satellite. They can make it work because they're operating on a 
completely different financial model, based primarily on listener gifts. 
(That's still, thankfully, a very small percentage of commercial station 
sales.)

You seem to believe that when an existing licensee goes to sell his 
station, an FCC auction is somehow involved. That is not the case. 
Existing radio stations are sold the same way they've always been - by 
private contract between buyer and seller, as a multiple of annual 
revenue. Do anything to disrupt that revenue stream (like, say, going 
off the air for a week at a time when the community desperately needs 
information) and you've diminished the value of that station, at least 
in the short term.

My credentials on this? I advise broadcasters on station sales and 
acquisitions, including pricing.

Here's a real-life example: a cluster of stations in a medium-sized 
market is currently for sale. Two of the stations are class B (50 kW) 
FMs with substantially identical signals. If what you say is true, those 
two stations should be valued identically. News flash: they're not, 
because one has declining revenue with a format that's hard to sell, 
while the other one has a solid revenue base and strong ratings in an 
advertiser-friendly demographic. Station B is going for twice as much as 
station A, and it'll be worth every penny to the right buyer.

By the way, outside of the biggest markets, station values are actually 
on a downward swing. Clear Channel just checked out of northern New 
Hampshire and Vermont at a sale price that was several million dollars 
less than they paid for those stations in 1999-2000. Galaxy 
Communications lost a couple of million dollars on the stations it just 
sold in Albany. The last couple of rounds of FCC auctions for new 
construction permits have fallen short of expectations, too, as bidders 
from the earlier rounds discover just how much they overpaid for 
marginal facilities.

They're not getting the big bucks you think they are for those stations, 
because - wait for it, now - station buyers need to be able to make a 
business case to justify paying a certain price for a station. In usual 
practice, that means taking out a loan, which has to be repaid. And 
how's that done? Yup, by selling a certain amount of advertising, which, 
last I checked, only works well when a station is ON THE AIR and 
broadcasting programming that an audience wants to hear and that can be 
sold to advertisers.

Without that, all you've got is a piece of paper and a big bank loan to 
repay somehow. Good luck with that.
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