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Friday, October 3, 2014

The Useful Life of Legacy Media Properties

There is an old axiom that makes the list of most personal finance rules. It is simply, “Don’t finance anything for longer than its useful life.”  Practically speaking, they are saying do not borrow money for vacations or clothes or anything else that is consumed quickly or depreciates fast. A 30 year loan on a house is okay if the interest rate is reasonable as the house may last 100 years. A four year car loan is also okay as the car should last much longer (the new seven year loans could be problematic).

Recently, I had a lively e-mail exchange with a retired broadcaster and asked if he would be interested in buying a TV or radio station. He responded, “Don, I only borrow if the item has a useful life. Today, I do not know what that would be for a local TV or radio property.”

Intrigued, I began asking around. No one was as succinct as my e-mail buddy, but they tended to agree with his assessment. A TV executive said, “ I was asked by a local business man if I would like to form a group to buy a local TV station (not mine). I started laughing and he was annoyed. Look, I told him. We have all worked hard the last six years in this market and billing remains lower than it was in 2007. How long can TV last as an effective TV medium? I don’t know. I do know that we cannot continue here as a viable business if we see revenue dropping almost every year for a decade.”

A radio executive put it this way: “I get so tired of industry wide averages. Okay, so radio is up 1% or maybe 2% nationally. That is an average. If a sunbelt market or a cluster of them is up 8%, good for them. But my podunk mountain time zone market is down almost every year. Do I want to put my savings plus that of some trusted friends in a wasting asset? We try hard but billing is shrinking. Some larger market guys can grow some with solid online sales. We get little response there. Our young sales folks work hard but earn very little. The game has changed.”

A lively radio guy told a great story that may contain some exaggeration. It went like this: “We have a kid who grew up here who made a couple hundred million in Silicon Valley. He loved sports but was just terrible at it. A local lawyer said we should approach him and get him to buy my station which has been a dog for several years. He could even go on air when he felt like it but control his own sports format. I thought it was crazy but I approached his dad whom I know slightly. He laughed in my face. “My son would like to own a major league franchise but he is not a billionaire yet. What he will do is bet a few million per year on start-ups or launch his own creation. He can fail 30 straight times for the rest of his life and still leave my grandchildren a bundle. I will not tell him about this local idea.” It was hard to argue with that!”

Broadcasting used to be a great business. Now, especially in large or growing markets it remains a really good business. Yet, the game is changing as digital takes over and commercial avoidance grows especially among the young. Why go in to big debt or any debt in markets with a weak economy or declining demographics? There may be no one to sell the property to several years from now as the baby boomers age and even they abandon legacy media.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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