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Wednesday, June 27, 2018

Stranded Assets in Media?

Very recently, I had a conversation with a small market broadcaster. In a moment, you will see why I will not identify him nor his markets or whether he operates in TV or Radio.

He called me and said that his media company was struggling. He said essentially that his net worth was suffering from a case of STRANDED ASSETS. “Don, you probably do not know what that means”, he told me. “No, I know exactly what it means.” That was not good enough for him. He said that I needed to define it. I was not thrilled but rattled off a definition that any MBA would be proud to call his/her own. For you non-wonks, a stranded asset is “an asset that is worth less on the market than it is on a balance sheet due to the fact that it has effectively become obsolete in advance of complete depreciation."

In other words, my acquaintance has broadcast assets with a listed value but he knows they may never see the light of day in the real world if he wants to sell. And he does. He is getting older as we all are and thought that selling his properties would provide him with a platinum parachute in his golden years. This is somewhat analogous to several million people in 2008-2010 who were “underwater” on their mortgages. They owed more on their mortgages than they could sell their homes for. Some walked away, others went bankrupt, but many simply stayed put and dug themselves out of a huge hole over several years. The broadcaster appreciated the analogy but was clear that his small market properties would never bounce back as the real estate market has done to a certain degree.

We then went in to a lengthy and at times amusing conversation about how his bailout position may be a “greater fool”. The Greater Fool Theory is a an equity market term that is, in essence, a crazy idea. It is the opposite of the Graham/Dodd/Buffett/Munger approach of investing in the fundamentals of a company. When the greater fool theory is in evidence be if for a stock, a house or a business, the buyer knows that the price one is paying is unjustifiably high but the buyer does not care as he/she is convinced that the price of the asset is going up and fast. The speculator, I cannot stomach calling him an investor, sells when the asset pops up to another bozo whom we shall dub the greater fool. There have been greater fool purchases throughout my life and even in recent history particularly in the tech bubble and highly leveraged real estate.

The broadcaster talked at length and his candor was refreshing. He doubted he could rustle up a “greater fool” to buy his properties. I countered that just as everyone and his brother think that they can run a restaurant and most fail miserably, there has to be a small but passionate group who think that they could run a TV or Radio station profitably even in today’s environment. He thanked me for my time. Really,  I think that all he wanted was someone to listen.

My caller is a survivor. I am confident that he will work his way through things somehow. Yet, what gnaws at me is how many others are out there in a similar boat in the media and advertising worlds? Are stranded assets a silent burden that many are carrying?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

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