The big money in radio

The BIG money in radio 

Having been in and around the radio business for so many years now, I have become pretty immune to the huge valuations put on radio companies by their owners, and by some predators who take over stations, often on little more than a whim.  Radio stations have changed hands for literally millions, often hundreds of millions, of pounds and dollars over the years.  

There are so many factors involved and very often these have little to do with the station's earnings, as would happen in normal business. Perceived value is a nebulous figure and can be many things to different people and be wide of market value.

The USA is of course the largest commercial radio market in the world, worth around $22 billion, with annual sales around $1.6bn.  After a few years of near stagnation (only 1.1% annualised growth from 2017-2021) IBIS are projecting 4.4% growth in the market in 2022. (LINK).  From those two numbers, we see that American investors value radio stations at about 14 times their revenues on average, and this is borne out by sales of both small and major market stations. 

Triton bought by iHeart

Even I was surprised to hear that TRITON has just become a part of the iHeart Media radio conglomerate in a $230 million deal to buy it from Scripps. Triton's streaming and podcast measuring company and ad-placing technology is now used all over the world and the purchase further strengthens iHeart's position as America's biggest radio operator owning 858 radio stations.

(Triton has also today completed purchase of MSIMA, the biggest group of Indonesian stations).

I remember the days when commercial radio in the UK was pretty new and totally hamstrung by red tape and archaic rules, often imposed by regulators who hadn't a clue what really happened in the wacky world of wireless. Despite most stations' inability to turn a profit, much larger companies would still come along and offer untold millions to take over stations that apparently could not turn a profit at all. Even Capital Radio, the UK's biggest station and undisputed 'market leader' was loss-making for several years, but has seen its value soar to hundreds of millions of pounds as it snapped up small stations around the UK.

Radio stations are usually valued on a basis of their FMV - Fair Market Valuation, which is driven by several factors, but mostly on a combination of (1) population covered by its signal,  called its 'stick value', (2) its cash flow or EBITDA,  and (3) historically on the station's gross revenues.  A station that is profitable will generally be valued on a multiple of its operating income which is known as BCF (Broadcast Cash Flow),  a modified EBITDA figure.

A new metric is now being used in radio station valuations, which can only be described as 'perceived value'. It takes into consideration what the truly huge audio distribution companies will pay to increase their market share. Amazon, Apple and Spotify all have huge war chests of hundreds fo millions of dollars, ready to snap up any audio distributor that may fit into their portfolio and help them enhance their business.  Radio stations are increasingly coming under the magnifying glass. Will this see radio station values increase more rapidly?

It's certainly a good time to be in radio, despite the wobbles at the bottom of the business.

Paul Rusling 

30 March 2022