Signs of Radio Optimism Found Among Some Winning FM CP Bidders

Signs of optimism in the radio industry’s prospects are found among some winners in the just-completed FCC auction of FM construction permits, which included a first-time bidder and a company that owns several other stations. Auction 94 ended Monday (CD May 7 p15) and netted $4.1 million, 7.7 percent more than the last auction of FM CPs (http://fcc.us/ZABCaf), held last year as the same number of permits -- 93 -- received greater-than-minimum bids. Some executives had said the radio industry remains challenged amid a 29 percent decline in terrestrial ads to $14.2 billion last year since their zenith before the Great Recession (CD April 30 p1).

Future FCC auctions of FM CPs may not raise significant amounts of money for the U.S. Treasury, just as Auction 94 raised less than some previous auctions, radio executives and others predicted this week. But they said there’s some reason to be optimistic about the industry’s prospects, including that programming and ads will be more original and terrestrial spots will continue their recovery. There’s still bidder interest in CPs, albeit less than past years because many of the allotments are in smaller markets or areas not rated by Arbitron, said industry officials.

Regional growth spurred winning bids for FM CPs in St. Simons Island, Ga. -- which had the second-highest winning bid in Auction 94 -- and No. 4 Mecca, Calif., said winners of those CPs. The Georgia island in the Brunswick market, which Arbitron rates as the third-smallest U.S. region, is “a growing area,” said family-law attorney Denise Esserman, the winner. “I have an emotional attachment to it. I live here. I'm part of the community.” In her “waning years of being an attorney and looking for something to do,” the 18-year resident of the area anticipates running the station once it’s built within the three years permitted by the commission, she said. Cross Country Communications, the only other bidder for the CP, doesn’t have stations in the market, Esserman said. Her winning bid was $452,000. Ranked No. 272, the market has a population of 68,300, Arbitron said (http://bit.ly/11QJ4et). It ranked Palm Springs No. 138.

Also a growing market is Palm Springs, Calif., where Sunnylands Broadcasting was the winner at $254,000 for a CP licensed to Mecca, said Gregory Smith, a principal in the firm. It also was the winner of an Oak Harbor CP in Washington state, where the company has a few other FMs, like in California. Oak Harbor went for $110,000, the 10th highest winning CP bid in Auction 94, FCC data show (http://bit.ly/13tNHgm). Palm Springs “is starting to recover” from the recession, said Smith. “Tourism is up” and “visitors are up,” he said. With the CP in Oak Harbor, “we're kind of ringing Seattle a little bit, kind of on the periphery” with its stations, Smith said. “Sometimes we buy stations at auction, sometimes we buy stations that are undeveloped. And we technically improve them, get them on the air, and sell them or lease them.” Sunnylands sometimes works with a “partner” that already has a station within the market to run it, Smith said.

The FCC, as soon as next year, may hold another FM CP auction, agency and industry officials said. The Media Bureau’s mechanism to delete such allotments that don’t receive bids in at least two previous auctions from future ones may mean there are fewer unwanted channels, said an agency official. The bureau’s Audio Division made good on its self-initiated proposal to delete channels in St. Paul, Ark.; Crystal Falls, Mich.; Alberton, Mont.; and Waitsburg, Wash., permits for which were “offered in two or more FM auctions” and “deemed an unsold permit in Auction 93 because no bid was entered,” said a July order. “There were no bona fide expressions of interests filed. Deletion of these allotments may create other opportunities in nearby communities for new FM allotments or upgrades of existing stations."

Small markets often up for auction, where retailers have less money to spend on ads and rules make it harder to move stations from rural to urban areas, are among the reasons why FCC auctions have raised decreasing amounts of money, said Smith of Sunnylands. The 2011 rural radio order (CD March 10/11 p10) limiting such community-of-license moves “tremendously diminished any activity in the auction” for Smith and others who hoped to improve coverage areas, he said. “If it’s a trashy signal with no coverage, it’s going to stay that way.” He abandoned plans to bid on some CPs that he'd done the engineering for in a recent auction after the order was released. “To drop a new frequency into a market, any market, is fairly expensive,” said Smith. “You have to do the engineering work, you have to do the filing work, it costs several thousand dollars to do so.” Once it’s auctioned, the company may not win the CP, Smith said. “There’s a disincentive to go out and find frequencies.”

Broadcast broker Frank Kalil is optimistic the radio industry’s health can improve. For that to happen, stations need to take more risks with more “interesting” ads, and programming that takes “a chance” by breaking from the syndication mold and targeting specific markets, said the president of Kalil & Co. “Everybody is afraid to do anything different” in programming, he said. “People are just doing that which takes no risk and ensures a good 9-5 job,” with “fewer innovators” because there are fewer disc jockeys, he said. “If you don’t have a local station doing local things, you just become like satellite-delivered service."

Mergers and acquisitions won’t much affect the radio industry’s health, said Standard & Poor’s radio-debt analyst Jeanne Shoesmith. The biggest player, Clear Channel, doesn’t have the financial firepower to make an acquisition with debt coming due in future years, while Cumulus Media “probably has their hands full” after buying Citadel in 2011, she said. It’s been “slightly bumpy,” she said of the integration of those two companies. “You may see some more consolidation activity,” said Shoesmith. “But it doesn’t seem like there is a lot of demand for radio-station assets, unless you're talking about sort of a major-market signal, or highly rated stations, [most of which] are already held by one of the major players.” Clear Channel and Cumulus declined to comment for this story.

The “integration and turnaround of the Citadel assets” is “now largely behind us,” Cumulus CEO Lew Dickey said Tuesday as the company reported Q1 results (http://bit.ly/10nys5d). “We are investing in several key content initiatives to drive growth beginning in the back half of this year and accelerating into 2014.” Revenue fell 1.3 percent to $232.9 million from Q1 2012 as the net loss narrowed to $9 million from $12.1 million.