Mark Twain, the legendary American writer and humorist said, “Buy land, they’re not making anymore.”
History has shown the wealthiest in the world today and throughout history gained significant wealth by acquiring land. The world’s royalty have wealth because of large land holdings. Many commoners today and in history gained and held their wealth through buying land.
“It sure must take a lot of time to mow 6.6 billion acres!”
Queen Elizabeth, through her monarchy, owns 6.6 billion acres of land in various countries such as Great Britain, Canada and the Falkland Islands, over which England bombed some sheep farmers for a few weeks in a 1982 war. Commoners include Cincinnati’s Ted Turner, the founder of CNN. He owns about 2 million acres in Georgia, Montana and in Argentina.
Twain was right. Land is a way to gain and maintain wealth. No more is being made.
In the 20th century when the passenger railroads were becoming obsolete, their businesses evaporating, what they were eventually left with was land – a lot of land. Land that was ultimately liquidated when railroad companies like Penn Central finally dissolved in the 1970’s. As late as 2006, land once owned by Penn Central was still being sold off and today there are still leases being paid on its former rights and properties, some leases which may exist until 2032.
A few years ago I made a comment on a blog explaining the worth of many radio stations being its land. While AM radio station owners may cry poverty at the annual N.A.B. or National Association of Broadcasters Convention, many have vast land holdings.
Since that blog was published, Cumulus Broadcasting decided to sell the land its legendary KABC and KLOS in Los Angeles occupy, because the land is more valuable than the business of those two radio stations…combined. They’re doing the same with WMAL-AM in Washington, selling off its suburban AM tower site. Once the bulldozers roll, expect a nice new subdivision where the towers once stood.
Last fall Clear Channel Media + Entertainment iHeartMedia announced they were going to sell 411 of their tower sites and lease them back. The company owns about 850 radio stations. Many of their FM stations share or lease tower sites from others.
So let me ask a simple question, a question never addressed in the industry trades. What type of radio stations have a lot of valuable land? AM or FM? If you answered AM, you would be correct. In fact the only worth to many AM stations today is the land their towers sit on, because many have no revenues.
Few listeners + Little revenue = Little worth (except for the land).
In Cincinnati, for example, the Clear Channel Media + Entertainment iHeartMedia AM tower sites have approximately 230 acres of land. One of the four AM tower sites is already leased, or their land holdings here would be much more. Now multiply that acreage number out across 150 markets. This (or any) radio company owns a lot of real estate or at least used to.
Read this, understand it and don’t deny what is happening around you, especially if you work for an AM radio station. Radio companies are pulling the final dollars of equity out of their AM stations and are getting out of the AM broadcasting business.
“Mr. Limbaugh, sir. The radio company that pays you is now in the process of selling their tower sites. Can we broadcast on AM radio without a tower?”
Last Friday it was announced, through an SEC filing, Clear Channel Media + Entertainment iHeartMedia, sold the first grouping of 367 tower sites and got a check for $369 million from a company called Vertical Bridge Holdings. Clear Channel Media + Entertainment iHeartMedia will lease back, for 15 years, the tower sites for $20.8 million a year, lose tower rent revenues of $10.7 million a year, but then save $3.3 million a year in operating costs.
Let’s do the math on the 367 tower sites sale:
$20.8 million x 15 years = $312,000,000
plus…
$10.7 million x 15 years = $160,500,000
less…
$3.3 million x 15 years = $49,500,000
equals…
$423 million in costs over 15 years v. a $369 million one-time payment.
15 years from today it will be 2030. Clear Channel Media + Entertainment iHeartMedia won’t exist in its current form. By selling off these tower sites, many AM tower sites (something no one is mentioning), some AM stations are being put on death row.
The F.C.C. can talk all they want about “AM revitalization.” It won’t matter now. The dollar speaks and the dollar rules. If a radio station is no longer worth anything, will a company, any company, invest in its product? Technically? Developing content? With personnel? If there’s high risk in getting a return on their investment to ultimately increase a station’s overall value, the answer is no.
Let’s say you want to buy a radio station that has little revenues to speak of. If you don’t get its tower site, is the radio station worth anything? WSAI-AM in Cincinnati, for example. It’s a 5000 watt station at 1360khz. It has little real billing because it’s sold in forced combination with other cluster stations. It has little real expense because it’s a full-time affiliate of Fox Sports Radio. Without its approximately 90 acre tower site, its land, is the station really worth anything? No. Would a company dump the bartered (no cash fee) programming from Fox Sports Radio and invest in developing content? No. That would make no business sense – too much risk for too little reward without its real estate.
In its story on the tower sale, the radio industry trade publication Inside Radio, which is owned by Clear Channel Media + Entertainment iHeartMedia, said, “Listeners and employees won’t notice any difference…” Employees always pay for any added costs. It’s an immutable law in today’s media.
The one-time payment of $369 million is equal to less than 2% of the over $20 billion debt Clear Channel Media + Entertainment iHeartMedia owes. It’s been reported the money will be used for “general corporate purposes,” probably to pay the interest on its bonds. Its COO/CFO Richard Bressler said in Inside Radio his team is “constantly looking” at buying and selling opportunities, including the sale of non-core assets.
If a tower site is considered a non-core asset, what then is a core asset?
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The AM tower sale/leaseback thing seems to be the electronic version of burning the furniture to heat the house.
Here’s what I do not understand; if all these high-powered, money-people, radio executives supposedly are the brightest guys in the room, why have so many of their once-prices assets become virtually worthless during the time they owned and operated them?!
I’m guessing that in most other fields, that level of “performance” would be viewed as rank incompetence. Stockholders would be revolting. Heads would roll. Somebody, somewhere, would care.
But in our once-glorious field, it seems to be ho-hum business-as-usual.
And heartbreaking.
Do you get the sense that the C-students in high school drifted into radio managment; and now epitomize the most depressing aspect of the Peter Principle?
What. An. Effin. Waste.
Typo alert: make that “priceless” assets
😖😖😖
They’re lining their golden parachutes. Bankruptcy anywhere from 3 mos out to early 2017.
Darryl – Good article. What’s so sad is to see the empty production rooms at the HQ. I wonder how many current AM stations will survive only as internet radio stations? And what do you think is going to happen to the AM band? I’m not sure it’s worth much to anyone in the digital age.
Hey Rob. I hope you’re doing well. I’ve said it many times. I am one of the last believers in AM radio and I still believe it can succeed. As long as the programming is good, it offers something that can be found no where else, it’s relevant to people’s lives and provides a soundtrack to their daily journey. As long as there’s a good signal, people will tune in and listen. It has always been about the content. And that’s the problem today. The content is narrow, not entertaining and is not a reflection of people’s lives.
The AM radio problem today is viable stations, those with the good signals, are all owned by the big companies, which will not innovate the programming due to the costs involved. I don’t fault them. It’s an understandable business decision. Into the future, there will be value to stations like 700WLW. However, the local stations (1000 watt) and regionals (5000 watts) with poor signals and critical patterns will slowly (1) be taken off the air, which isn’t a bad thing as it will reduce interference on the AM band, (2) will become platforms to broadcast brokered programs, such as religious programs and niche products, or (3) and sit down for this one as this will sound somewhat crazy – will become music stations. I’m not talking oldies. I’m talking AC’s, Rock, etc. These AM stations will serve as the feeder providing programming to an FM translator.
When you include “digital” distribution platforms, “radio” is no longer going to be defined as an AM or FM station. “Radio” will be audio and it won’t matter how it’s received. Podcast. Over AM/FM. Streamed over an iPhone. Pandora. It will all be radio. Because “radio” is a word that doesn’t need to be defined. People already know what that is. Audio content.
As far as HQ, I believe the physical plant was a little over built. 🙂 41 studios are not needed. Truth is, no one from corporate on down to the local level saw the changes we and media have experienced back in 2003-2004.
Talk with you soon.
Darryl
The amazing thing is, even with this sale of tower land by iHeartMedia, the company is STILL awash in over $19B of debt. When the AM licenses are turned into the FCC for cancellation, they will get nothing in return. Which signals to me that they are quietly ramping up to dispose of any assets of value in preparation for their inevitable bankruptcy.
I don’t know if it was possible for iHM to hold out for a better price on the land. But $369M just sounds shockingly low to me.
Forget viewing iHeartMedia as a totally different company in 15 years… they may be completely unrecognizable in five years.
“I’m guessing that in most other fields, that level of “performance” would be viewed as rank incompetence. Stockholders would be revolting. Heads would roll. Somebody, somewhere, would care.”
I don’t think so. Corporate executives’ heads never roll. Most receive multi-million dollar bonuses in spite of dismal performance. At worst, they are allowed to resign with a multi-million dollar severance package. As a radio veteran with over 35 years in the industry, I am sickened and completely disillusioned by where our once proud and, dare I say it, magical medium is today. As soon as deregulation happened in ’96, we ceased to be a creative and innovative industry and we joined the Wall Street culture where the biggest assholes hold the most powerful positions and titles. Employee abuse became rampant and creative thinkers were eliminated, one by one, because of their incompatibility with the corporate mentality. With them went any chance radio had at long-term viability. Every goose that ever laid a golden egg was summarily decapitated and gutted to feed Wall Street’s infamous hunger for short-term profits. My advice to anyone still in radio, AM or otherwise, is this… find a new career before you are in the next mouthful of grist to be chewed up and spit out by an industry that no longer values its employees or their hard work, dedication or loyalty. The soul of radio is dead and the body is decaying. The only ones who will still be standing when it finally dies will be the corporate executives, and they’ll all have enough money to keep at least the next ten generations of their families comfortably rich. As George Carlin once said, “It’s a club, and you and I ain’t in it.”
Hey Doc.
I hear your frustrations. But, “Wall Street” and money is the way of business, the economy and the world we all exist in. It’s important everyone knows this, understands it, understands the rules and plays the game.
Stay well.
Darryl
At $360,000,000, the present value of this money is $884,000,000 when you consider they are paying a 13% average rate or fee on the debt/notes at Iheart. so, selling off the land for $360,000,000 today while paying $414,000,000 nets them $360,000,000 less in debt NOW and saves them $564,000,000 in interest over the next 15 years. Now that gets negated by over $400,000,000 in lease costs. It’s still a cash-flow positive move. It makes sense to keep the bankers off their backs. But, Does it make long-term business sense? No. Because that land will also go up in value by 6-9% per year between now and then, meaning that the net long term affect is that their balance sheet will be lighter and cash flow will be better. But, this is not an indicator of the health (or not) of AM radio, but an indicator of the debt-load and balance sheet of Iheart Media and the struggles they face to retire the debt. The debt of this industry (not just Iheart) is the only thing that really is keeping it from remaining strong given than well over 200,000,000 people still consume the product weekly.
Bryan,
Thank you for the detailed thought. What I wrote in the blog was purposely simplistic, with hopes of people understanding the basic dollars and cents of the deal. To your point, there’s interest, annual cash flow to consider, land value increases and other items to consider. I also read in Tom Taylor this morning that the sale was about 13 times CF.
And yes. It’s the debt that is preventing radio’s advance. You can sum it up in one phrase, “Radio can’t afford to do radio anymore.”
I hope you are well.
Thanks again for the thoughts and explanation.
Darryl
As with so many other industries today, AM radio stations are being looted by top management to benefit themselves and selected “special” individuals, usually board members or large stockholders. Think of vulture capitalists working from within their own corporations.
AM Radio has not been relevant for the last twenty-five or thirty years, except in very limited listener groups. Technology has left AM radio far behind, and inoHeartMedia has officially embarked on an effort to salvage as much value as they can in the limited time they have left.
I like the reference to “inoHeartMedia.” Almost as much as “iHateMedia.”
Is this like what happened to the record business when the Cassette was invented? Pandora’s box (no pun intended) was opened and ya can’t get it closed. The change in technology with respect to how we get our music has accelerated over the years since the late 60s. Now we can stream the music we like in our homes and cars without commercials and pay only a very affordable monthly subscription to pay. Or is it a result of too many commercials? Or is it a result of the consultants (like Bill Drake) who began to narrow playlists to attract more listeners per 15-minute period of time? Or did FM do it because of much better fidelity? I don’t know but it’s all changed for me. Occasionally I’ll start tuning around the dial late at night (I have a Tivoli Model One and external antenna) and hear so many stations carrying the same programming, either ESPN or Coast to Coast AM. The lack of variety is kind of sad. I miss it.
Rob,
As I mentioned early, narrow content choices are the big issue with AM programming today. You either have sports, religion or conservative talk (the same shows everywhere). Not much choice.
Hey! I thought the deregulation in ’96 was to create more choice? 🙂
Darryl
Indeed you did, Darryl. Sorry…I guess I was just on a bit of a rant. I am a confirmed capitalist but somehow private ownership has so much more going for it in terms of how employees are treated and valued, the ability of the owner to put customers first (not stockholders) and, as a result, make things better for him/herself and employees. Is it ultimately the greed of the corporate officers and their egos in trying to see who can do the biggest “deal?” It’s just sad. And it’s why I listen to Sirius/XM in my car – not to music but to news, comedy, and old time radio. Most of the music on Sirius/XM sounds crappy because of data compression. I also refuse to pay retail for that service. I do the $5/month thing for 5 months and then get on the phone and tell them I’m not going to continue unless they give me the cheap deal.
Is this the beginning of the end of the historic Blaw-Knox and the 500-Kw transmitter??
Mike,
700WLW is mega-profitable. As long as the business stays more valuable than the land, it’s safe. 🙂 Seriously, I’ve said this to many people, the last AM station to go down will be 700WLW. Its brand in Cincinnati and the Mid-west, its heritage and the unique programming that can’t be duplicated will allow it to exist for years to come. It really is The Big One!
Darryl
I love the story Randy Michaels told about how 700WLW became known as “The Big One.” He said he was recording a promo and knew he was coming up a little short and so he ad libbed “on THE BIG ONE, 700, WLW” and it ran on the air. Quickly, everyone else at the station started calling it “THE BIG ONE” on the air and the rest, as they say, is history.
No focus group, no grand strategy, just an ad lib that resonated and took root.
Kind of like how “We’ll leave the light on for you” became the echoic slogan for Motel 6. Tom Bodett ad libbed it to make the commercial time out to 60-seconds.
Great Blog post Darryl. It’s spurred a lot of interesting discussion by your readers. Thank You.
Dick,
Thank you for the kind words.
Yes, funny how that slogan stuck with the station over all these years. But, it’s the right phrase for the right station and that’s why it’s perfect.
I hope you are doing well.
Darryl
Hey Darryl, when you have a moment check out my blog on “Attention to Detail.” http://dicktaylorblog.com/2015/04/05/attention-to-detail/ I’d love to hear your thoughts. -DT
What’s you opinion of the other local iHeart AM sites? ‘KRC is next to some new condominiums in Alexandria right off the AA–arguably the most valuable, ‘CKY is in a nice location in Cold Spring not too far off 75 next to a school, but it sets back kind of far. Might be able to squeeze a few homes back there. ‘SAI has the nicest setting in Mt. Healthy but the area seems surprisingly undeveloped and rural. Might have housing value down the road.
Cell phone providers are hungry for spectrum and AM radio has some very cool RF. I wonder, how long will it be until ATT and Verizon’s pet Senators start eating it up?
A few of us were raised on RF in the neighborhoods. I grew up in the shadows of 4 of the 6 AM stations in Rochester, NY. I lived across the Ohio river from WSAI/WCKY (1530). I drove by the WGR/WKBW transmitter daily while in Buffalo. I spent a year driving back and forth from San Diego to Los Angeles and went by the iconic towers of KFI – and a little 5-tower array in Corona, Ca. We should have seen it coming when they started replacing red lights with strobes. When some stopped flashing. When some even stopped being lighted. AM was in trouble from the moment “all band” went into cars. I had a 72 Corolla with AM/FM. A 73 Corolla with AM only. You couldn’t beat the sound of the AM receiver. I took the 72 back to the dealer 3 times to see if they could fix the AM sound. Add to that the increased AM noise, the urban sprawl rendering many directional arrays useless, and addition of “HD”- and now computers and other RF producing devices. The 80-90 docket. There were a number of things that helped the demise of AM radio. Anyone who heard the clear sound of FM in the 60s (like I did) could easily tell that FM was superior. The lack of long distance reception made AM continue to be viable – until (like in my home town) the SIX stations that were once fully staffed started to diminish in content and staffing. Like Darryl, I had the pleasure of being part of some of the biggest AM stations in the country. I also parked next to the lot where the former KHJ towers stood. It’s sad, but true that “progress” has relegated the original mass delivery system to near extinction. I hope Darryl’s right about WLW and the other remaining big stations.
Dave,
Outside of the California stations, we have shared a lot of radio history. The FCC’s AM Revitalization, while the spirit is correct with Commissioner Pai, he may be a little late. Truth is he made his push for something to save AM almost two years ago. And 2 years later? Nothing has been done. Additionally, where is the NAB in all of this? You’d think the broadcasters “lobby” would be rolling up their sleeves to help AM broadcasters. Possibly they’re working on another clever PSA campaign like “Radio – Hear it Here!” and they’re busy.
Stay well.
Darryl
AM radio is a prime example of success destroying something because, in this culture, only making money is considered success. My personal relationship with AM radio began in the very early 1960s. As a borderline addicted radio listener (and young twerp) It never crossed my mind that radio stations were in it to make money.
All I knew was that this little box called “the radio” took me to places I never dreamed I could go to. If I bought things because the radio told me to buy them that would have been way down the list of reasons why I listened to the radio.
As I grew into my teen years and beyond, AM radio kept getting to be a bigger and bigger influence and voice to me and all my friends. By the early 1980s, however, it became impossible to avoid seeing how profitably was replacing personality as far a “the radio” was concerned.
I along with all my friends embraced FM radio when it became clear that quality music should be on FM. But I didn’t abandon AM, because that was where my radio roots were. But! AM radio abandoned me. With every passing year, programming got narrowed and narrower and cheesier and cheesier (due to cost cutting, I’m guessing).
When talk radio first hit the airwaves I had brief resurgence of hope. I would listen to Larry King in the wee hours, the same wee hours I listened to music in when I was a kid. But eventually the cow of talk radio got milked as dry as the cow of music did in the old days as commercials continually increased and content continually decreased.
There’s an old saying, “Businesses exist to make money”. I can tell you this, whoever said that was not a customer. Businesses exist to supply their customers with what they want. The second a business starts telling its customers to shut up and buy. It ain’t no businesses no more and it is headed for the trash heap (even though it might take a long for it to get there).
Just to clarify as you are clearly a bit stupid:
over which England bombed some sheep farmers for a few weeks in a 1982 war.
England did not bomb anyone – I believe you mean the United kingdom
It was not a war – no war was declared it was a conflict.
Michael,
Thanks for checking out the blog from the United Kingdom, England and/or Great Britain. It’s appreciated. You’re right! The Falklands War was a conflict. I stand corrected. Just as Vietnam was just a conflict for America. I’m sure the surviving families of the 58,000 men and women killed there were comforted in knowing it wasn’t a war, but just a conflict. If you ever make it to the U.S., make sure to stop in Washington, D.C. and see the Vietnam Memorial. It will really give you an idea what a conflict is all about.
Cheerio.
Darryl