I am one of the last believers in AM radio. I love the medium. It kills me to see the shape it’s in today. It didn’t have to be this way.
A number of months ago I wrote a blog that received a lot of positive and negative reaction within the radio industry. The FCC is proposing a series of fixes to help the so-called suffering AM radio broadcaster. I dared to call B.S. on these proposals. I wrote that article in a passionate, over the top manner to get people to pay attention. People did. Some broadcasters, including my former employer, didn’t appreciate someone being so candid.
As an example, one of the ideas from the FCC is to allow AM broadcasters the use of FM translators or very low power FM stations to help them reach an audience, which for some AM broadcasters means any audience.
The reason an FM translator won’t help a broadcaster increase the worth of their AM station (which is an owner’s ultimate goal) is fairly simple. The proposed fix is on FM.
In that article I mentioned the worth of many AM stations lie not in the business of “radio,” but in the land the studios or towers sit on. While some AM stations may not have enough revenue coming in to pay the electric bill, real estate may make these unviable radio stations worth millions. Think about it. The mega-radio broadcasters have vast real estate holdings. VAST.
In Los Angeles, the number one radio revenue market in America, Cumulus has the “for sale” sign up for the land the studios and offices of legendary KABC-AM and KLOS-FM occupy. These 10 acres are said to be worth around $90 million. What does that price tell you about the business of “radio” for these stations? From what I have been able to research, the deal appears to be a win-win for the broadcaster and a future developer. Still $90 million says everything about the core business of those stations.
For many companies, it’s all about the real estate. McDonald’s sells fast food. The true worth of the business, however, is in its real estate holdings. Real estate is what made its founder billions, not burgers. Ray Kroc’s brilliance was his understanding of this.
Recently, Darden Restaurants, which owns numerous casual restaurant brands, announced it would sell its Red Lobster chain to Golden Gate Capital for $2.1 billion in cash. In its fiscal 3rd quarter, sales at Red Lobster locations open at least a year fell by almost 9%. According to a recent article in Bloomberg Business Week, Red Lobster suffers from a lack of innovation and something that is the ultimate death card, an older clientele. Old people who don’t drink, don’t go out often and enjoy the “early bird” specials make up their customer base. Red Lobster is in a death spiral and Darden Restaurants cashed out.
While some say this deal equates to a “fire sale,” with its bad revenues and clientele dropping dead each day, what makes Red Lobster worth $2.1 billion? REAL ESTATE.
Golden Gate Capital has already sold the real estate of more than 500 of its Red Lobster restaurants for $1.5 billion. Think about where a Red Lobster restaurant is located. High traffic areas. Near shopping malls. Valuable land. The investment firm already has its exit planned from this deal. And yes, they will make a profit pulling the last dollars of equity out of the Red Lobster brand.
Gabe Hobbs, the talented radio consultant and friend, recently said the only formats left on AM radio are religion, sports and conservative talk. He’s saying a lack of variety and innovation is killing AM radio and I’ll add killing talk radio, just as a lack of innovation is killing Red Lobster.
At its end with Darden Restaurants, Red Lobster was a financial drain and its business of selling “Endless Shrimp” was worthless and had no future. Darden knew the remaining value of Red Lobster was in its real estate. Many AM stations today have no viable business. A station’s real worth is in its real estate.
Finally, Red Lobster patrons are an old and vanishing group. Talk radio’s audience is old and shrinking too. This demographic has little value to many mainstream advertisers. I predict Red Lobster won’t be around in 10 years and I’ll say the same fate is in store for talk radio if we don’t dare to innovate and bring younger listeners to the format.
Lucky for station owners, they will have real estate to cash in. 🙂