small radio station because they primarily finance against cash flow and not asset value,” says Aidoo. “Though a station may be worth a few million dollars, it may not be generating enough cash flow [usually 5 times cash flow] to support a loan to purchase another one.”
Minority owners have been forced to turn to private equity funds in which capital is much more expensive and requires giving up a substantial ownership stake in the property.
But even if they can afford to purchase multiple stations, owners must then be able to generate the necessary cash flow to compete. According to MMTC, depending on the station’s format, operating expenses–costs that include salaries, upgrading transmitters, and purchasing state-of-the-art equipment–can represent as much as 50% to 70% of annual revenues. “When it comes to general station management of overhead expenses, clearly, when you are running a cluster of stations, it’s a lot more efficient and you have more cash flow,” says A. Jerome Fowlkes, director of BIA Capital Corp. in Chantilly, Virginia, a private debt/equity capital firm that raises money for minority radio broadcasters. Mega-broadcasters can outspend smaller stations and raid the talent pool because, unlike small, minority-owned broadcasters, large broadcasters are usually publicly traded companies whose massive size helps generate free cash flow. They can also effectively market clusters of stations and easily secure nationally syndicated programming, which is key to high ratings and marketing power.
CAN THESE BROADCASTERS SAVE THE DAY?
Some black-owned broadcasters have found winning strategies to do battle against the giants. Tama Broadcasting Inc. currently owns eight stations in Jacksonville and Tampa, Florida, and Greenville, South Carolina and, at press time, was closing a deal for three more stations. They have been able to create clusters by gaining $24 million from venture funds such as Halyard Capital Fund L.P., the private equity arm of the Bank of Montreal, and Black Enterprise/Greenwich Street Fund (No. 9 on the 2002 BE PRIVATE EQUITY list with $91 million under management), which is co-owned by Earl G. Graves Ltd., publisher of this magazine.
Glenn Cherry and his brother, Charles II, vice president and general counsel, have developed an acquisition strategy that focuses on purchasing three to four stations in southeastern markets and introducing a range of formats from urban contemporary and smooth jazz to country and gospel. And the Cherrys don’t feel they have to limit formats to those targeted at African American audiences. Nonminority broadcasters are profiting from urban programming, Glenn maintains, so there’s no reason why Tama can’t produce other formats, as well. “We’re broadcasters who will fill any niche. We just happen to be black,” says Glenn. “You have to compete where the dollars are.”
Since competition from other multiple station owners has dramatically reduced ad rates, Tama’s operating strategy has involved austerity measures:
cutting costs by 10% to 15% last year and increasing productivity by pushing a lean, multiskilled staff to work an extra five to 10 hours a week. “We’ve watched our expenses. We’re not buying new equipment or laying out capital,”