The NAB Radio Show begins in Las Vegas next week and part of that massive takeover of Sin City will be a lot of panels and discussions about how radio can make bigger revenue gains heading into the second half of 2015. The show is also a meeting place for dealmakers. While you may never run into them, radio CEO's with cash to spend, or stations to sell, will be in Vegas holding meetings, looking to make deals. Larry Patrick is somewhat unique to the radio industry. Not only is Patrick a very successful broker, he's also a very successful station operator. Patrick is part of our annual special NAB issue report called "Brokers Speak Out." The issue releases Monday and will be available all over the Las Vegas convention center next week. Here's a portion of our interview with Patrick who give us his thoughts on what radio must do to increase its revenue share, what's in store for 2015 in terms of deals and what the real multiples are in the world we live in today.
RI: How was 2014?
Patrick: It was a good year. It wasn?t a great year, it was not a landslide, it was a solid year. We sold a reasonable number of stations. Because we sell not just radio, but also TV, a lot of the effort in 2014 was focused on stations that were going to be in this upcoming television auction. Radio has been steady.
In 2015, there will be a couple of people who are out on the acquisitions trail ? obviously, Larry Wilson, and Dean Goodman is trying to get his arms around some additional financing to grow Digity. Ed Christian at Saga made reference to acquisitions. I think everybody is watching the two big guys, iHeart and Cumulus, and what they are going to do to try to pare down debt. That?s the big issue here. If Entercom can get past the Justice Department and get permission to close, then I think you?re going to see some very accretive trades with CBS that will help both companies.
Unfortunately, there are still some companies struggling under the big debt they took out in 2008 that was just too expensive. But many of the stations that were in trouble have been worked out. I did a receivership for 50 stations over the last couple of years, and all of those have closed, gone to new owners, and are doing well.
RI: What are the multiples for radio deals today?
Patrick: In unrated markets, it is still 5- to 6-times. In rated markets, small to medium rated markets, it is probably 6- to 7-times. When you start getting into deals that are Beasley and CBS or, down the road, maybe CBS and Entercom, I think you have to value those top 25-30 market stations at least in the 7 1/2- to 8-times range. Still below where they have traditionally been, but I think the demand for those are pretty strong. There are a lot of people; there is a lot of money out there. You can borrow money right now at cheap rates. There?s a lot of private equity, based on the inbound calls we get, that is interested in buying radio.
RI: One year from now, who will be public, and which of the top 20-25 companies will not be around?
Patrick: I think Larry Wilson will be public by the end of 2015 or by early 2016. In terms of who may not be around, it?s unclear. I think most people are still safe, and no one is looking at massive leverage here other than the top two. When you get down below that, it drops off sort of fast. I don?t see a lot of business activity this year, and I don?t see blockbuster deals.
RI: What is it going to take for this industry to get topline revenue growing at a decent clip?
Patrick: I think it is going to take something more than the traditional, ?Hey, we are radio, don?t forget about our 6 or 7 percent.? You have to come in with integrated marketing packages that include radio, maybe video, TV stuff, and digital. It?s going to take constant pounding by Erica Farber and her team, as well as some of the CEOs of the big companies ? this is where Pittman excels ? being able to go to consumer goods companies and explain how the suite of services can deliver.
It?s a fight in the minds of the top 500 companies in business. You?ve got to be able to walk in to see the CEO of Procter & Gamble and say, ?Here are some ideas for you.? They have to be new and creative, not just, ?You?re going to buy 5,000 spots.? You?ve got to have a lot more creative, a lot more digital. You need to hire young people who are on top of every trend in a digital world and realize that?s how you?re going to acquire listeners and satisfy advertisers.
I?ve heard that for 20 years, though. The industry is looking for a leader. Not everyone loves (iHeartmedia CEO Bob)Pittman, but he?s a leader. I look at (CBS Radio's) Dan Mason, who I have tremendous respect for. When he speaks, this industry ought to listen carefully, because he is a smart guy. You need leaders to step up and say, ?Quit attacking the other station, badmouthing them on the street. Now let?s go out and make radio work, and let?s share the successes.? We are often way too competitive with each other and way undercompetitive with newspaper, Yellow Pages, cable, and billboards. It?s crazy. It?s almost as if we try to eat our young and kill our neighbors.
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