RBR+TVBR 2016 Fall Special Report by RBR+TVBR

Neuhoff on Growing Your Group

Beth Neuhoff shares her expertise on the state of the industry from an independent owner’s perspective.

Dave Ramsey Up Close

Financial guru and radio host Dave Ramsey explains how his staff helps station owners maximize marketing his show.

Dan Mason Still Loves Radio

An exclusive chat with the former CBS Radio leader about his role with iHeartMedia, including the future of in-car radio.

M&A Crystal Ball

Media Services Group’s George Reed, a station owner and a broker, on what could help move M&A.

The Coming Political Windfall

Katz Radio Group’s Stacey Lynn Schulman and Pat McGee on how owners can get more of those ad dollars.

Acquisition Myths Busted

Garvey Schubert Barer attorney Erwin Krasnow, DEFcom Advisors’ Doug Ferber and SNL Kagan’s Bishop Cheen explain what you need to know before you buy a station.

Next National EAS Test Looms

The FCC’s David Simpson, chief of the Public Safety & Homeland Security Bureau, tells us what to expect from the second national EAS test, which is happening next week.

Beth Neuhoff Drives Neuhoff Communications Upward By Leslie Stimson Beth Neuhoff has been at the helm of Neuhoff Communications since 2012. Over that time, she has dramatically enhanced operations and improved the value of the privately held company. She was previously executive vice president of the Midwest division of Interep, and today is on the board of Gray Television, as well as second vice chair of the NAB Board. The company owns 20 radio stations and is still growing. RBR+TVBR sought her input about the state of the industry, from the perspective of a smaller, independent broadcast owner. RBR+TVBR: About political ad dollars, is anything moving in your markets? What’s going on there? Neuhoff: We had some surprises because you’ve got Illinois, typically a blue state, and Indiana, typically a red state. We have a hot Senate race in the state of Illinois. So that’s great, with an incumbent Republican versus a fairly popular Democrat coming up. Bring on the fights. RBR+TVBR: Yes, bring on the fights. Then there’s the general election too, all the way into November — that would be good, right? Neuhoff: Yes, I hope so. You know, the special interest groups and the PACs are really where the money is. So we will see what happens. We will keep our fingers crossed — not enough to drive our listeners away, but enough to give us a bump, a much-needed bump. RBR+TVBR: Do you go after political? Do you actually go to the campaigns or the PACs and say, “These are our stations and this the kind of demographic you can reach if you buy on us”? Neuhoff: At a much larger level, at a federal level, I would say not so much. On the local level, we absolutely do. With those local races, we do go out and talk to them about their business. But it gets handled and funneled, generally, through general managers, not through salespeople, just to control rates. We do go out and sell radio to them in the idea of spending money there as opposed to someplace else. RBR+TVBR: How can radio get more political ad dollars away from TV? Neuhoff: I think that so much of political spending is driven by what state you’re in. Political has totally moved into a space of “Are you in the right place at the right time?” So how radio gets a bigger share of that, I think, is really determined by the folks in those states and how they go after it. RBR+TVBR: What are your company’s biggest challenges right now? Neuhoff: I would say our biggest challenges are twofold. Number one, because our business is primarily in the state of Illinois, having no budget passed there and having the state on the verge of bankruptcy has created some challenges we hadn’t ever imagined or anticipated. We’ve been in the state capital, we’ve been in college markets, and those are traditionally very resilient. But when your state is in arrears to your clients, sometimes for more than a year, it impacts their ability to spend. So that’s a real challenge, number one. The second challenge is having made two acquisitions, one in December and one in February. I think on a much more macro level, cultural integration is just so absolutely important to how we operate our business. I think we are really fortunate. Particularly where we picked up Lafayette, IN from Shores — phenomenal people, but their culture is just a little different. That’s not a negative, but it is a challenge, because how do you preserve what makes them great and at the same time, add your secret sauce to the mix? It doesn’t happen overnight.

FA L L 2 0 1 6 · R B R . C O M · 1

Control your music scheduling system from any web-enabled device

Control your Zetta in-studio automation system from any web-enabled device

• Schedule your logs from wherever you are

• Fire Hot Keys from your Zetta2GO device

• Edit your log: Juggle, Insert, manually edit your schedule

• Record and insert a voice track right from Zetta2GO

• And with full real-time integration with Zetta, all your changes instantly show in your automation system

• See your log when you are at a remote broadcast – paper free

rcsworks.com

• Full, real-time integration with GSelector; your changes are reconciled instantly

Empower your Sales Team with the information they need on the road, from any webenabled device • Up-to-the-minute Dashboard and Reports available at your finger tips • Book or revise orders, electronically sign the order and submit it to traffic all while sitting with your client

RBR+TVBR: It is more than changing their e-mail addresses. Neuhoff: It is. And they have to buy in. They have to feel it and believe it. We had a situation where [COO/VP] Mike Hulvey and I went out and we were on sales call and one of the salespeople said to us, “Are you real? Is this real?” RBR+TVBR: Meaning what? Neuhoff: Meaning, “You’re coming in here. Are you authentic? Is this really how you guys do business?” They had never been through an ownership change. Ever. So for them it was kind of like, “What is this all going to mean to us?” As I say, they are tremendous people and they have a tremendous culture of their own, and that is something that we are all working on together over the course of the year, just to make sure we take the best of what they have and share what makes the rest of the company great. RBR+TVBR: What did you acquire? Neuhoff: We acquired Bloomington-Normal, IL in December from Connoisseur, and then we acquired Lafayette, IN from the spinoff of the Shores radio stations from the Gary-Shores television transaction in February, directly from Shores. So those two things happened very quickly. To give you some context, we sold our television business in July. So from July until February, we were working very feverishly on deals to get them done. My late father-in-law was just a phenomenal guy, and just before he died, he really wanted to see us pick up these extra stations. Now we’re taking a breath and digesting.

Neuhoff Communications COO/VP Mike Hulvey, President/ CEO Beth Neuhoff, and VP/Development and morning show personality for Neuhoff Decatur, IL Brian Byers

RBR+TVBR: Is recruiting young people to your stations an issue? Sometimes young people don’t think radio is cool anymore. How do you get them involved? Neuhoff: We start early, quite honestly. We are really fortunate to have a lot of local universities right by. We have Illinois State. We have University of Illinois. We have Purdue. We try to be very involved with them. Even before that — Mike Hulvey [recently] finished up a sports announcer camp that he does every year. He has been doing it for 20 years. It’s high school and junior high kids. So we’ve got kids — for example, we’ve got a sales manager who started out as an 8-year-old camper with us. He grew up just loving the business. We try to get kids involved. We give them opportunities. One of my favorite stories right now, I met this young woman. She was a sophomore. I went to the meeting of the National Alliance of State Broadcasters Associations and there was a table of college kids sitting there. I said, “Hey, can I take you guys all out to lunch?” And they said sure. We all sat and talked. “What do you want to do?” Every single one of them wanted to be on TV. I thought, “OK, this is fine. I understand that.” I saw this one young lady, she went to U of I. I said, “I want you to come work for me this summer. I am going to give you an internship.” She said, “Well, I’m not sure.” Long story short, this kid is incredible. She won the NextRadio contest for writing the commercial. We give them video opportunities. We have to have video on our website. We are doing all kinds of innovative things in the market. So she’s had experiences in markets our size that she would never get in a big market, or on TV, quite frankly. And it’s on the digital side.

I just really want to be really good at what we do, where we are.

RBR+TVBR: It’s good too, because they know their product and they come from radio. It makes a difference. Like you, they came from the rep side. So you understood that end. Neuhoff: I did. And you know, it was amazing. I came from the rep side and I thought that I understood everything about local radio and that there was nothing I could learn. I couldn’t have been more wrong. I was so incredibly fortunate to have a team of people who were just real pros, COO Mike Hulvey being first and foremost in small-market radio. What blew my mind was the innovation that occurs there. I said [recently] to a group of people about my team, and I really meant this, we are certainly not the biggest, and as much as it pains me, we are probably not the best, but my team has more heart than all the big guys. They just really care. There is no amount of preparation that I could’ve imagined for walking into that. I am just incredibly lucky for that. It is very different. It is a very different world than the rep business, which is all transactional.

RBR+TVBR: You’ve grown your company, and you’re integrating now. Can you ever imagine getting big enough to go public, or is that not what you’re about? Neuhoff: I never say never to anything. It’s not what we’re about. There’s being big for the sake of being big. I have seen it; I have been through that public world. I know what that looks like. I just really want to be really good at what we do, where we are. So there is no size to it. It’s just let’s be really, really good at what we do. So if that means we buy more stations, then we buy more stations. But right now, we really want to just focus on being the best we can be where we are. RBR+TVBR: I take it you still love walking into a radio station every day? Neuhoff: I don’t walk into one every day. But when I do, I absolutely love it, because generally I am coming in for something, meetings or whatever, but it is a feeling of contagious positivity. Everyone is so excited about what they do every day, and they want to introduce me to the people that they’re doing business with. They’re like, “Will you come and sit down?” I am thinking, who in the world wants to hear me talk? And they probably don’t. But they’re really excited to talk about what’s going on in our business. It’s a special experience. I think because my team is so focused on community and really making their communities better — they feel very empowered to do good things around them. Not only is it expected, but I think it’s what differentiates us from our competitors. RBR+TVBR: Is there a typical day for you, or is every day different? Neuhoff: Every single day is different. The funny thing is, you come from a big company where everybody has lots of assistants and there is somebody to call for this and there’s someone to call for that. Then you move into a company our size, and we are small. We have 250 employees. Not like we’re enormous. You become chief cook and bottle washer. We don’t have a legal department. That’s me. I go and sit down and talk to lawyers. It’s been a phenomenal experience because you really learn your business ... all aspects of your business. And I am not sure, in a huge organization, if that’s even possible, because you’re orchestrating so many things. And there is still a lot, by the way, that I don’t know — that happens every day. So I am not claiming that I know every single thing. But you get exposed to a lot more. So a typical day could be meeting with the bank or having an HR situation or having a legal situation or, more importantly, strategic planning and being on the phone with different people throughout the organization. It could be anything.

RBR+TVBR: Do you think the industry is going through a contraction? When all the big guys get through with their restructuring and whatever they’re going to be doing, do you think we’re going to end up close to where we were in 1996, when there were more smaller-level radio groups? Neuhoff: In all honesty, I hope so, because I think, and take it for what it’s worth, I think television, it makes all the sense in the world to be traded on the public marketplace, even though they’re getting hammered right now. Because, you know what? They have two revenue lines. They have re-trans and ad revenue, which we don’t have. They are much more consolidated than we are. And it just makes sense. You can show growth more quickly there. Our business is not, I don’t think, as well positioned for the public marketplace. It’s great for someone like me, who is running a family business, a family office, basically. We throw off a lot of cash. Maybe we don’t grow as quickly, but it is a good cash business. And so the people that are in it, that are operating it like that, I think do a great job. If you have to speak to your private equity guy or to the market every single quarter about what happened a month ago, how can you run a great radio station? I just don’t think you can. I hope there will be a bunch more owners. Whether that happens, who knows? RBR+TVBR: I remember in 1996, when it was all coming down, the companies that were ready for it, they pounced and they bought and bought. And other people cashed out. The ramifications were huge. Neuhoff: It’s true. And it’s the difference between growth for growth’s sake — and there was a point in time, I think, had some things had not happened, uncertainties, the dot-com bubble and things like that, that really fundamentally, in a matter of a couple of short days, changed our industry. People were all of a sudden underwater. You don’t have to look any further than the Interep story to see. Here was a phenomenal company that all of a sudden was way underwater, in no time. Interep actually IPO’d right about the same time as the dot-com bubble. And it was not really a super successful IPO, and everyone was sort of stuck in. Then Oak Tree came in and bought a big chunk of the debt, and they control it. The next thing you know, it was Chapter 7. It took years, of course, for that to happen. But you become a slave. You just become a slave to the quarter.

FA L L 2 0 1 6 · R B R . C O M · 3

MVP_R

Dave Ramsey Keeps His Show Fresh By Leslie Stimson Financial expert and radio host Dave Ramsey is keynoting the 2016 Radio Show. His syndicated program, The Dave Ramsey Show, is heard by 11 million listeners each week on 550-plus radio stations and digitally through podcasts, audio streaming, and a 24-hour online streaming video channel. His best-selling books, including Financial Peace and The Total Money Makeover, have sold more than 10 million copies combined. During the keynote address, titled “Cutting Edge Trends in Marketing,” attendees will receive an inside look at the marketing prowess that has driven Ramsey’s business success. Leslie Stimson caught up with Ramsey to discuss his success, what drives him and his thoughts about radio today. RBR+TVBR: You’ve been doing your radio show since 1992. What do you enjoy about doing The Dave Ramsey Show, and how do you keep it fresh? Ramsey: You know, the people keep it fresh. They call in with their stories. The principles are all the same, and a lot of the answers are the same. But their story is what makes it fresh. We have folks drop in and watch the show live in our studio here in our lobby, and I go out and talk to them at the breaks and sign their books and that kind of stuff. A guy says, “I know you’ve heard this a million times,” and I say, “No, I haven’t heard your story a million times.” Everyone’s personal story is different. The results might be the same and the principles might be the same, but that single mom has never called the show before she called yesterday.

4 · R B R . C O M · FA L L 2 0 1 6

RBR+TVBR: Is that how you stay motivated, getting to know the people and their stories? Ramsey: Oh, yeah. Because it’s about helping that caller, and the audience are just voyeurs. I am Dear Abby. You’re listening to me help someone else. That motivates you and keeps you centered. You think, “I thought I had problems until I just heard that lady died of cancer,” or, “I just thought I had problems until I heard that guy file for bankruptcy.” Or, “I would love to make a half million dollars a year like that guy who just called.” So we are listening in to keep us centered on life. But all of us that listen to this kind of a thing, we also learn in the process. RBR+TVBR: What kind of things do you learn? Ramsey: What I am learning is always just what is moving out there in the market and what people are motivated by and what they’re afraid of. And you know, it really hasn’t changed a lot. Some of the labels have changed. When we first started, credit card debt was a big problem. Well, credit card debt is still a big problem, but of course these days everyone is talking about student loan debt. Four years ago, everyone was talking about mortgage problems. RBR+TVBR: Are some elements of the show becoming easier over time? I was hoping you could share some of the things about the show you really enjoy. Ramsey: I guess any time you do something for 20- or 30-some-odd years, it gets easier. Hopefully. If not, you’re pretty incompetent. I guess I am better at it. I hope I’m better at it, a lit-

tle bit every year. In that sense, it gets easier. You get this repertoire of experience that is just your Rolodex in your brain. I’ve got more to access. I find myself able to do things that seem to be offthe-cuff, that weren’t prepared, but are very thorough because of that baseline of experience that I’m tapping into, versus when I’d just started. I had written out everything before I went in the studio, and I had to really, really spend a lot of time just getting ready for the show every day. These days, it is pretty much plug-and-play, in that I roll in here and I am tapping into the experience base that we’ve got. We have tried a million things that didn’t work over the years. I got to where all I was doing was just talking to all the different ways the show could be heard at the start of the show. I had to clean my intro up and trim it back down to where there was almost no intro, because people aren’t listening for my intro. They’re listening for the call. They are listening for what’s happening on the calls. The callers are the records we play in talk radio. So we have to play good records. If you are just yakking all the time and not playing your records in the music business, nobody wants to listen to your show. And I didn’t want to lose my entire Southern accent. It’s part of who I am. It is part of my heritage. But in the first six years or so, I had a voice coach come in, a diction coach, a broadcast person, and teach me and coach me one-on-one and just sit in the studio and mark it down every time I would say something. I was sooo country-fried that I had no credibility. I had to learn how to say “ice” instead

MVP_RBR_Sept2016_f2_MVP 9/6/16 12:07 PM Page 1

No matter where you are in this great country, you can trust MVP Capital with merger-and-acquisition services, capital raising and valuations.

Recent transactions

What can we do for you?

has agreed to convey the assets of its

Destin/Ft. Walton, FL Radio Station Cluster to

MVP represented Apex in this transaction.

KFWB License Trust

Compass Radio San Diego

Aloha Station Trust

has conveyed the assets of

KFWB(AM)

KPRI(FM)

Serving Los Angeles, CA

Serving San Diego, CA

Serving Eau Claire, WI

MVP represented KFWB in this transaction.

MVP represented Compass in this transaction.

MVP represented Aloha in this transaction.

Mount Wilson FM Broadcasters, Inc.

WISM(FM)

has conveyed the assets of

KSMY(FM)

KYZZ(FM)

KBOQ(FM)&KMZT(FM)

Serving Santa Maria-Lompoc, CA

Serving Monterey/Salinas/Santa Cruz, CA

MVP represented Frontier in this transaction.

MVP represented Mount Wilson in this transaction.

has entered into a Concurrent Operating Agreement with

MVP advised Hearst in this transaction.

MVP advised Block in this transaction.

MVP advised LFT in this transaction.

At the Fall Radio Show, weâ&#x20AC;&#x2122;re at the Omni. Please call for a confidential discussion.

â&#x20AC;˘

MVP represented Frontier in this transaction.

Mount Wilson FM Broadcasters, Inc.

has conveyed the assets of

415.391.4877

KXFM(FM) Serving Santa Maria-Lompoc, CA to

KSNI(FM) &KSMX(AM)

has conveyed the assets of

www.mvpcapital.com

Securities offered through Financial Telesis Inc., Member SIPC/FINRA.

Nine Pre-Auction Channel Sharing Deals

of “Aaaaahs.” I had to learn the “g” on “going,” instead of “goin’.” And on and on. A lot of people say I am still extremely Southern, but you should’ve heard me before. RBR+TVBR: I am curious about the debt-free scream. How did that get started? Ramsey: That was a lady that called in from Grand Rapids. It was probably 17 years ago. I wish I had the tape of it. I remember the call very clearly. She was one of those callers that just took the show over. When I picked up the phone, she was like, “Dave! I did it! I did it! I did it! I sold everything. I had a garage sale and I got out of debt! I’ve been working extra! I got out of debt! Dave, I even sold the bushes! I sold the bushes from out in front of my house! I’m debt-free! I’m debt-free! I’m debt-free!” And then she hung up. Those days, we didn’t have email, we had fax machines. And our fax machine started going off and people were saying, “That’s the best call you’ve ever had, Dave. That was cool.” And I didn’t do anything. I just picked up a phone. The woman was just going nuts. And she was just so obviously inspiring and so fun and so enthusiastic and I thought, “I wonder if I could get somebody else to do that?” So a week or two later, we said, “Hey, that lady that called in and was screaming about being debt-free — if you want to scream about being debt-free...” and later, we called it the debt-free scream. “But if you want to call in and tell us your story to inspire other people and to celebrate that milestone, then do that.” It took off. In those days, we weren’t putting the show on the satellite 24/7, we were just on live only, in the three-hour slot, and that was the only way stations could carry us. So we weren’t as worried about being modular. So we started doing “Debt Free Fridays.” And the whole show filled up, three hours of debt-free screams. It was too much of a good thing. We had to back that off. So we said we were only going to take one call an hour that is a debt-free scream, and you have to call the call screener and schedule it, because there is a backlog of them. Now, it’s backed out about six weeks. Then it took on another thing, where a guy sent us a picture on a Saturday — the office was closed — standing outside our building putting his last payment into our FedEx box for the FedEx man to come pick up. And then he called in the next week to do his debt-free scream and we had his picture. He was from Indiana. He drove to Nashville to make his last payment here, because somehow it was tied to his story, to the fact that he had gone and won. That was so fun. We’ve got a bookstore in our lobby, and coffee is served, cookies and home-baked goods, so when you walk into our store, it smells like mama’s kitchen. That’s right across from my studio. People come into the bookstore and eat a cookie, have a cup of coffee, and watch the show. But then people would come by and say, “Hey, I want to do my debt-free scream in the lobby using the bookstore telephone.” And so they would grab my telephone and stretch it across, holding it in their hands, and do their debt-free scream, and I could see them across the lobby, and we were talking and seeing each other. Of course they tore up the phone before long, because they were just all of them doing it. Then we put in a little sports headset, so you can actually come to the lobby now, and a lot of people do. It’s become this milestone thing. It is a movement. I was walking through an airport the other day and a guy says, “Hey, I’m going to see you in November!” A friend of mine says, “Who is

6 · R B R . C O M · FA L L 2 0 1 6

We know that we have to produce ratings, which produces revenue, and we have to help the local station do that. that?” I said, “I don’t know.” He said, “What was that?” I said, “It’s travel-speak. He’s using travel language and saying he’s going to be out of debt in November and he’s going to come to the office and do his debt-free scream.” I knew what he meant, and he knew I knew what he meant. But that’s what is happening. We have all these very cool things for these folks, and they drive. They drive from Delaware, and they fly from Alaska. It is crazy — just because they want to be here, because it had such an impact on their life and they want to stand here physically to do the scream. It’s really humbling. RBR+TVBR: What would you say is the most unusual or funny thing that has happened on-air?

Ramsey: Plenty of funny stuff happens on the air, but there’s one that comes to mind. Do you remember when Janet Jackson had an “oops” and they decide they’re going to fine all of us now for anything that gets on the air — like a half-milliondollar fine if somebody says something wrong on the air or a cuss word. We were not running a delay with a dump at that point. And we were on a hundred stations or so. Our audience is not somebody who calls up and drops the F-bomb, so we had never really had any trouble with it. We thought if one got through, it would be no big deal. Then the FCC starts saying, “Yes, it’s a big deal.” So we put in the 10-second delay. And the next week, this guy calls, and he was really country-fried. He was so funny. He was like, “Dave, my wife says she won’t have sex with me if I don’t make at least $600 a month. What do you think about that?” And I started laughing. I said, “Dude, I think I’d get to work.” And he got mad, of course. He said, “I can’t find work.” I said, “How long have you been out of work?” He said, “A year and a half.” I said, “You’re kidding. You’ve been out of work a year and a half? You can’t find anything to do to even make $600? Come on. You could deliver pizzas.” He said, “I don’t have a car.” I said, “Look out your window.” He said, “What do you mean?” I said, “Look out your window. Do you see grass? Go cut some grass, dude.” Well, he got real mad and he starts cussing at me, “You’re just like her. You no good...” and

of course, 10 seconds is an eternity. So I let him go a little while. I said, “None of that will make the air. We are just going to laugh at you. You can stay tuned in so we can continue to laugh at you.” Of course we dumped him. We hung up on him because he was dropping every word in the 13-year-old locker room. But it was fun. The poignant ones are the ones that I think stick with us. The ones that are so sad. The lady that shows up to do her debt-free scream and her husband, right when they started working to get out of debt, was diagnosed with cancer. And while they were getting out of debt, he died. She comes to do the debt-free scream on his behalf, because he wanted her to finish that. So she’s standing here and we are all just crying. And she does her debt-free scream through tears. Or the lady that called from San Antonio, which is a military town, of course. Her husband had been killed in action in Afghanistan Sunday morning. And she called me on Monday. What do you say? How do you respond to that? Those things stick with you. RBR+TVBR: The business of radio has changed so much since 1996, with radio groups becoming larger and managers operating more stations. I wonder, has it changed how you interact with the owners of the stations? Ramsey: It is just such a wonderful medium. The business aspects behind the scenes of the medium have been so screwed up at times. There is an ebb and flow over the years of that. At the end of the day, we know that we have to produce ratings, which produces revenue, and we have to help the local station do that. We have found, regardless of who the owner of the local station is, they will fight to keep us on their airwaves, and we get to work with people at all levels of every radio company, from the CEO to the chairman on down. We have had a lot of wonderful meetings. I have a lot of wonderful friends in the business. There are a lot of really good people in the business. But man, there are some constraints on folks. A lot of folks deal with fear in the corporate environment, and there’s a lot of that fear-based decision-making happening — which we don’t do here. But we get to relate to those situations sometimes. If we can do our job, it makes the local stations’ jobs easier, and we’ve got a whole team that comes in and helps the sales team learn how to sell The Dave Ramsey Show. It’s not that they don’t know how to sell; they do. But our show has some unique aspects to it, and it’s just an extra way we can serve our customer, the station. When we do that, then they get the results and they appreciate it. Over the years, that’s worked really well, that we have just super-served at the local level, and we go into the markets and do these events and create NTR for them. We just work our tails off for them to make sure we have done a good job for the customer, and we have been able to overcome all of the consolidation, or the lack of consolidation or syndication, or all the syndication collapsing, or all the different phases that we’ve gone through since the 1990s in the business. RBR+TVBR: It’s good to hear you say it’s a good business and that you make friends with the managers. Because radio is so personal. Ramsey: Well, it is. When they take my show off, it’s like getting fired. It hurts my feelings. I don’t want to be taken off of any station. I had one the other day, where we had been with the company for a long time in this particular town. We had the opportunity to not just move up a little, but move from a weak signal into a major signal. Both sta-

tions are good people. It was hard to leave our old friends. We are just kind of loyal. But we had to. It becomes a decision of how many listeners we can help. The guy, it hurt his feelings when we left. I get that. We just had to move after all those years. He said, “I’ve been loyal to you.” And I said, “I know, I know. I can get 150,000 more people if I make this move.” And that’s my job, so — it’s just hard. It’s part of business. RBR+TVBR: Have you ever considered owning a radio station? Ramsey: No. It’s not the business we are in. We are teachers, and we syndicate this show. That would be a distraction. It would take our eyes off of what we do. It is outside of our mission statement. We own this network and all the digital properties associated with it. That is more than enough to take care of in addition to 14 other profit centers in this company. RBR+TVBR: At the Radio Show, you are going to talk about marketing trends. What can you share with me about marketing trends that would be important for station owners to keep in mind? Ramsey: It’s about people. That’s what marketing is. Sometimes we try to turn marketing into a science and forget that there are human beings on the other side of that message that we’re putting out there. We will be talking about some of the big trends that we’re seeing in all the different spaces that we play in. And we play in, again, about 10 different spaces. Broadcast is one of them. But the trends are running across all of them, especially in the B-to-C side, the business to the consumer, where you’re marketing directly to the consumer or to the small-business person, which is a consumer of sorts. There’s some real serious movement in the way that people are making their decisions because we are an over-marketed-to culture and we’ve got burnout from people barking at us. So the way we used to do it, we used to bark at them until they bought. They’re not going to do that anymore. They’re now buying tribally, and they are buying off a story. I will impact some of the tribal and story methodologies that we’re using to create the huge results that we are having in many different spaces that we are in. RBR+TVBR: Are you having much success with digital, like online or streaming? Ramsey: Yes, we love it. We think a rising tide raises all ships. We have actually been able to prove that. One thing is, for instance, with my show, The Dave Ramsey Show, we had one of the hours on iTunes. We’ve got them all on our iHeart channel. We’ve got an app where you can watch the show on your iPad or your iPhone. You can watch the show on the website. All of this is free. We just started streaming the entire show on video on YouTube. YouTube has a new live-streaming feature and people are watching it. We thought, and some of our affiliates thought, gosh, if people can access the show different ways, then they won’t listen to radio and they will choose to do that instead. We have just found that not to be true. What we’ve done instead is reach audiences in the white space that we were not getting to, and in many cases, we are dragging them back over into terrestrial, where they might not have known we were in terrestrial. We took our iTunes version of the show and took all three hours and put it on about a year and a half ago. What’s happened is, that went from about a million listeners to about 3 million listeners in one year. It was a huge number as far as we were

concerned. The weird thing is that our terrestrial listenership went up about a million and a half in that same time. We didn’t cannibalize terrestrial when we did that. That tells us two things: One is that the brand is expanding in general. But the second thing it tells us is that the digital probably sent some customers to terrestrial. And we are looking at some new projects with SiriusXM right now. We don’t see these as competing things. We see them as complementary. If you look at them that way and you don’t cringe every time you put something on YouTube — the debt-free screams are all on YouTube. For an audience that many times, demographically, doesn’t listen to talk radio — my show is skewing young. I think part of why my listenership on terrestrial is skewing young is because we are feeding them so much digital content. And it’s all free. We don’t charge for any of it. We launched a Christian radio show — Chris Brown, one of our speakers in the Christian space — we launched it in 20 cities, a 20-minute-a-day, classic Christian format, answering questions. We launched a pure podcast [in June] with one of our other personalities, Chris Hogan, Retire and Inspire, podcast-only, no radio presence at all with it ... we may drag it back to radio and attach it at some point. But right now, we are just test marketing it in the podcast, because it’s less expensive to get it out there and see if it works. Well, it debuted number one in the business section and number nine out of all podcasts universally. So it’s a great place to test things. Then, if they are more proven, we can give them a show on radio, and then start talking about one of our personalities or some other methodology to just deliver. One of our core values around here is if you help enough people, you don’t have to worry about money. So our goal with the digital stuff is just to help more people, and it ends up working out for terrestrial and the digital and for our business model. RBR+TVBR: Is there anything else that you think owners should know, or a question I should have asked? Ramsey: I think one of the things we are experiencing with radio is that a lot of them, after all these years, are just discovering that there’s a business over here. We’ve got 560 team members. Our revenue this year will be about $120 million. We love broadcast. The core of who I am and the core of this business is broadcast. So we are broadcast people. This is a big company — for a kid from Antioch, Tennessee to start one, anyway. We are no iHeart or Cumulus or anything like that. We are a debt-free company. We win “Best Place to Work” every year. We have people that are talented standing in line to get to come to work here. We’ve got a full succession planned, as I move out of the seat in the next 15 years, that these young speakers and teachers and personalities are moving into these different seats — writing and doing events, doing broadcasts and doing appearances on media already. They are highly successful. And it’s almost like it’s a secret or something, that some of our friends in radio didn’t know all of that was going on. We had one of the executives come in the other day and walk through the building and he was just like, “I had no idea!” He was dumbfounded. I thought we are not doing a good job of telling our story, probably, as to how wonderfully God has blessed this place and how successful it has become.

Dan Mason Is a Man On the Go By Leslie Stimson Former CBS Radio President/CEO Dan Mason is a busy man these days. He retired from CBS in 2015 after 20 years with the company, and is now enjoying his roles as a senior advisor for iHeartMedia, chairman of the Broadcasters Foundation of America and sports announcer. His iHeart role is especially key, according to observers. Patrick Communications Managing Partner Larry Patrick tells RBR+TVBR it’s “good for the industry to keep him involved, and very good for iHeart to have a major league slugger” like Mason helping out. Emmis Communications Chairman/CEO Jeff Smulyan agrees, telling RBR+TVBR that Mason “is well respected by the industry, and in that role he will be very helpful in having iHeart” work with the rest of the industry. IHeartMedia CEO/Chairman Bob Pittman and President/COO/CFO Rich Bressler go way back with Mason. Mason told us he and Bressler worked together back in the mid-70s, when Viacom and CBS were joined. He and Pittman were PDs back then, Pittman at WMAQ/Chicago and Mason at WCGC/(Z93)/Atlanta. Mason says he and Bressler would look at pacing reports together. “I would try to get a Blackberry message to him from 40,000 feet in the air,” he tells us in an exclusive interview. “There’s a sense of trust there amongst the three of us. It’s good to be working with these guys again.” He describes his role as a “coaches’ coach.” “We bounce things off of each other, and I am a barometer.” Mason’s official title is Senior Advisor for Broadcast Relations for iHeartMedia, reporting to Pittman and Bressler. He’s working on big-picture

8 · R B R . C O M · FA L L 2 0 1 6

projects for the company, which may involve other divisions of iHeart or Premiere, Katz, the NAB or RAB or other entities. “I have great respect for Dan,” says Premiere Networks President Julie Talbott. “I’ve known him for years and found him to be a great collaborator. His wealth of knowledge and experience is a welcome resource, and I look forward to seeing how his great understanding of our industry impacts radio now and in the future.” One of the biggest projects involves the future of in-car radio. NAB has opened a dialogue with Detroit automakers about how the radio tuner should look and function in the future. Many radio groups — like Beasley, CBS Radio, Hubbard, Emmis, Entercom and iHeartMedia — are part of the discussions, and so are smaller groups, as part of the NAB-led effort. This is a key issue for iHeart, according to Mason. The company believes AM/FM listening should be “pure” in the dashboard, not mixed in among several pages of apps. That could mean a strip of buttons or knobs at the top, side, or bottom of the screen. IHeart has research that shows consumers want easy access to their local stations, Mason says. “There should be a very easy and sensible way for a consumer to reach AM and FM listening, and probably include satellite in that as well, because satellite has made those deals to be in the car dashboard, and they did that several years ago.” AM and FM listening would use HD Radio within the protected portion of the tuner too, he says.

This is the time to be having those conversations with Detroit as connectivity becomes more entrenched in the car. Turning to his work with the Broadcasters Foundation (www.broad castersfoundation.org), Mason was elected chairperson of the organization in June. He says its primary challenge is continuing to get its message out to a new generation. The group, now 65 years old, “has taken care of so many people over the years that needed help so badly.” Mason says he’s focused on “making sure that every broadcaster in need has access to the Broadcasters Foundation, because no individual who has qualified for the grant has ever been denied.” The help is specific. It’s not for someone who wants to change careers or who is out of work due to consolidation. As Mason says, “What it is there for is people, regardless of age, who have been stricken by health issues that have cut their careers short — that have worked in a radio station or a television station who can no longer work because of a health issue.” One of Mason’s other passions is sports announcing: He joined the CBS Sports Network as a freelance play-by-play announcer for women’s college basketball last year. And finally, he owns horses and was a horse-racing analyst for the NBC Sports Radio Network; he hopes to continue in both roles. All in all, he’s happy. “I’ve got a passion for this business,” Mason says. “At this stage in my career, this is a great place for me to be.”

George Reed Polishes His M&A Crystal Ball By Leslie Stimson Asset sales for radio were slow in the first half of the year. Up until Beasley Broadcast Group’s announced $240 million acquisition of Greater Media in July, the biggest transaction in radio this year was KSBJ Educational Foundation’s $10 million deal to buy KUHA-FM from Houston Public Media. RBR+TVBR asked Media Services Group Managing Partner George Reed for his thoughts on how the rest of the year will play out for radio M&A. Reed manages the Florida office for MSG and has been involved in broadcasting since 1972. He joined Chapman Associates in 1987 as a radio and TV station broker/consultant, and co-founded Media Services Group in 1989. His practice includes radio/TV station and tower brokerage, valuations, investment banking and workout restructuring consulting. Reed has been an expert witness in state and federal courts concerning station valuations and a court-appointed receiver. Reed is also a radio owner: He owns and operates six radio stations and digital assets in Charlottesville, Virginia (Monticello Media). He also owns a cell tower company, US Antenna. RBR+TVBR: Major radio deals seem to have slowed down. Certainly in smaller markets there is still movement. What do you think accounts for the slowdown? And when do you think things will start cooking again? Reed: The slowdown is really due to very little inventory out in the marketplace. That, plus business is generally pretty good. We don’t have workouts coming onto the market and big groups in trouble, etc., with the two notable exceptions, which I am sure we will talk about, iHeart and Cumulus. But most of the tired equity has already exited the business. If you’re a radio station owner and business is pretty good and you don’t have any financial pressure, why sell? I think that’s why we have seen really a prolonged period of very little radio inventory in the marketplace. Therefore, we are seeing very few transactions other than in the small markets, the very small markets. RBR+TVBR: For readers unfamiliar with the term, can you explain workouts? Reed: Companies that have balance-sheet problems. Companies that have too much debt, maybe in default with their loans. The recession triggered a lot of workout activity where lenders pulled the plug on the borrowers and ultimately those groups and/or stations were sold. That system has pretty well flushed itself out. With the two exceptions of Cumulus and iHeart, there really aren’t that many, if any, groups in trouble financially. So that catalyst for deal-making isn’t there right now. RBR+TVBR: What do you think would make the market move? Reed: If the economy strengthens — actually, if the economy gets better or the economy gets a lot worse. Either of those can facilitate transactions. If business continues to be generally pretty good for most of the broadcasters, I think we will see some M&A activity of companies stepping up and wanting to grow and being proactive in identifying acquisition candidates. RBR+TVBR: We were talking about the big exceptions of iHeart and Cumulus, and I’ve noticed some analysts believe they will likely go through a restructuring.

Reed: Much of our company’s translator work is done by two guys, Bob Heymann in Chicago and Eddie Esserman in St. Simon’s Island, Georgia. They’ve chosen to really dig in. Both of them have done a gazillion translator deals. But on the top level, I would say the two FCC translator windows have been very helpful to the AM operators. I think it was a good solution by the FCC, and I think a lot of the AM operators have taken advantage of it. RBR+TVBR: Has allowing those to move up to 250 miles in one hop made a difference for owners? Reed: That made a huge difference, because that opened the door for a lot of translator sales and a lot of them got sold. It was a win. It was a great solution.

From a purely financial standpoint, selling your towers at this moment in time makes all the sense in the world. Reed: That was my gut reaction as well; maybe it would be started by September. But I don’t think it would be completed. With that said, if they do restructure, I think they will move it pretty quickly. But as long as the debt problems are out there with those two companies, it sort of casts a big PR shadow on the marketplace. RBR+TVBR: Brokers tell me that when Wall Street thinks of radio, they think of iHeart and Cumulus and CBS, look at the debt problems and say “Ew.” Reed: I agree with that. That perception is not going to change until those two companies are worked out. CBS is going to just spin out into a separate, publicly traded company with the existing shareholders. So they don’t have a balance-sheet problem at all. That company is not in trouble. Then it becomes autonomous and it can begin growing and doing whatever they choose to do. I don’t think CBS is perceived as a problem. But the other two are. RBR+TVBR: What do you think iHeart is going to end up doing? Because they have about $20 billion in debt. Reed: Ultimately, there’s going to have to be a big debt-for-equity swap. What form that takes, what that looks like, has to be negotiated and is sort of anybody’s guess. But ultimately, it has to restructure the debt, [meaning] exchange debt for stock so that the debt service goes down and becomes manageable. Because many would argue, including myself, that the current amount of debt and debt payment schedule over the long term is unworkable. RBR+TVBR: Are you involved in FM translator deals for either AM or FM owners?

RBR+TVBR: You’re a station owner as well as a broker. As an owner, what do you worry about financially? Reed: I worry about growing the top line. I have found that everything gets easier when the sales are increasing. There’s been a huge bottom-line focus. That’s not to say I don’t pay attention to expenses; I do. But I think the industry as a whole had maybe been overly focused on controlling the bottom line and less focused on increasing revenue. I just know from operating stations for a lot of years that when the revenue is going up, everybody is happier, everything works better, you can invest in the product. It’s really, in my mind, the key to success. But this is also coming from a guy that came up through the sales side. I believe it to be the case. RBR+TVBR: Do you spend a lot of time on your stations, as opposed to the brokerage business? Or do you mix it all up? How do you find yourself dividing up what you spend energy on? Reed: We have really good people in Charlottesville running Monticello. In the beginning, I spent far more time actually physically there and involved with the company and getting it set up and launched than I do now. I spend, as a portion of my work week, very little time on Monticello. The stations are operating well and everything is going in the right direction. So I spend the bulk of my time on the brokerage side. That’s really my day job, if you will, and much of that, actually, of late, on the power side. RBR+TVBR: How did you get into this line of work? You mentioned you came up on the sales side. Reed: I actually bought a radio station. I was working in Atlanta as a sales manager. This goes back to 1986, which is a long time ago, and a friend of mine, Jim Brewer, who still owns the station, and I bought a station in Chattanooga, WJTT, and I really liked the process. I liked dealing with lenders. I liked negotiating deals. I liked working with the FCC to get them approved. I had just finished up an MBA degree, so at that point in time, I knew a little bit of something about finance. So brokerage seemed like the logical next step. At that time, Chapman Associates was a big brokerage firm, and they were looking for somebody in the Southeast and I was in the Southeast. So Brewer and I, in addition to buying the Chattanooga radio station, joined Chapman. RBR+TVBR: I take it you still enjoy it. Reed: I do. He didn’t like it, and ultimately I bought his interest in our brokerage firm and he bought my interest in the radio station. He and his family still run it, all these years later.

FA L L 2 0 1 6 · R B R . C O M · 9

RBR+TVBR: As a broker, what do you spend your time doing? Reed: For years, my kids thought that my job was writing emails and talking on the telephone. Reflecting on that, they were by and large correct. Most of my time is spent on the brokerage side and on towers. But it’s pretty much staying on the phone all the time and communicating with people by email. So my kids had it right. RBR+TVBR: How many children do you have? Reed: I have three daughters, one of whom actually works with us. She does the marketing for the media services group. RBR+TVBR: You mentioned the tower business. It seems to me that owners pay attention to their tower when they think they can make money off it. Selling a tower is kind of a drastic step. What do you think about that? Reed: Coming up as a broadcaster all these years, I was sort of steeped in the same belief that you want to own your towers. I can tell you that I have changed my mind on that, big time. When towers are trading at multiples in the teens, as they are, and radio is trading at six to seven times, it’s almost impossible to make an argument that you shouldn’t sell your tower. It’s an accretive sale. The fact is that the tower guys do a much better job managing and marketing the tower assets, which is why they’re willing to pay a premium for them, more than we as broadcasters do. From a financial standpoint, with prices where they are on towers right now, it’s impossible ... and I guess I am repeating myself, but it’s impossible to make a rational argument for not looking into the sale of your towers. RBR+TVBR: Accretive, meaning? Reed: It means that if you own a radio station, you’ve got a basket of assets, some of which are towers. If you sell that basket of assets as a radio property, you’re going to get paid six or seven times whatever the cash flow is — maybe eight times on a really good day. But if you just carve those towers out and sell them separately, you’re going to be rewarded with a price two times or more than what you would get for those towers if you kept them in the radio package. RBR+TVBR: And when you sell the station? Reed: Yes, some will argue, and I get it, that I am never going to sell these stations, therefore I am not going to sell my towers. That’s fine. But from a purely financial standpoint, selling your towers at this moment in time makes all the sense in the world. I can point to Larry Wilson. We sold some 200 towers for Larry as part of the Digity acquisition, and now he’s got a partner with Vertical Bridge and they take care of all the towers. They paid him a lot of money for those towers, and it was a smart financial move. RBR+TVBR: What are the pitfalls? Because you can only sell that asset once and then do a leaseback. Reed: You have to make sure that the leaseback part of the tower deal is done at a market rate or lower. A lot of times, if you have a third-party tenant, the tower company wants to buy your tower and you can negotiate a leaseback for perhaps a dollar a year. But what many of the broadcasters are doing is they will sell the tower and they will do a leaseback deal, and as long as the lease payments are at a market rate, you’re not going to get in trouble. RBR+TVBR: Interesting. The big example I have here is WMAL/Washington. They’ve been on that land since the 1940s.

10 · R B R . C O M · FA L L 2 0 1 6

Reed: That’s a little bit different situation. That’s just incredibly valuable real estate. That’s a real estate play, as opposed to a tower play. So it’s a little different, but the concept is the same.

anymore these days. These things are usually done ahead of time by FedEx, and you hit the switch to wire the money. Back in the day, we had physical onpremise closings.

RBR+TVBR: A lot of heritage AMs, the land that their tower and station are on is worth more than the station is bringing in these days. Is there a point where the owner has to say, “I have to find a different tower location because I am sitting on so much here, I should just cash in”? Reed: Yes. That’s actually been going on a long time. I think back to my days in Atlanta in the 1980s, our FM station was on a 42-acre plot of land on North Druid Hills Road in Atlanta, and Atlanta has expanded out way beyond it. Our stations were bought, and one of the first things our new owners did was sell that real estate and build a big tall tower in downtown Atlanta, or just outside of downtown Atlanta. So the signal actually got materially better, and they sold the real estate for a gazillion dollars, which, again, was a very smart financial move. That

RBR+TVBR: Are there times when people regret selling their station? If that happens, what can they do? Reed: That’s a great question. I can’t really recall any instances of sellers regretting the sale unless they were forced into the sale by their lender. That said, if somebody is selling their radio stations or, for that matter, any business, in anticipation of retirement, I’ve seen retirements go well and I have seen them go not so well. I have seen some retirements go well for a while and then they come back in and do it all over again.

If you’re a radio station owner and business is pretty good and you don’t have any financial pressure, why sell? goes on to this day. There are probably fewer and fewer of those sites than there used to be, but it still happens. And Cumulus is a good example of that. RBR+TVBR: You’ve done so many deals over the years. Does anything strike you as incredibly stupid, or funny, that happened when somebody was trying to get a deal completed? Reed: There are many of those examples. Two just sort of come to mind. I once had a buyer and a seller get into a fight at a closing and had to break them up. RBR+TVBR: You mean physically? Reed. Yes, physically. It was not one of the better closings. Actually, the other one that pops to mind is also a closing story. This was, at the time, a pretty big deal. It was a 30-some-odd-million-dollar transaction back in the early 90s. The sellers’ law firm kicked the buyers’ law firm out of their offices in the middle of the night, at a closing. Things got very contentious and personal, and everybody was tired. It just was not pleasant. Ultimately, both of those deals closed. Oftentimes that is where a broker really earns their keep. RBR+TVBR: Because you’re trying to herd all of the cats. Reed: Exactly. RBR+TVBR: On the earlier example, do you remember what the fight was about? Reed: I don’t. Whatever it was about, it certainly should not have elevated to physical confrontation. But it did. It was like, are you kidding me? The common element that both of those stories has is they were both really late at night. It’s when there have been problems and you’ve been working them all day and you’ve been hammering through stuff. Both of those occurred back in the day when there was a physical closing, which doesn’t often happen

RBR+TVBR: Because they un-retire? Reed: They play golf for six months and then just wind up bored out of their minds. I get a phone call one day: “I’m getting back in. What do you have for sale?” And so I don’t think it’s so much regret over the sale of the business, again with the caveat of unless they were forced to sell it, as it is poorly planning what happens the next day. RBR+TVBR: Is there anything else I should have asked you? Reed: There is one thing, and this goes back to the iHeart/Cumulus discussion. I have quietly beat this drum for a while now, quietly being the operative word. I take the position that iHeart and Cumulus are really different business models than most of the rest of us. They are national platforms, low-cost, smaller staffs, etc. I believe, if you take those two off the table for the time being, I think that radio is really an entrepreneurial business. And for the entrepreneurs, and I will point to Charlottesville, for the entrepreneurs, business is pretty good — much better than what you read from the headlines of Cumulus and iHeart. Here is my crystal ball prediction: Sooner or later Cumulus and iHeart will be resolved. And I look for a resurgence for the entrepreneurs ... I think that on the radio side, the entrepreneurs will be the dealmakers and the bulk of the owners, going forward. But I think for that to really happen with a vengeance, the Cumulus and iHeart scenarios have to play out however they’re going to play out, because until that time, most of the headlines are not going to be positive. RBR+TVBR: It is going to be more debt dragging them down. Reed: But once those situations are resolved and they can resume buying and selling — because really, right now, neither can buy or sell. But once those two situations have come to some resolution, I think you’re going to see entrepreneurial types getting back in the business. It’s a high-cash-flow business, and entrepreneurs know how to run local businesses. I believe radio is fundamentally local. And that’s going to be a change, and I think it’s going to be a positive change in the future. Whether that takes a year or three years or five years, my crystal ball is not that good. I believe long-term, we are going to see that. RBR+TVBR: Almost like getting radio back to where it used to be, before 1996. Reed: It will be a different business because the Telecom Act did change everything. But it will be a good business. I would argue now, if you take the two at the top off the top and look at the rest of us, it’s still a good business.

Get Ready to Snatch More Political Ad Dollars By Leslie Stimson Radio owners will enjoy a political advertising boost in 2016, largely due to local races. Some estimates have radio garnering more than $900 million in political this year. While broadcast television is projected to rake in close to $6 billion, and cable more than $1 billion, radio has the potential to attract some dollars that traditionally may have gone to television, according to some experts. RBR+TVBR posed these and other related questions to Stacey Lynn Schulman, EVP of Strategy, Analytics and Research, and Pat McGee, SVP of Political Strategies — both of Katz Radio Group.

“Radio has an incredible opportunity to offer both reach and targetability to political advertisers in the very near future.” — Stacey Lynn Schulman

Stacey Lynn Schulman, EVP of Strategy, Analytics and Research for Katz Radio Group

RBR+TVBR: Are radio ad buys going beyond the talk format? If so, why? Schulman: Absolutely! Hillary Clinton’s campaign, in particular, has used multiple formats to reach particular segments of voters. Her primary campaign is a model example of how candidates should not only buy deeply across formats, but invest in creative that is uniquely tailored for the specific audiences that tune in. While Donald Trump’s radio campaign largely featured only his daughter Ivanka in his radio spots, both the Clinton and Bernie Sanders campaigns had different radio creative for the formats being utilized in the markets, and some even used specific local identifiers that made voters feel like the candidates took the time to get to know their own neighborhoods and towns.

RBR+TVBR: How has this election cycle been different from previous seasons? McGee: With a seasoned political team in place, Katz has been dedicated to sharing radio’s story with key influencers in the political space to drive more political spend to radio. We are also focused on providing better data. Political campaigns have an increased appetite for more granular analytics of the electorate. This election cycle, with the introduction of Nielsen’s Voter Ratings, we are able to deliver more precise data by matching voter behavior with radio listening, enabling campaigns to target key voter segments in markets across the country. Pat McGee, SVP of Political Strat- RBR+TVBR: What is radio’s elecSchulman: The biggest addition to egies for Katz Radio Group tion buy projected to be this the political radio tool set this year political season? has been Nielsen’s Voter Ratings. McGee: Traditionally, we see a This tool gives radio an advantage in surge in political dollars from Labor Day to Election bringing a digital targeting sensibility to a broadcast Day, and we expect that to ring true again this medium. We can have very different conversations election cycle. The sheer scope of races across the with campaigns based on this data than we’ve been statewide and market levels will benefit radio treable to have in the past. We’ve also been able to mendously, especially given that there are several utilize the new data to deliver timely insights for states and markets that will have multiple contested campaigns through a new research initiative, the elections. The need for campaigns to lock in their Local Vote 2016. base and sway undecided voters creates tremendous RBR+TVBR: Please explain the Local Vote 2016 initiative and its impact. Schulman: The Local Vote 2016 research initiative shines a spotlight on the fact that we need to speak with voters where they live, using media that resonates uniquely for them. Katz Radio Group engaged Nielsen to poll its Scarborough sample on a regular basis throughout the primary season this year, in order to get timely insights into voter sentiments on political candidate selection and the media they use most often. There are a lot of media planning tools out there, but none that have endeavored to marry current political sentiment with media consumption in this unique way. Throughout the several waves of data we collected, we learned that radio consistently had the highest reach among all kinds of voters, and there is a wide array of radio formats that appeal to voting segments — not just news and talk. What was also particularly terrific about the research is that it kept radio in the political news cycle throughout the election season.

12 · R B R . C O M · FA L L 2 0 1 6

demand on inventory. As candidates and advocacy groups compete for votes, radio is well positioned to capture a larger portion of those dollars.

RBR+TVBR: Does radio have a better chance to get more political ad dollars from TV and other media? McGee: Radio is better positioned to capture a larger portion of those dollars and increase our share of the political spend this cycle. We’ve worked tirelessly to bridge the gap in voter data that we’ve experienced in prior cycles. In this election season, the ability to illustrate voter delivery and connectivity with new research initiatives such as our Nielsen Voter Ratings data partnership and Local Vote 2016 study has proven extremely beneficial to our success, this year and beyond. With these insights, campaigns can see first-hand radio’s ability to target the specific voter segments they need to win in November. RBR+TVBR: How can radio get more of that ad buy? McGee: Illustrating radio’s connection to our local communities and voters will forever be critical. The political category is becoming almost evergreen in

terms of activity, with elections each and every year. And today — more than ever before — we are in the marketplace with better data and targeting capabilities that will continue to demonstrate and elevate our offering, allowing us to bring more political dollars to our industry. At the local level, it remains critical to be cognizant of what districts and campaigns impact your area. Whether on the congressional level or the state house or state senate level, there are multiple opportunities to influence campaign spending by understanding what areas we deliver best. This cycle in particular is expected to be another recordbreaker, and fully exploring each and every opportunity is critical to our growth. RBR+TVBR: Why wasn’t radio getting its share of political ads before? Schulman: The political sector — much like other ad categories — has been preoccupied with big data solutions and digital applications. The problem is that politics are personal, but not in a one-to-one targeting way. It’s personal on an emotional level. Winning media strategies need to have human elements. Data and digital are great for targeting, but alone they’re a far cry from the emotional appeals that radio can deliver. The more visibility we can create for radio proof points, the better. RBR+TVBR: How does digital fit into the mix? Schulman: We often make the mistake of treating “digital” as if it were something wholly different from “radio.” Many radio stations are streaming their shows digitally today. As far as the listener is concerned, it’s all radio. In fact, so much of what consumers interact with digitally comes from our broadcast content. The wonderful future for radio that I see involves the pairing of digitally collected metadata from our streaming content with the heft of our on-air audience delivery. As we consider how to compete in a highly mediated world, pure digital solutions lack scale. Radio has an incredible opportunity to offer both reach and targetability to political advertisers in the very near future. RBR+TVBR: How did you get into this business? Schulman: I sang professionally from the time I was a kid and knew that a performing arts career would be difficult to pursue full-time once I married, had children, etc. I actually did an internship with Katz during my junior year at Northwestern University and got hooked on the media business. McGee: I’ve always had a passion for politics and media. And it’s that passion that catapulted me right out of college into working as an assistant at Katz TV. Throughout my career, I’ve worked in both radio and television sales, also leaving the industry to work on a congressional race. I’ve been fortunate to combine a love of politics with the media industry, and am excited to be part of another busy election cycle.

An Exposé of Myths And Misconceptions About Buying Broadcast Stations By Erwin G. Krasnow, Douglas Ferber, and Bishop Cheen Broadcast station transactions are mined with bear traps disguised as conventional wisdom. Here are 10 myths about buying broadcast stations that could cost buyers money. These myths endure because they have a modicum of truth. Successful buyers recognize fables and understand that each transaction is unique and should be approached from a zero-based mindset. This article debunks conventional wisdom and misconceptions and reveals the dollars-and-cents dangers of a simplistic, overly generalized approach.

MYTH No. 1: It’s Just a Letter of Intent

Some buyers and sellers are very casual and sometimes cavalier about letters of intent (LOIs), often to their detriment. Too many sellers and buyers enter into LOIs with the attitude that they are not binding. Beware: Although the LOI states that it is not a binding offer, some courts have imposed a duty to negotiate in good faith. Including key items in the LOI can prevent misunderstandings that subsequently result in a busted deal. While every key detail does not have to be included in the LOI, crucial deal aspects including structure, expectations and obligations should be addressed. A well-drafted LOI makes the negotiation of the definitive agreement speedier and easier by setting forth the basic terms and structure of the transaction. A second advantage is that financial institutions may be more willing to fund a transaction if it is backed by an LOI. Third, letters of intent have been called a form of “anti-renegotiation” insurance because they inhibit the lawyers and the parties from renegotiating the terms of the deal. Finally, the deadline in the “noshop” provisions in the LOI helps to keep both sides focused on getting the deal done.

MYTH No. 2: Comparable Pricing: Oranges, Apples and Garbanzo Beans Estimating the value of a broadcast property based on the recent sales price of a “comparable” property as if it were a house “down the street,” is perilous because there are so many variables. At the very least, a potential buyer needs to consider such factors as the size and characteristics of the markets being compared, the station or stations’ technical facilities, ratings performance, the number of stations in the market, the competition and status of consolidation, the nature of the buyer, network affiliation, cable penetration, structure of the transaction and the timing of the sale. Thus, using only comparables based on the sale of other stations ignores the fact that each station and market has a distinctive set of operating results, motivations for both buyers and for sellers and capital structures, and that each property is unique. MYTH No. 3: Gross Revenue Formulas: Gross Input, Gross Output One of the oldest myths is the oft-repeated formula of “X to X-1/2 time’s gross revenues equals selling price.” This formula was created in an attempt to correct the relaxed accounting practices of some station owners in small markets. Historically, profit and loss statements of stations owned by individual entrepreneurs were often distorted because the owners found ways to “expense” some items that otherwise would not be deductible. Buyers would

Bishop Cheen

Douglas Ferber

compensate for this distortion by using a gross revenue formula rather than a multiple based on cash flow. Nevertheless, station revenues — past, present and potential — are still of paramount importance. Past revenues not only reveal trends in the station’s development, but also may provide insights into the market’s viability. A buyer may be able to determine if station growth has peaked, is growing or has slowed. Projections of potential revenues determine how much a buyer can afford to pay for a station and still realize a reasonable return on its investment.

MYTH No. 4: Cash Flow Multiples: The Perfect Yardstick Many buyers regard cash flow multiples both as the starting and the end point of station value. But cash flow multiples do not account for structural differences within a market, potential new competition, recent management changes, market status or the impact of non-broadcast media or emerging technologies. Also, depending on market conditions at the time of the sale and the ability of the seller to command a premium, the sales price can be based on trailing cash flow, projected cash flow or a multiple of cash flow as of the closing of the transaction. Multiples vary based on the type of station (AM, FM, TV, Class A, LPTV) and the size of the market. Rather than relying solely on a station’s trailing cash flow, experienced buyers value assets based on an average of three benchmark methodologies: “comparables,” revenue multiples and discounted cash flow analysis. After determining cash flow and the multiple to be paid, basic tenets of supply and

Erwin Krasnow

demand may wipe out all logic as it relates to the perceived value and potential selling price of a deal. This “wild card” is the available pool of buyers willing and able to fund and close the transaction.

MYTH No. 5: Real Estate: Gaining Lots of Value Typically, the real estate element of a deal is of relatively low value compared to the value of the station’s license. However, broadcast stations can have several acres of real property for their transmitter and tower site, plus additional space and structures for studios. Sadly, in most cases the independent value of the real estate does not add much to a station’s fair market value. The value of a station’s antenna site separate from the broadcast property is irrelevant unless the tower can be easily moved or used for other purposes. This is usually the exception rather than the rule. MYTH No. 6: Banking on a 100% Leveraged Purchase As most veteran station investors have learned (often the hard way), leverage is a wonderful servant, but a terrible master. One of the consequences of over-leverage is that the buyer will have little or no room for error. This is particularly true in a buyer’s first year or two of ownership, but it also applies to a buyer’s adding a station to an existing market cluster. For most purchases, it is foolhardy to assume that banks or other lending institutions will supply most, much less all, of the necessary funds for an acquisition. FA L L 2 0 1 6 · R B R . C O M · 13

MYTH No. 7: Anyone Can Be a Turnaround

Artist The risks associated with acquiring a troubled company are significantly higher than the risks of acquiring a healthy one. A company facing serious operational problems and/or bankruptcy proceedings is hardly the kind of acquisition candidate that is attractive to most buyers. However, managing such risks is typical for buyers who actively target companies in states of decline, counting on their ability to improve operations to safeguard their investment and to achieve above-average returns. Successful turnaround buyers must be highly selective and understand the types of risks inherent in turnaround situations and how to mitigate them. They have to be able to separate the best turnaround candidates from those companies that are beyond saving. Certain characteristics of troubled companies make the due diligence process more challenging. Turnarounds demand considerable experience in the broadcast business and should be avoided by a first-time buyer. Many buyers underestimate the time needed to reverse bad performance and the cost of doing so.

MYTH No. 8: The Under-Stationed Markets Are Attractive Whether under-stationed markets might be attractive will depend on the market and the overall competition. Sustainable success depends on how your station competes against all other media in any given market (including other stations). The media mix has never been more diverse. So there is no such thing anymore as an over-stationed or under-stationed market. Ad media entities — broadcast, print, direct mail, outdoor, broadband,

14 · R B R . C O M · FA L L 2 0 1 6

mobile, specialty, online, offline, Internet, Outernet, old media, new media, every media — compete for ears, eyeballs, ad dollars, loyal audience and recurring business against all ad media platforms.

MYTH No. 9: Avoid Intermediaries Whenever Possible Many first-time buyers do not recognize the value of using qualified brokers or investment bankers to locate a property. Intermediaries play a useful role in bringing prospective buyers together with station owners desiring to sell their station. They provide several key functions that sellers cannot or should not do for themselves. First, they help the seller place a realistic value on the station, determine a selling strategy and generate marketing materials. Second, they find and qualify buyers who have the ability to close the deal and will keep the sale information confidential. Third, they become intermediaries between the seller and potential buyers in the complex negotiating dance, particularly at the stage leading up to the selection of the buyer whose offer will be accepted. They often act as a “buffer” when communications break down and emotions erupt. These tasks require industry and market knowledge, as well as marketing, selling and negotiating skills, including more than a little bit of diplomacy. MYTH No. 10: Murphy’s Laws Don’t Apply

Watch out for the following Murphy’s Laws: (1) if something can go wrong, it will; (2) nothing is as easy as it looks; and (3) it always takes longer than you think. Some buyers are seriously undercapitalized because they underestimate expenses, overestimate revenues and do not allow for contingen-

cies. Others fail to research and evaluate a given market, and do not understand the implications of a station’s current and potential technical facilities. They put on rose-colored glasses when looking at aspects of the transaction that should be examined through a magnifying glass. When in doubt, always do your own due diligence. If you are not in doubt, you should be. Another corollary of Murphy’s Law is “That aspect of the deal in which you have the most confidence will be the first to collapse.” Be wary of every element of the deal. Try to foresee problems early. Scrutinize each item in the purchase contract and the station’s performance. Imagine what could go wrong if you were putting a jinx on the deal. Even then, you’ll miss something! Closing Musings Buying a broadcast station is a complex process involving business, legal, technical and people issues. Successful buyers separate facts from fables and recognize that each transaction is unique and should be approached from a zero-based mindset. Erwin Krasnow co-chairs the Communications Group of Garvey Schubert Barer and is Washington counsel to the Media Financial Management Association and former NAB general counsel. Reach him at: ekrasnow@gsblaw.com. Doug Ferber, a media broker, founded DEFcom Advisors, LLC, a Media Financial Consultancy Company, in 2009. Reach him at: doug@defcomadvisors.com. Bishop Cheen writes the “CAPITAL Letters” blog for SNL Kagan and is a consultant for Kagan Media Appraisals. Reach him at: beeshop@icloud.com.

Are You Ready for the Next National EAS Test? By Leslie Stimson

We are working on many fronts to update alerting in a comprehensive way, and it’s important that broadcasters be part of this dialogue.

The second ever national test of the Emergency Alert System is set to happen the week after the Radio Show. It’s been five years since the first such test. Rear Admiral (Ret.) USN David Simpson is chief of the Public Safety & Homeland Security Bureau of the FCC. The FCC, in conjunction with Federal Emergency Management Agency and the National Oceanic and Atmospheric Administration’s National Weather Service, implements the EAS at the federal level. RBR+TVBR asked Simpson for an update on the latest test. RBR+TVBR: Broadcast station owners will want to know why they need to prepare for another national EAS test. Simpson: Simply put, our goal is to ensure that the Emergency Alert System remains an effective means of warning Americans when emergency strikes. A strong, secure national public warning system is vital to community preparedness. When used optimally, it gives consumers an opportunity to take immediate action to mitigate emergent threats. Broadcasters are integral to the success of EAS. The robust nature of broadcast systems, and the strong relationship stations have with their listening audience, add unique value to the EAS. They serve as a critical link to the public and perform a crucial role in keeping their communities informed and safe.

We think the timing for a national test is just about right. RBR+TVBR: What did we learn from the first one? Simpson: We learned that the Emergency Alert System is fundamentally sound, but the test conducted in 2011 uncovered some areas that needed to be addressed. For example, there were some cases where the audio was poor, where EAS participants were unable to receive or retransmit the message, or where the deaf and hard of hearing did not receive fully accessible alerts describing that the alert was, in fact, a test. We issued a report with our findings, and then developed and adopted rules obligating EAS participants to system improvement. These new rules are in place for this test. RBR+TVBR: What are you hoping to learn from this one? Simpson: The test is intended to assess the effectiveness of the nationwide EAS, including improvements made after the 2011 test. But if you want to get more detailed, the test will help us assess the effectiveness of the FEMA Integrated Public Alert and Warning System gateway’s connection to broadcast, cable and other EAS participants, the efficacy of the new National Periodic Test and “all U.S.” location code, and the interplay between the Internet-based and broadcast-based distribution architectures.

The results of the test will be logged and analyzed through the commission’s new online EAS Test Reporting System. All EAS participants must use the system, which required their initial registration by August 26th. Other requirements are: · Reporting immediate test results by close of business the day of the test. · Analyzing test success, shortfalls and recommendations for improvement no later than 45 days after the test (Monday, November 14, the next business day after November 12, the 45th day after the test). We would like broad consumer and industry feedback on their observations, and have asked organizations representing people with disabilities to have their constituencies provide targeted feedback on improvements designed to improve accessibility and comprehension. RBR+TVBR: Why has it taken five years to do the next nationwide test? Simpson: During the last five years, the FCC and FEMA have analyzed the problems uncovered in 2011. FEMA has improved the IPAWS distribution architecture; the FCC completed a rulemaking and gave the EAS participants a year to comply. Over the past year, FEMA has also conducted a series of regional tests to fine-tune their system upgrades and those made by EAS participant companies. Broadcast-industry associations suggest that their members are ready. We think the timing for a national test is just about right. RBR+TVBR: How can broadcasters prepare for the test, and what do they need to know? Simpson: Broadcasters will need to register in the new EAS Test Reporting System, or ETRS, which they will also use for post-test reporting. It was created in response to feedback from EAS participants after the 2011 test, and it’s designed to minimize reporting burdens while serving as a secure filing system. We are conducting webinars to help answer questions about the new system, and we have an email box for questions as well.

We want broadcasters to know that we appreciate their cooperation, and we are here to answer any questions as they prepare for the test or as they report their findings afterwards. We expect to continue to sustain ETRS to support national and state planning as well as community-based alerting exercises. RBR+TVBR: Some would question why we need to use EAS when the president has never used the national system for an emergency. Is EAS still relevant when we can now get wireless alerts on our smartphones? Simpson: Being ready when the president uses EAS is our top priority, and hopefully the least likely EAS role. EAS infrastructure, processes and protocols have been used extensively for largescale disasters and other incidents. The most effective way to ensure the public’s safety is by using all available alerting pathways. The EAS capability is increasingly relevant. The EAS is used repeatedly by the National Weather Service for tornados and other life-saving alerts, as well as by law enforcement for AMBER alerts. The EAS, by using broadcast and cable, is an indispensable part of the overall alerting picture. We are seeing many states and communities drive authoritative use of EAS. For use of the EAS for a presidential alert, we’d refer you to FEMA. Our ultimate goal is to save lives through alerting by ensuring that communities have effective EAS tools at the ready, and know how to use them. RBR+TVBR: Is there anything else you think our readers should know? Simpson: I would note that the nationwide EAS test is just one part of our overall effort to strengthen emergency alerting for the future. For example, last year the commission sought comment on proposals to improve EAS through greater involvement on the state and local levels, more testing and awareness of the system, leveraging technological advances and enhancing EAS security. The commission also sought comment on proposals to enhance the Wireless Emergency Alert system, which isn’t part of the nationwide EAS test, but also an important tool for warning the public. So we are working on many fronts to update alerting in a comprehensive way, and it’s important that broadcasters be part of this dialogue.

FA L L 2 0 1 6 · R B R . C O M · 15

WE’RE HONORED TO BE NAMED ONE OF AMERICA’S FASTEST-GROWING PRIVATE COMPANIES FOR THE SECOND YEAR IN A ROW

R A D I O ’ S P R E M I E R M A N A G E M E N T & M A R K E T I N G M A G A Z I N E SM

INC5000_Radio2016_FP.indd 1

8/10/16 8:13 AM