David Benjamin of Triad Broadcasting (08/04/03)
By Reed Bunzel
Ask almost any Radio broadcaster to name the smartest and best operators in the industry and, invariably, David Benjamin’s name comes up. As president and CEO of Triad Broadcasting, Benjamin has built a group of 49 mid-market Radio stations in eight markets across 11 states, with a focus on local programming and customized marketing services that will deliver results for advertisers.
A proponent of the “tight-loose” management philosophy, Benjamin believes in building a strong team of local managers and letting them run the operation as long as they function within the constraints of the corporate budget. “Our entire model is based on localism, and that means we have decentralized operations with tight controls,” he explains. “It’s based on the model of Capital Cities Broadcasting, which I consider the best managed company in the history of the industry.”
Prior to founding Triad in 1999, Benjamin was CEO of Community Pacific Broadcasting, which he co-founded in 1974 and sold to Capstar in 1997. Early in his career, he was an assistant to the publisher of Fortune magazine and was a broadcasting consultant in New York. He earned a BA degree from Yale and an MBA from Harvard, and has served as a board member for the National Association of Broadcasters and the California Broadcasters Association. Benjamin is married, has two teen-age children, and lives in Monterey, California, where Triad Broadcasting is based.
INK: The Radio industry is struggling through its third year of sluggish revenue growth. How sound are this industry’s fundamentals?
DB: The industry is as fundamentally sound as it’s ever been. At this point, there’s no indication of any structural change to the industry, nothing like television, which is confronted with cable and satellite. Listening levels are still high, and the fundamentals are still healthy.
For the third year, Radio is trailing its historical growth rate of 7 to 8 percent. It was down, of course, in 2001; and it was up around 5 percent last year. This year, it was up around three percent in the first quarter of this year and a little less than that in the second quarter.
The reality is that retail remains soft, and the auto market has gotten soft. When both those segments of the economy are hurting, it will affect our medium.
Is it difficult to make budget in a prolonged, uncertain economy?
Fortunately, through the first half of 2003, we’ve been on our budget, but the second half of the year — at least the third quarter — doesn’t look as robust as most people would like. I think most of the well-run groups are scrutinizing expenses all the time, even in good times, and you won’t see foolish expenditures on either the capital side or the operating side.
This is the third year when the growth rates of the general economy have been lower; there has been only one time in history when we’ve had GDP less than 4 percent for four years in a row. We’re now at less than 4 percent three years in a row. Most of the better-run operations have done just about all that they can on the cost side. Looking forward, it’s going to be a revenue issue. Radio has always been a revenue-driven industry.
What are your bottom-line revenue and cash-flow expectations?
We’d like to see 15 percent annual cash-flow growth, and we believe that, if the Radio industry is growing at its historical rate, we should be able to do that. In other words, if you’re growing at 7 to 8 percent, you should be able to grow your free cash flow at 15 percent. It’s hard if you’re growing only at 3 percent, even though you still should be able to grow 6 percent at that rate.
How would you describe Triad’s operation focus?
Our entire model is based on localism, and that means we have decentralized operations with tight controls. It’s modeled on the model of Capital Cities Broadcasting, which I consider the best managed company in the history of the industry.
They used to have something called “tight-loose,” which meant you get the best team locally, let them run the operation, but make sure you have that budget as a road map, and make sure everybody knows where everybody is under that budget.
That’s the day-to-day operating strategy for Triad, and it really works for us. Those local market managers are literally making hundreds of decisions that we just can’t make centrally. We have a very lean operation at the overhead level, and we put most of our resources in the field.
As I tell people here in the home office, we don’t make any money here in Monterey. It’s all made somewhere else.
Steve Fehder runs our Eastern group from Louisville, while the Midwestern properties report directly to me. We divided the country so it’s a do-able situation, but it would be a lot more difficult without today’s technology.
Clearly, technology makes running our company much easier because we have a Wide Area Network that makes it easier to communicate and understand what’s going on, operationally and every other way.
You seem to have a manageable number of stations, but do you think some of the larger groups have lost that local feeling?
Some larger companies have lost some of the individual touch — there’s no question about it. But we have to remember how dreadful Radio was in many markets. Clear Channel keeps trying to make that story, but it keeps falling on deaf ears. Yes, there may be some standardization in Radio’s formatics. On the other hand, many of these stations simply sound better than they used to.
Some of the larger companies clearly have introduced a standard. If some of the stations sound a little McDonald-ized, at least they’re not like some small towns where you could get the Radio equivalent of ptomaine poisoning.
Is it difficult to find good management, sales and programming people in today’s post-consolidation industry?
Getting to the levels of revenue that we have in most of our markets — $5 million to $7 million per market — brings the resources to hire quality management.
The market manager today is in an enviable position: We provide a significant option program and competitive compensation. When adjusted for the lower cost of living in a Savannah vs. a Los Angeles, the compensation package is pretty good. This means we’ve been able to hire some very good managers for our stations.
What do you look for when you or your managers hire new people?
We like people who enjoy the Radio business, and we’re very careful to get people who understand it from the grass-roots level. We also believe in integrity, hard work and results.
I have to set that example myself. As soon as I don’t work as hard as — or harder than — anybody else, then I shouldn’t be in this business. I believe that our senior people should set an example about how a company should be run.
Integrity is “Job One” throughout our entire operation. Assuming candidates pass that test, we put a lot of emphasis on their track record. Fortunately, there is little turnover in our operation. When we do have to look for someone, we concentrate on the record. Interviews are important, and having a feel for people is important, but we look at what the applicants have done in the past.
How important is it to train them effectively for whatever position they might have?
There will be certain market managers who like one training group while another likes another training group. We have found that, to be successful, the market management must “buy in” to what’s going on. We have to give our local managers leeway on this and provide resources. We provide budgets in various markets for managers who requested the training we think is appropriate.
What differences do you see in today’s Radio industry, against when you were building Community Pacific Broadcasting?
The business has changed significantly from a management standpoint. In the old days — way back in ’92 — if you had an AM/FM combination or even two FMs, the business was largely sales-oriented. It still is, but the local manager today must be a sophisticated manager. Even in the Triad markets, they’re managing lots of people, they’re managing lots of complex issues, and they’re managing large businesses.
Also, the business today requires a lot more capital than in the past. Many smaller private equity firms are saying, “We really like Radio, but we don’t have the money to get into it.” That’s not just because of prices or multiples; it’s also the size of the transactions. We’re very fortunate to be backed by three strong private-equity firms. One is Norwest, which was with me in Community Pacific. Another is Shamrock Capital, which has been in a number of broadcasting transactions. Another is Bank of America Capital in Chicago. These companies form three legs of our stool, and it takes a group like that today if you’re to have a strong equity voice.
Despite almost flat industry growth, prices remain at an all-time high. Why is this?
Very few broadcasters are ailing, and one reason is that most of the lenders in the industry are sophisticated and experienced. There are not as many broadcast lenders as there were, but those lenders have been around a long time, and they have been fairly conservative in their lending practices.
There is almost more equity money available than there is bank debt, so lenders have not leveraged these companies to the extent that we saw in 1990 and ’91. Ironically, it’s because lenders are not lending at their former multiples that prices have been kept up. We don’t see very many broadcasters in distress.
Are prices unrealistically high, given the current economic outlook, or are supply and demand governing the marketplace properly?
It depends on the owner. Seller expectations seem to be extremely high. Many people think that the Radio business is a good one to be in, that the demand for properties will only grow. Nothing structurally out there makes anybody terribly concerned.
Fewer properties are available, and prices are higher. Even in the ’90s, there were 20-times cash-flow deals, but generally the prices are higher today. There’s also more stability. Ten years ago, if you had one FM and it had a bad book, it took six months to see any improvement. But today, if you’re operating four FMs and one of them has a bad rating book, it’s not the end of the world. This has brought a lot of stability to the marketplace.
It also appears that there’s less pressure to sell.
That’s right. Not that many people are in trouble financially, and that has contributed to very high expectations.
Of course, from a buyer’s point of view, you want to be able to improve the operation once you have it. Essentially it’s a Catch 22 for buyers. On one hand, we like to see high prices. If everything suddenly was for sale for eight times cash flow, that’s not a good deal. On the other hand, we like to buy in such a way that we can generate some solid upside.
What is Triad Broadcasting looking for in acquisitions? Do you use certain market or technical criteria to identify choice properties?
We would like to have at least a million dollars trailing cash flow. We like to have a very defensible position within the marketplace. And we like to have strong local management.
People say to me, “There aren’t very many of those around,” and they’re right. But the fact is, we don’t need many. All we need is one a year. One of our advantages is that we look anywhere in the country — we don’t have a geographic limitation.
Are you content growing one acquisition at a time?
Yes. We have a sufficient financial base year-to-year that we don’t need to buy properties to cover overhead and things of that nature. It’s a little scary when we start out, because there is no cash flow and all kinds of overhead. But once past that, our emphasis is the quality of the transaction and how it fits into the entire Triad portfolio — whether it enhances the Triad portfolio, rather than just add to the number of deals we can do. Some companies put together in the past look as though the operators were just trying to pile one property on top of another.
What is your opinion on the public marketplace for Radio companies such as yours? Is it better to be private than to be a micro-cap public company?
After the passage of the Sarbanes-Oxley Act of 2002, which has made it even more burdensome to be a public company, you want to be very careful not to be in the trap with all the burdens of being a public company but none of the benefits. What are the benefits? You need a significant float.
Larry Wilson complained that, when he sold Citadel to Forstmann Little, he had $100 million in broadcast cash flow, and the buyer thought Citadel was too small to be a publicly traded company.
Things haven’t gotten any easier in that regard. You must have enough size to get the benefits. You need the float to have a currency that people respect, to get coverage by analysts. Therefore, we don’t write off exploring those options or merging with people in that situation, but we’re very cautious right now.
What do you consider some of the best-run Radio companies?
There are a number of very well-run companies in this business. What makes them well-run is that they don’t kid themselves about what’s going on within their companies. Day to day, they stay on top of their objectives, and they do the nuts and bolts work that must be done.
The best-run companies in the Radio industry have several things in common: high-quality people, a realistic vision of the present and the future, and a significant work ethic. I would say that four or five companies exhibit those characteristics, but for political reasons I don’t think I’ll say who they are.
Is Radio doing enough to attract and keep younger listeners who haven’t yet developed a loyalty to Radio?
As the father of two teenagers, I can be an expert witness on that. My kids really tease me because I always ask them, “Are you guys listening to the Radio? Are your friends listening to the Radio?” Now that they’re 16 and 13, they’ve told me to stop it.
It is a fact — and the Arbitron numbers show it — that we’re not picking up teens to the extent that we have in past years. I don’t know that we’re failing the teens, because there are a number of youth formats that are doing well. Look at Hip-Hop, a fantastically successful format.
Teens just have so many choices. Technology inevitably will fragment the free time of younger listeners, and this generation is really in tune with technology. To a teen-ager, burning a CD is like brushing your teeth. So we’ll have to compete with other media for their time. That doesn’t mean the end of the industry, but it means there will be some fragmentation in this segment.
Are you concerned that emerging new media might fragment Radio’s audience?
Let me use an example from another industry. In the 1980s and early ’90s, the big three television networks had a majority of the prime-time viewing audience, but today the Big Four have no more than 50 percent. Still, we just witnessed the biggest up-front television buy in history. Network TV has been able to hold position even though their audience has declined slowly but steadily over the last 10 to 15 years. Fragmentation in the younger demographics doesn’t mean the end of the Radio business, but it does mean that we’ll have to take this fragmentation into account as we’re programming our stations.
What’s your take on satellite Radio?
It’s still awfully early. I don’t think we should be cocky, because television was in denial for 20 years over cable. But let’s look at satellite Radio vs. terrestrial Radio. In one corner is an industry with $60-80 million in revenue, and in the other corner is a $22-billion industry. Satellite is still in the venture stage and, as Forbes said in a recent article, it’s anybody’s guess whether it will be here in five years. Something will compete with us somewhere down the road.
How do you view the FCC’s recent ruling on media ownership? .
I was part of a group of broadcasters who went back to Washington to speak to the commissioners about these rules. As far as I can tell, they didn’t pay attention to anything we said. While I don’t think what the FCC did is anything disastrous for the industry, three things are just wrong-headed.
First, using Arbitron as a way to redefine markets is fraught with problems. Using a commercial enterprise of any kind to effectively establish public policy is something that inevitably will cause problems; and Arbitron shouldn’t want any part of this. What if Arbitron were to be acquired by a foreign company or a broadcasting company?
Second, the lack of free transferability will only play into the really large companies. Clear Channel could be bought, but generally the larger companies tend to be around a lot longer than the entrepreneurial companies, so the lack of free transferability will only make those companies more dominant.
The third issue that came out of left field was this whole JSA [joint sales agreement] issue. Our FCC counsel indicated to us that the FCC would not address so-called attribution issues, which the JSA issue is. Now they’re promulgating rules on JSAs, and there was no time for a public comment period. So in these three areas, it could be said that they really missed the mark.
Let me also say that, after meeting with those people and talking with them, I believe they really are trying to do a good job. I think they tried to have it come out right, but I disagree with some of their decisions.
Give us your short- and long-range prognoses for the Radio industry’s economic health.
I don’t want to get into the business of economic forecasting. If we were all economic forecasters, nobody would have to open a Radio station; we could just mess around with the bond market. However, if we look at history as a guide, we will see that, even in a recovery mode, unemployment continues to rise.
Like many Radio stations, 90 percent of Triad’s advertising is local, and those advertisers want to see improved cash flow before they change their spending habits.
My sense is that we could be in a recovery, but Radio advertising will not return to historical growth rates until we’ve been in the recovery for a while. The business is still growing, but just not as fast as we would like. Ultimately, I see no reason that we will not return to the historical growth rates of 7-8 percent. We always have to keep our eyes open, but I don’t see anything that’s a red flag at this point.
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