KGMB - KHNL - KFVE "shared services agreement"

[mike]

Re: KGMB - KHNL - KFVE "shared services agreement"

Hi all:

Thought I'd try to clear up some confusion in the blogs regarding Broadcast Cash Flow and profit. BCF is derived by subtracting certain expenses from net revenues. BCF is an artificial number which has been historically used as a means for determining the value of a broadcast entity. Buyers and sellers often negotiate a broadcast property price based upon a multiple of BCF. In the past that multiple has been as low as 8 times and as high as 18 times...so if a station had $1,000,000 in BCF it might have sold for as little as $8,000,000 or as much as $18,000,000 over the past dozen years.
BCF is not profit. It does not include capital expense costs ( and broadcastng is a very capital intense business), any corporate expense or depreciation. And it certainly does not include "carrying charges" or the cost of servicing a station's debt.
Hope this helps.

Aloha,
Mike

[Media Guy]

Re: KGMB - KHNL - KFVE "shared services agreement"

Thanks Mike.
I should have gone further in my explanation many posts ago that its a "close cousin" to profit.

[Frankie's Market]

Re: KGMB - KHNL - KFVE "shared services agreement"

Good job, Mike and Media Guy, explaining the difference between cash flow and profit. Both items are important in analyzing the performance of a company..... but they are not the same.

Oh, and while we are on the topic of getting our business terms right, here's one more thing that seems to have caused confusion in this thread.

Frankie’s exact words: ‘KGMB wasn’t profitable for its owner.’ As far as I’m concerned, if you make more money then spent (A-B = BCF) that’s the textbook definition of profit.

Profit and profitable are likewise NOT the same.

Profit is the amount of money left over on a profit-and-loss statement.

Profitable is how much money that's left over compared to the value of a business.

So when someone talks about profitability, they're not just talking about the revenue that's coming in. Profitability is expressed in terms of return on a company's assets and/or return on equity.

IOW, if a business is worth $20 and and has $10 left over at the end of the day, relatively speaking, that would be a very profitable business. But if a business is worth $2 million and you had the same $10 left over, then that is certainly not a profitable business.

[DaleP]

Re: KGMB - KHNL - KFVE "shared services agreement"

Hindsight makes everyone a financial guru.

For ten years I warned clients and friends that many broadcast properties were severely overpriced. By 2007, it was apparent that many buyers would fail to see any return on their investment...but, they kept buying. This was especially so with KGMB. Even with the real estate in the sale, $40-million was too much to pay. Take the real estate out of the mix and I believe the $25-million or so "value" was still inflated.

Just because everyone else is paying too much for broadcast properties...that doesn't make it right. Just as crazy were the prices that a lot of people paid for FM frequencies in the auctions.

The bubble finally burst. Future buyers are going to get some pretty good deals when this all shakes out.

[TuNnL]

Re: KGMB - KHNL - KFVE "shared services agreement"

Thanks, Dale. Once again, Frankie seems to be confusing two separate things. Post after post, I have said KGMB made a profit. Frankie’s exact words: ‘KGMB wasn’t profitable for its owner.’

Profit and profitable are likewise NOT the same.

Profit is the amount of money left over on a profit-and-loss statement.

Profitable is how much money that's left over compared to the value of a business.

Thank you for making my point (finally). Like I am now saying for the third time, KGMB made a profit. Their profit was NOT enough to make KGMB profitable for MCG. The reason why this is important is that had a healthier firm then MCG purchased KGMB from Emmis Communications for substantially less that $40 million, this whole “shared services agreement” may have been completely unnecessary.

Like Media Guy said...

There are still plenty of large station group owners out there; Lin Broadcasting, Gray, Barrington, Young, Fisher, etc.

One of them would pick it up, but at a multiple of BCF (broadcast cash flow). MCG Capital paid an inflated price because of the land. It was an non-broadcaster mistake seeing the purchase of KGMB as a land deal.

Not to mention...

if the SSA is stopped or meets with too much resistance, MCG Capital would sell KGMB. They value their asset at $22-$25 million, which is a decent price, and MCG would make back close to its initial investment since they already got about $12.5 million selling the fee simple property the station sits on.

One can only hope and pray...

[Frankie's Market]

Re: KGMB - KHNL - KFVE "shared services agreement"

Like I am now saying for the third time, KGMB made a profit. Their profit was NOT enough to make KGMB profitable for MCG. The reason why t[his is important is that had a healthier firm then MCG purchased KGMB from Emmis Communications for substantially less that $40 million, this whole “shared services agreement” may have been completely unnecessary.

Media Guy can correct me if I'm wrong. But I've heard KGMB's BCF dropping somewhere in the neighborhood of 30%, which if true, would be a dramatic drop. As Mike correctly said, broadcasting requires an ongoing investment in capital expenditures, if a station is to stay up-to-date. Crowing about a positive cash flow is meaningless if it is not enough in order to stay competitive.

And no matter how "healthy" a broadcast conglomerate is, a station that produces an inadequate cash flow can't service whatever debt it's owner has taken on. Even if no money was borrowed, $40 million is too much money for any company to have tied up in an unprofitable venture. A major shake-up at KGMB was in the cards, regardless of the owner was.

[Media Guy]

Re: KGMB - KHNL - KFVE "shared services agreement"

I have to agree with Frankie.
A shake up would be in the works no matter who owned KGMB.

Even the large national station owner groups had bankruptcies, mass layoffs and pay cuts this year because of the economy and the resulting loss is ad revenue.

First, Let's put one misconception to bed. MCG Capital is a very strong investment firm. They just supplied the funding to Greenlaw/Marshall, then GMC, for various reasons left their own company, which left MCG holding on to a rudderless portfolio company that was bleeding money left and right.

MCG is just trying to unload it like any investor would with an invesment gone bad.

Also, in the end, I don't know if KGMB was technically in the "red" or "black," but it really doesn't matter if you have cash flow problems. Once again as Mike stated; television is a very capital intensive business, and if you don"t have the cash you can't stay in business.

[Kalihiboy]

Re: KGMB - KHNL - KFVE "shared services agreement"

Here's the latest Buzz from Erika:

http://www.starbulletin.com/business...pposition.html

[Kalihiboy]

Re: KGMB - KHNL - KFVE "shared services agreement"

Editorial in Sunday's SB:

http://www.starbulletin.com/editoria..._interest.html

Interested parties or those involved in the shared services agreement should write a rebuttal to this so both sides can be presented.

Aj

[Kimo]

Re: KGMB - KHNL - KFVE "shared services agreement"

New anchor lineups reported in today's Advertiser:

http://www.honoluluadvertiser.com/ap...e=rss_business

[bcr1652]

Re: KGMB - KHNL - KFVE "shared services agreement"

New anchor lineups reported in today's Advertiser:

http://www.honoluluadvertiser.com/ap...e=rss_business

I'm pretty sure Erika will have more info on this in the Star-Bulletin sometime this week.

[Kimo]

Re: KGMB - KHNL - KFVE "shared services agreement"

I notice that they don't say anything about the morning news - with KHNL's staff decimated, does the KHNL morning news disappear? Or will Sunrise be simulcast? Curious.

[craigwatanabe]

Re: KGMB - KHNL - KFVE "shared services agreement"

I notice that they don't say anything about the morning news - with KHNL's staff decimated, does the KHNL morning news disappear? Or will Sunrise be simulcast? Curious.

According to the station schedules, it seems there will be independent newscasts broadcast at the same time.

[mel]

Re: KGMB - KHNL - KFVE "shared services agreement"

The thing I hate the most about the shared services agreement is the swapping of the KGMB-CBS network channels from 9 to 5.

Erika Engle writes about that this morning.

No-service TV viewers will lose CBS programs

Viewers hooked on KGMB-TV's local news or CBS network programs, but who watch the station over the air, will lose those shows when the station changes places with KFVE-TV.

Households that get TV over the air, and don't subscribe to cable or satellite services, are estimated to be about 2 percent of the statewide total, said Alan Pollock, vice president of marketing for Oceanic Time Warner Cable.

All three stations' transmission facilities are being upgraded according to a plan set in motion before any talk of a shared services agreement, and the loss of KGMB might last "a couple weeks," said McCarthy, of KGMB.

She also mentions while there will be an increase in the total hours of news coverage every week, several broadcasts from KGMB & KHNL will be simulcast over 2 channels. That is not good IMO.

[craigwatanabe]

Re: KGMB - KHNL - KFVE "shared services agreement"

This is just bad. simply bad