How much is a radio station worth?

...and is £15m right for talkRADIO?

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The Telegraph’s political correspondent, Chris Hope, reported last week that Nigel Farage is looking to buy talkRADIO and that £15m has been mentioned as a price.

The article’s a bit of an odd one as also in it:

  • …it’s mentioned in the same breath as paying £15m for a radio station “that Mr Farage said he was also considering establishing a YouTube channel”. Ignoring the fact he’s had one for over a year, with 150k views.

  • When asked about the radio deal, Farage said: “I am arms length from this. As I understand it there have been discussions and I don't think it has got anywhere.”

  • Oh, and NewsUK also said: “Talk Radio has a growing audience and is not for sale”

Two things struck me about the piece. 1. Maybe don’t get your political correspondent to write media stories and 2. How much is a radio station worth?

The easiest answer is that a radio station (or any business) is worth what someone wants to pay for it. Now, what tends to happen with business sales is that they go for either a multiple of the business’ turnover, or a multiple of its profit.

It’s generally the profit figure for mature businesses as that’s the most stable number to base analysis on. For newer or rapidly growing businesses that aren’t making money yet, but are in high growth, turnover could be used.

Trying to work out multiples for an industry can be quite hard. This piece of analysis of large US companies suggests 7x to 15x of profits, with radio around 10x. I think for the UK we’d probably look at 7x to 10x profits.

So, if Matt FM made £1m profit, selling it for £7m to £10m would probably be about right. To make that £1m in profit, you’d probably need to be turning over £3m to £4m a year.

With a new business you might not make any money for the first few years as you’ve got higher investment in set up costs and marketing, whilst your turnover is also growing. In this scenario, you could be turning over £3m, but losing money. However your potential might be strong, or you’re already doing well in a market. You therefore might get 2x to 4x your Turnover if you sold - so a sale price of £6m to £12m.

Often the benefit of buying a radio station (or any business) is that you can make more money than the current owners, that may be because you think you’ll just do a better job, or you know you can reduce costs so it will be more profitable.

Matt FM may make £1m profit, but it’s also paying senior management and back-office staff £500k a year, that won’t be needed after being bought by MegaCorp. So straight away they’ll now be making £1.5m from Matt FM. This is why someone in the radio sector may be seemingly paying over the odds. They know how much money they could make if they integrate it into their business.

For Nigel and his mates, taking on talkRADIO would mean they’d have to add costs to the operation. As part of a radio and media group, as well as all the back-office roles, News UK have got radio-specific management, free marketing in the form of cross-promotion and a sharing of production staff and journalism across their titles. Nige would have to add that back in.

Profitability for speech services is hard. News UK, in response to an Ofcom complaint says that talkRADIO had always been loss-making. Not a huge surprise as it’s still early days in its existence and speech radio, because of the number of people you need, is expensive to run. LBC was loss-making for most of its existence, and I would wager that if it’s profitable now, its contribution to the Global coffers will be smaller than its sister stations.

The other problem the Farage Media Group would face is creating a sales department. At the moment much of talkRADIO’s national revenue comes as an add-on to talkSPORT and sold by the Wireless Group’s agency sales team alongside their News UK colleagues. They’re already just the third biggest radio agency sales operation (out of four) and will find it hard enough to compete with Global and Bauer. Becoming independent makes it very difficult to gain visibility with agencies, even if you’re doing a great job.

So, what would they be buying? Firstly national digital radio spectrum. It’s not impossible to get hold of, but the two national commercial multiplexes are pretty full. Right now, you would probably have to encourage someone off, and then contract with Arqiva to get you on.

You would be buying a brand, people and a plan - though I imagine not studios, so you’d be setting that up from scratch. You would probably also have to pay people pretty well to have their boss be Nigel Farage.

You’re also buying the existing audience - 429k people. Up from 115k when it launched in 2016. However, if you were after audience - Mellow Magic would give you more - 590k at a fraction of the operating cost.

If it was me, the negatives outweigh the positives. I’d have to spend a lot more money on it anyway after buying it, and that’s on top of the purchase price. If I was Nigel, the Farage brand - to many - could even be stronger than the talkRADIO one. Given the choice of spending £15m on an existing station or using that cash to start one from scratch, I think the latter would be the better option.

So, to me, talkRADIO is probably worth £1. Like Nigel, I’d lose far more not being part of News UK than I would gain from being outside of it. It does work, however, very well within their own wider business - structurally, ideologically and commercially. I’d imagine it could nestle well within another radio group, or part of a cross-media operation - however, if they’re well-funded they’ll be having the same buy vs build conversation.

The one reason Farage may pay £15m is ego (and a lack of market understanding). He would not be the first that wanted to become a media mogul for the influence/bully pulpit rather than creating a profitable business - it’s been the play for most newspaper barons over the last 200 years. And maybe, to him, £15m is worth it, to get people listening.

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