As classical music fans lament the expected
disappearance of Brahms and Beethoven
from WNIB-FM, the station's new owner is
straining to find a clear marketing channel in
the crowded local radio business.
"There really are no glaring holes in the radio
market that we see," says Drew Horowitz,
regional vice-president of Bonneville
International Corp., the Salt Lake City-based
chain that has agreed to buy one of Chicago's
two classical stations for an eye-popping
$165 million.
Industry analysts insist that a classical format
won't produce sufficient ad revenues to
justify such a price, and Bonneville will have
to chase the younger listeners that
advertisers covet. But most of the musical
formats geared to young audiences are
already represented on the Chicago radio
dial.
Acknowledging the fierce competition here,
Mr. Horowitz says Bonneville has made no
decisions on a format, and wouldn't rule out
keeping the classical format.
"We have research in the field, and until we
get that back, we won't know the viability of
classical or other formats," he says.
The only "open lane" here among formats
appealing to young listeners was filled in late
November when Walt Disney Co.'s ABC Inc.
flipped its WXCD-FM from classic rock to an
all-'80s format, making it one of more than 30
stations around the country to make that
switch in recent months.
Bonneville now must choose between
competing with WXCD in the '80s format or
finding another genre — perhaps Top 40,
which is regaining popularity nationally but
could poach listeners from other Bonneville
stations in town.
Either format would generate a better return
on Bonneville's investment than would
classical, a narrow niche split in Chicago
between WNIB and WFMT-FM.
Duncan's American Radio, a Cincinnati-based
firm that analyzes the financial and ratings
performance of radio stations, estimates
WNIB's 1999 ad revenues at $5.9 million, and
WFMT's at $5.1 million.
Bonneville's competitor-free classical station
in Washington, D.C., sold $11.8 million in ads,
Duncan's estimates, and the biggest-grossing
classical station in the country — New York's
WQXR-FM — had $13.4 million in revenues.
Eye-popping multiple
But even revenues on par with the New York
station's would produce a paltry payoff for
Bonneville, says Tony Sanders, Duncan's
senior analyst.
One way of evaluating a sale price is as a
multiple of cash flow, he says. Assuming an
industry average cash flow at 50% of ad
revenues, Bonneville paid a staggering 55
times cash flow for the station, far above the
15 multiple common in the industry.
"To justify a purchase price like this as a
multiple of cash flow, you'd need to generate
ad revenues over $20 million, which will not
come from this format," Mr. Sanders says. All
14 of the local stations that generated $20
million or more in revenues in 1999 were
either AM news or talk stations or popular
music stations on FM.
Mr. Horowitz points out that unlike the other
local radio kingpins — including ABC, New
York-based CBS Corp's Infinity Broadcasting
Corp., Clear Channel Communications Inc. of
San Antonio and Chicago's Tribune Co. — the
Mormon Church-owned Bonneville does not
have to answer to shareholders.
"Because we don't live a quarter-by-quarter
existence, we can spend the money on
research, marketing and investing in people
that other stations used to spend," he says.
WXCD's switch
Still, he acknowledges a need for fiscal
responsibility, pointing out that the
company's other local stations — classic rock
station WLUP-FM, adult contemporary station
WNND-FM and "hot" adult contemporary
WTMX-FM — are profitable.
When ABC's WXCD made the switch to
all-'80s on the same day Bonneville
announced the WNIB purchase, several
reports speculated that Disney's move was a
pre-emptive strike.
Zemira Jones, ABC Radio Chicago's president
and general manager, called those reports
naive, insisting that the switch was driven by
the realization that WXCD would never
overtake WLUP as Chicago's top classic rock
station.
"We didn't need to know what any other
broadcaster was doing to know that this was
a major format with a lot of potential, and
that it would only be a matter of time before
somebody decided to fill it," says Mr. Jones.
If Bonneville wants to shift to a contemporary
hit radio — Top 40 — format, it faces other
obstacles. Although it is more rhythmic and
less pop-oriented than a traditional Top 40
station, CBS's WBBM-FM and its 1.5 million
listeners dominate the 18-to-24 age group.
And Bonneville's top-grossing station, WTMX,
also serves that demographic.
©2001 by Crain Communications Inc.