Feeding Global’s Cash Cows

So the worst kept secret was finally let out of the bag today, when Global announced that it is to re-brand the Galaxy Network, Trent, Leicester Sound, Ram FM and Red Dragon as ‘Capital FM’. For Global, this gives them three strong national networks – Heart, Capital and Classic.

From a radio fan point of view, it’s a shame that these stations will become predominantly networked with their sister station. Trent FM, as leader of the now defunct Hit Music Network did a great job as a local station, with lots of opportunities for new talent and clever localised networking to the other sites. However, the changes, from a business point of view, are a good way for Global to maximise the return on their investment. The Tabors took a big gamble on the acquisition of Chrysalis and GCap and they will now extract their rewards.

The acquisitions were expensive and made at a time that pushed the price up. However, in another way the timings were excellent as on the horizon was massive deregulation that would primarily reduce the fixed costs of the business.

The ‘Heartification’ did two things; it reduced the need for many roles in the business and let it shut down many costly buildings. Lower billed clients are being moved to a self-service system, execs that are left will concentrate on higher value clients and national has picked up significantly since the re-brand (though the cut in COI spend has hit the group).

The ‘Capitalisation’ will do a similar job. Indeed you can read the Ofcom rules on regional stations and argue that North East and Yorkshire could be collapsed together with no local programming needed at all. The success of the Heart re-brand has obviously buoyed on the group who over the coming months will be able to argue for bigger super regions of stations within their network. In the Independent, Richard Park made no secret of his desire to network Breakfast. We are merely part way through where all of this is destined to go.

The group’s other stations –Gold, XFM, Choice and LBC – are mere anomalies in the plan. Gold, XFM and Choice are run on shoe-string and co-managed within the business. LBC acts as a news hub for the group so serves a dual purpose, its recent ratings success, driven by a very strong breakfast show, is a nice bonus.

We’re just six months away from the third anniversary of the GCap acquisition. In those three years Global has managed to do what many leveraged buy outs don’t achieve – and that’s develop a clear exit strategy. They have, at least, halved the costs of the business, they have grown revenue and they have created three attractive natioanl radio assets in Classic FM, Capital Network and Heart Network.

They’ve also minimised cash out and investment in the future. Online has been curtailed, digital is outwardly supported, but without any actual commitments – there is little interest in anything outside of analogue radio.

As long as the economic recovery continues, within a year, they’ll have a plump business ready for a flotation or trade sale. That’s providing of course two things. 1. That the growth in ‘digital’ (used in the broadest of terms) doesn’t happen at a faster rate. 2. That the market or an organisation is willing to spend the right amount of money to acquire their business.

The danger for Global, once again, is all in the timing. They have bet the farm on making their analogue cash cows look very attractive. There isn’t much else left in the shed should no one be interested in them at market.