How Do You Solve A Problem Like Consolidation?

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Image: Nick Jeffery

So, a few issues for Global Radio as the Competition Competition decide the group need to dispose of a number radio stations:

East Midlands: Smooth OR Capital
Cardiff and South Wales: Real OR Capital
North Wales: Real OR Heart
Greater Manchester and the North-West: Capital OR Real XS with either Real or Smooth
North-East: Real OR Smooth OR Capital
South and West Yorkshire: Real OR Capital
Central Scotland: Real OR Capital

I have some sympathy for Global as I’ve been in a similar, albeit smaller, position when I worked at GWR and we had acquired two Vibe FM radio stations into a new joint-venture with SRH. We, too, had to go through lots of regulatory hoops, and we also lost. Having to sell on the stations.

Strategically, the worst thing about these deals is the sheer amount of time they take up. It’s incredibly distracting and you end up taking your eye off the ball of loads of day to day business issues.

With a deal the size of the GMG acquisition, I imagine one of the issues was there were so many potential scenarios about what the CC may say. This means that you have to have a number of plans – again something that takes up a lot of time.

Now they’ve got the decision, there’s also lots of choices to make.

Are they after the most audience, the most revenue or true national coverage for their brands? For example, it’s probably a sensible guess that they would like a near-as-possible s national station in Heart and then a what-they-can-manage network with Capital. So, probably Smooth will take the brunt of disposals. But then there’s something like Smooth North West which rates really well. It’s not an easy pick.

The other thing to think about, is not to assume that they merely want to own the most stations. The point of having decent national networks is that Global become the defacto dominator in national sales. And to do that, you don’t necessarily need to own all the stations. You just need the national sales contracts.

I would have thought Global’s strategy would be to keep the stations where they have the biggest opportunity of upside – stations that have strong local and national revenue potential and those that occupy a broad format. Therefore, I would have thought the main aim was to retain Heart as the primary network.

Which would suggest the following green ones are keeps…

East Midlands: Smooth OR Capital
Cardiff and South Wales: Real OR Capital
North Wales: Real OR Heart
Greater Manchester and the North-West: Capital OR Real XS with either Real or Smooth
North-East: Real OR Smooth OR Capital
South and West Yorkshire: Real OR Capital
Central Scotland: Real OR Capital

But then, I even look at that list, and think “would you let Capital Yorks go”?

None of this is easy.

Then you think about who’s around to acquire the stations that you dispose of? And at what price? It’s a fire sale. Bauer can’t really buy much (not that they would want to sell to them). The other radio groups left in the UK haven’t really got deep pockets.

The last thing you would want to do is crack open your national networks, sell them for little money AND not necessarily be able to keep your national sales operation. Whilst you may want to ‘licence’ the brand out, the other UK operators might not want to play ball AND they know that you’ve got only 12 weeks to do the deal.

The deal you want is for a White Knight to come along. You want someone who will buy all of those stations, get a brand licence off you, and keep your national sales contract. Maybe, perhaps,  someone from a different country? Indeed, the selling price – what £20-30m max – isn’t actually that much in the grand scheme of things. Perhaps a new buyer wouldn’t even have to pay cash?

That way, it doesn’t matter, really, what you sell, as you still achieve your main aims – being the number one sales point – and earning as much from the stations you own as possible.

Warehousing

Some consider this sort of thing to be a warehousing deal. ie you’re getting round the rules, whilst someone ‘looks after’  them for you whilst you wait for the rules to change.

In reality, these are actually very difficult to accomplish. The problem is you don’t know how long it will take to change the rules, it could be a long time. If that’s the case the acquirer really needs to be building the business – whatever that is.

I was involved a bit when UBC bought a load of Classic Gold’s off of GWR, though GWR still had a stake in the new acquisition vehicle – CGDL. Whilst some people regard this as a warehousing job, in reality, views diverged quite regularly. The UBC-end would very much do what they wanted to grow the business for their shareholders. And as a quoted company – that’s clearly their prerogative.

What’s happened with Orion is another interesting example. They brought all the stations that Global had put up for sale, keeping Global’s national sales operation and (for a while) keeping the Heart brand too. The market shifted quite suddenly in the Midlands (Capital rebrands etc) and Orion clearly had a rethink about what would serve them well – swapping Heart for Gem. I also suppose it must have been a little confusing for regional advertisers to argue against Heart in the West Midlands, but be enthusiastic for it in the East Midlands! But they’ve still kept their national airtime contract with the big G, so it must be doing well for them. Again – once you’ve sold the stations it’s very difficult to keep any influence.

Summary

Well, it’s all a bit of a mess. Particularly for the staff at stations where there’s some question marks. But, if they can find one, I think we’ll see a single buyer (existing or more likely a new entrant)  who’ll keep the stations part of the Global-led brands with Global selling the national airtime. This should cement Global’s national brand proposition – even if they don’t own the stations.

I would also expect something in the deal that aligns the objectives of the two long-term. You can’t, truly, roll out a national brand if your partners decide against it later…

Whilst some will say “they had that already by selling GMG” – they didn’t really. Converting Real to Heart is a big win for the national plan and revenue growth. A Global-led Smooth network also has a good chance of building on GMG’s groundwork in relation to audience – again providing more national ad opportunities for Global Sales.

In addition, Global get nice new Smooth stations in London and the West Midlands that they’ll be in a great position to grow local revenue from. Plus, in London, I imagine Smooth is going to be re-positioned to give Magic a bit of a kick in! Remember – a declining Magic means Capital or Heart is far more likely to go number one!

I think this year is going to be a busy one for stations changing hands – this is, sadly for the people involved, just the beginning.