The federal government has long called for diversity in broadcasting. In response, a generation of minority-owned television companies, and radio stations and chains were launched, many of them in Los Angeles.
Suddenly, they’re an endangered species.
The downturn in ad revenue has hit them so hard that banks are poised to foreclose on their stations. That would mean taking them over and selling the licenses.
This situation has so alarmed station owners and managers at minority media businesses that they have formed a coalition many members are in Los Angeles, others lead chains that have a significant presence in the region and written a letter to Treasury Secretary Timothy Geithner asking for relief.
“Minority-owned broadcasters are close to becoming an extinct species,” the letter stated. “Financial foreclosure will roll back decades of work by the federal government to encourage more minority voices in the broadcasting industry.”
Signers include Walter Ulloa, chief executive of Entravision Communications in Santa Monica; his brother Ronald Ulloa, president of KXLA-TV in West Los Angeles; and Alfredo Plascencia, chief executive of Lazer Broadcasting in Oxnard.
Raul Alarcon Jr., chief executive of Miami-based Spanish Broadcasting System, also signed the letter. SBS owns KLAX-FM (97.9) and KXOL-FM (96.3) in Los Angeles.
A Washington-based coalition spokesman said the Treasury Department hadn’t responded at press time.
The coalition is seeking government-backed loans to allow them to meet the terms of their debt covenants, or a bailout program comparable to assistance the government provided to the auto sector and the financial services industry. At the minimum, the broadcasters want a moratorium on foreclosures until debt agreements can be renegotiated.
Karen Slade, general manager of KJLH-FM (102.3) in Inglewood an urban music station owned by Stevie Wonder also signed the letter. She said a combination of factors has created a financial quagmire for minority stations.
First, Arbitron introduced its Portable People Meter system of audience measurement, which minority broadcasters continue to argue undercounts their audience.
Debt agreements
Then the downturn in advertising hurt minority stations more than general market broadcasters because they are newer, and carry more debt with stringent financial reporting requirements. In other words, they have to meet their revenue and net income targets or find themselves in violation of their debt agreements.
Plascencia, whose company owns 18 Spanish-language radio stations, believes broadcasters merit special consideration because the Small Business Administration excludes media from its finance programs.
“There should be help for minorities in the communication industry, just like the SBA helps all other small businesses,” he said.
Slade said many minority broadcasters are current on their debt payments, but the loan agreements require that stations maintain revenue projections, profit margins and financial ratios above a certain threshold. It is the violation of these covenants that puts small broadcasters in danger of foreclosure.
“We have been working to find a way out of this nightmare, but we can’t keep the covenants because the business is upside down,” Slade said. “While we’re servicing our debt, we see the banks getting bailed out. They have received consideration, but they aren’t extending that consideration to us. It’s just wrong.”
Traditionally, top advertisers in minority media were car dealers and financial services companies. Those sectors were hardest hit in the national economic crisis, and those ad dollars have diminished if not disappeared. The coalition letter notes that both sectors have received billion-dollar bailouts.
Revenue has declined at general market broadcast companies and stations since 2007, but minority stations have been hit harder.
A comparison of Entravision and CBS Corp. highlights the contrast.
Entravision, a publicly traded Spanish-language broadcaster, reported a revenue drop of 7 percent in 2008. That decline turned the company’s operating income from a profit to a loss. Entravision’s debt burden it paid $43 million, or 18.5 percent of its revenue, in interest payments last year drove it further into the red.
By comparison, CBS, the largest publicly traded broadcaster, reported a revenue decrease of less than 1 percent in 2008. Although CBS paid $547 million in interest, that represented only 3.9 percent of its revenues.
“Minority broadcasters who have just come into the business face enormous challenges,” said Mark Fratrik, vice president at media consulting firm BIA Advisory Services in Chantilly, Va. “Many of the recently acquired stations are highly leveraged because banks were willing to lend the money. The parallels between the housing and media sectors are striking.”
Fratrik said laws passed by Congress specifically establish that a diversity of voices in broadcasting news and entertainment is a legitimate government interest, so federal intervention in the market in the form of loans or foreclosure relief would not be a groundbreaking development.
Looking forward, Fratrik predicts that broadcast revenues at general market broadcasters and minority stations will drop by double digits this year. He doesn’t expect positive numbers until 2011.
