Fine-tuning plans for WNIB

New owner's challenge: squeezing onto crowded airwaves

                 January 01, 2001
                 By Brian McCormick

                 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

                 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

                 "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.