In fact, Rick is already off to a fast start with two blog posts:

• What business are you in, radio? Wrong answer.
• Multiplatform revenues come from integrated sales and marketing efforts

Throughout the NAB Show, Rick will share his perspective on various sessions, conversations taking place on the show floor and most importantly – how to best navigate this year’s NAB Show.

If your plans for next week include NAB, we hope that you will look for Rick and others from BIA. To help facilitate this, we have placed on the right side of this email a detailed list of sessions where BIA executives and senior analysts / engineers are speaking. The information also is available in the conferences / event calendar on our website.

Lastly, whether you are attending NAB or not, we invite you to follow all of our team at NAB2009 by joining our Twitter feed (http://twitter.com/BIAfn) and our own BIA blog, and hope that you will join in the conversation about the transformations taking place in the media industry.

This morning’s session at ILM:08 on Leveraging Traditional Media Online was an eye-opener in many respects. It was striking, for example, how aggressively NBC is embracing the idea of following the audience wherever it can get its attention — at the gas pump, at the gym, as well as on the couch with a soda and a bag of potato chips.

BIA’s Rick Ducey, one of the moderators of this panel, teed off the discussion when he said, “the future is what you make of it.” The three panelists responded to this challenge by showing what future they are creating, and what their companies are doing to integrate traditional media with various forms of new media.

Larry Olevitch of NBC Local Media listed the many venues where his company is reaching people — taxis, supermarkets, online gaming, fuel pumps and soon commuter trains — enabling them to offer a multiplatform campaign for their advertisers. Additionally, working with other companies in this traditional media space, even direct competitors, has led to very interesting and successful campaigns. NBC along with CBS Radio along with Comcast put together a successful Great Used Car Sale Campaign in Chicago utilizing the different forums these competitive firms offer. Olevitch noted the 10-day event generated 26 million impressions. He didn’t say how many cars were sold.

Comcast is also constructing its future with different media acquisitions. Comcast has purchased Fandango, Vehix, Plaxo and other companies, all with the intent of allowing its customers (advertisers) to more easily plan and execute campaigns. And, of course, the company is partnering with other media companies such as NBC to further this goal.

Meredith Papp from Google talked about how the search giant is making its future by providing many more analytical tools to make it easier for advertisers to buy multimedia. Through some experiments, Google has been able to increase the revenues of advertisers with these analytics and planning.

One specific innovation Papp discussed was the idea of using a “consumer response tag” to develop a standard location on print ads for call to action data (800 numbers and so on) based on the notion that if consumers are trained to look in a set location for response information, response rates will grow.

What will the future of these companies be? Clearly, they are acting and making very serious acquisitions and partnering with many companies to try to make their futures their own.

However, on the key conference themes of “disruptive technologies, consumers and broadband,” Gardner layed out Windstream’s essentially conservative track. For broadband, Windstream is sticking with copper, no fiber to the premise. For digital TV, Windstream is standing fast with its DISH Network partnership and has no plans to launch its own video service. Windstream does not offer a mobile product. So it struck me as a bit curious that the keynoter of a technology themed conference examining the key drivers of broadband, TV and mobile ended up speaking to a financial successful company with a strategy of outsourcing TV, showing up absent for mobile and sticking to a legacy platform for broadband. Ah well, hard to argue with the numbers.

From there, things opened up a bit with a mix of technology, consulting and advertising speakers kicking around topics ranging from IPTV and IMS to HDTV, WiFi, WiMax, the end of advertising we know and more esoteric topics such as “deep packet inspection.”

Let me first provide a quick check point for those not up on telco terms. “Broadband” means Internet and it refers to a service that ends up as an Ethernet connection to some device. “Broadcast” or “TV” means cable or satellite and is a service that is delivered to a device with a coax cable. As far as I could tell, the notion of local television stations providing services to communities is not really part of the picture. It’s all about video networks as packaged and delivered by cable, satellite and now the telco equivalents from AT&T (U-Verse) and Verizon (FiOS). Finally, “Mobile” of course means cellular phones, at least for now. With the advent of 4G services, WiMax (e.g., Sprint’s Xohm launch this week in Baltimore, MD) and LTE (which Verizon plans to commercially deploy by 2010), mobile will become broadband and a serious game changer.

One of the disruptions to the bedrock of carrier business models is the impact of the Internet. Because of the Internet’s organizing principles of layered architecture and open standards, ecosystems of collaborative communities crossing technology, distribution, applications and content companies have evolved to address increasingly sophisticated consumer demands. Linear television, and fixed line or mobile voice telephony are not where the revenue growth is. Unfortunately for telcos, that means the inherent value to their networks and infrastructure operations is quickly becoming a smaller part of the valuation equation for their firms.

The best way to tap into high growth revenue streams is to offer new services and this requires two dramatic changes from the carriers:

Investing in their infrastructure to transition from a circuit switched network to a packet based network using layered Internet protocols and middleware (e.g., Session Initiation Protocol, IP Multimedia Subsystems, etc.); and

Opening up their networks to third party collaboration.

The old way of doing business was running silos where each device (mobile phone, TV, PC) had to connect to separate networks with different business models. With IP multimedia convergence, all services can now be provided by telcos operating a common core infrastructure of facilities and back-office operations like subscriber systems, media asset servers, billing and transaction systems and technical support. The “Triple Play” of voice, video and mobile is no longer just about integrated billing packages; it is now very much about integrated and interoperable networks.

Third party partnerships for telcos will drive revenue growth and diversify revenues with an appealing mix of new services. AT&T’s announced “three screen” strategy is a great example of this. With their move this week to realign the company, AT&T wants to develop service packages with its landline, Internet, TV, mobile bundles that cable cannot touch. Combining its IP based U-Verse broadband and video package with its mobile offering, they may well be on to something. The key is to open the network up to third parties and really drive top line growth with the kinds of applications, services and content customers are demanding.

IP Multimedia System (IMS) technology began as a “fixed-mobile convergence” play to seamlessly bind wireline and wireless networks to provide integrated service offerings. But it has become much more than that. For telcos, IMS allows them to provide packages of services from a heterogeneous networking environment seamlessly to customers. This is possible because the whole point of the IMS layer in the evolving telco network architecture is to make the transport layer wholly independent from the applications and content layer.

What does this permit and what kinds of services will consumer want and pay for? Alacatel/Lucent’s research shows customers will be willing to pay a premium for services they can use across different devices (TV, PC, mobile). This includes services such as:

• Change an instant message session to a voice call or video conference call.
• Convert a voice call to a video conferencing session.
• Switch between an IM session with the “boss” and a voice call with a “customer.”
• Share real-time streaming video and pre-recorded video clips while on a voice call.
• Browse the Web while on conference call; add Web sharing.
• Send/receive voice mail, video mail or e-mail while on a voice call.

USTelecom has positioned itself as “the broadband association” and broadband (i.e., Internet) is definitely a driving and disruptive force redefining telco’s future. However, while broadband may reset the dinner table, it will be what telcos decide to serve for dinner and who their applications and content partners are that will determine whether or not we will want to come back to this restaurant.

What’s more revealing to me is the developments in the online marketplace in local markets. For a very long time, all of us on the electronic side of the media ledger have found ourselves casting an evil eye at our main competitor: the local newspaper. I can remember sitting in meetings where our sales management went through the local paper ripping out ads for Clients that we believed should be spending more in radio and television spots. When the Internet came along, our focus once again centered on the local daily as the main competitor for these “new media” dollars.

While newspaper websites continue to take large shares of digital dollars in local markets, a new and perhaps more formidable competitor has/is/or will be staffing up in your town: the pure play internet firm.

We’ve seen growth in newspaper website revenues begin to collapse this year due to the overall softness in the ad economy plus a reliance on display ads that seem to be losing share to search nearly everywhere. Their plight is also being accelerated by the downturn in online classifieds for real estate and auto dealers. I do enjoy reading the laments of the Internet ad advocates who are in disbelief that their revenue streams could actually be in line for cuts. I’ve got news for these guys; nothing grows forever, particularly in a tough economy. Like today’s investors, advertisers will run for safe havens when things get tough. However, I do admire the missionary like passion these advocates display for their medium and wish it showed up in others.

The pure plays have set sights on the ad budgets of your Clients and have clear intentions of making their fortunes at your expense. These operators like ReachLocal, MerchantCircle, etc., smell large local ad dollar opportunities and are hiring sales staffs across the country. They are counting on traditional media owners and station management continuing to delude themselves into believing that their overburdened and stressed out sales staffs can adequately sell an increasing inventory of digital opportunities at the local station level while keeping the traditional platform sales demands at top of mind.

These companies have already taken over the top share of local online dollars in a lot of markets and should now be the focus of your discussions and planning sessions on how to capture obscene shares of the growing online budgets of local advertisers. These pure plays would absolutely love to have the promotional power of your traditional media assets to drive traffic to their site. They might also like some of your best sales performers who have existing relationships with advertisers.

They find themselves delighted to find too many local TV/Radio owners that have given short shrift to their own online efforts helping to enable their growth.

It’s hard to compete with these new companies when you abandon the playing field. What’s required right now are focus, commitment and investment to fight these outsiders showing up in your town and stealing what should rightfully be yours. How much more evidence do we need to see to convince us the old way of selling traditional media has forever passed us by? The moves by your customers into these new platforms and the results we’re seeing on our pacing reports should be enough evidence to compel us to rip up the existing playbook. If we’re really convinced that the future growth of our businesses depends on our embrace of the online elements, we need to propel that growth through new thinking about how we recruit, train, organize, compensate and retain our sales talent.

As we all know, a part time effort developing and selling business for local online ad opportunities will result in nothing more than part time results which will be quite dissatisfactory. These pure play guys stealing your share are counting on you keeping the status quo alive. Are you going to give them what they want?

Many readers will never get beyond the executive summary, so this is an especially important part of the business plan. Given this, what should you emphasize in your executive summary? This is a very condensed and stylistic expression of your whole business idea. It’s unfair, but this is the part of your business plan that is often make-it or break-it in terms of attracting you funding since it may help you get past that first screening.

I recommend that you highlight the “4-Ps” of People, Passion, Product and Plan. These 4-Ps answer the four basic questions of Who (People), Why (Passion), What (Product) and When (Plan).

1. People – Investors want first and foremost to know who they are backing. This gets to the management team and their credibility as established by their past achievements. Be selective in how you describe the team, focus on the most relevant attributes of the executives both in terms of their accomplishments and why they are the very best possible people to run your new company.

2. Passion – This is a key differentiator between “just another business plan” and giving something that ignites excitement in your potential investor and fuels that hunger to be part of your success. What is your “secret sauce”? What are you seeing that no one else in the market is seeing? What are you willing to do to be successful? What have you done already? Why is the world ready now for what you have to offer?

3. Product – It is amazing how often entrepreneurs cannot provide a simple description of their product or service. If you find yourself getting past the first sentence still struggling to describe what it is you are selling, you’re out of time. Describe what your selling in a few key words in terms of what the problem is that your product is solving; why this problem is important to solve and why no one else has been able to solve it in the same way you’re proposing.

4. Plan – If you’ve got your reader this far into you executive summary, you’re doing well! You’ve held their attention long enough to tell your basic story. Now they’ll want some milestones, metrics and money. Here you need to address some of the following questions. How much money do you need and what is the preferred structure of that capital (e.g., debt, equity)? What is the presumed valuation for your company and how much are you willing to sell? How do you plan to build, promote, sell and manage your company? When do you reach break-even? And what is your exit plan (i.e., how and when do the investors make their money)?

Good luck with your business plan!

My wife’s into quilting. Having seen her work and visited shows and exhibitions, some of it has rubbed off. The pattern, material and method of joining it all together is integral both to artistic form and actual function. An excellent management team also must have some structural and design elements going for it in order to achieve long running success. I’ve seen a lot of quilts that didn’t quite pull it off…and as for management teams, well, you know. Management teams, like quilts, are best built when you use the right ingredients and create the right structure.

Here are some important ingredients for a management team:

• Shared vision and passion for the business
• Complementary knowledge and skills
• Share values
• Willingness to be wrong and move on
• Determination to get it right
• Team spirit

As you stitch this patchwork of ingredients together, here are some critical structural elements:

• Unity of command – everybody has one and only one boss. It is hard to serve multiple masters.
• Chain of command – clear lines of authority, everyone needs to know who they work for.
• Accountability and authority must be in sync – there is a balancing act between making assignments and assigning resources.
• Resourcing – match resources and expectations for the management team
• Honesty – expect and demand honesty from the management team and be prepared to accept it even if it challenges your world view.

Remarks to the MMTC Conference Panel

Mark Fratrik, Ph.D., was invited to present at the Minority Media and Telecommunications Council (MMTC) conference in July 21, 2008. In his presentation, Dr. Fratrik offered an overview of the current status of the media and telecom industries and what new entrants need to do to secure financing for acquiring new properties. The following is a transcript of his message.

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I first wish to thank David Honig and the rest of the Minority Media and Telecommunications Council (MMTC) for inviting me again to participate in this conference. I am always heartened to come and meet with many of you who have the true entrepreneurial spirit and desire to enter into these industries.

My role on this panel is to provide some general information on the status of these industries and what new entrants need to do in order to secure the necessary financing – both equity and bank financing – to acquire properties. Specifically, I am first going to talk about general economic and financial market conditions as it affects new entrepreneurs and owners in ratio, television, and the telecom industries. Others on the panels before and after this one will go into more detail. Second, I am going to talk briefly about general radio and television industry conditions also as they also affect new owners’ abilities to raise the needed capital. Finally, I will talk briefly about what these conditions mean – what prospective new owners need to show in light of these conditions to successfully secure financing.

Turning to the first topic – general economic and financial market conditions – whether you call it a recession or just meager economic growth, it provides a tremendous challenge for new entrants into any industry. The immediate potential to increase revenues is severely limited given these economic conditions. I might add, however, that these poor conditions may also offer opportunities to acquire distressed properties whose owners may be forced to sell for prices lower than at other times.

Along with the tough economy, the financial markets are also in “turmoil.” Given the shakeout started by the mortgage crisis of last year, the overall financial market is struggling to find a new equilibrium. During that time, the pricing of loans and the requirements written into the loans are quite burdensome. According to a survey by the Federal Reserve, the funding costs and borrowing standards are at the highest since 1991 and 2001. Part of this turmoil is also seen with the slowdown in activity. According to S&P analysis, the 2nd quarter of 2008 saw the loan volume down 76% from the 2nd quarter of 2007 (the last quarter before the mortgage crisis set in).
As S&P stated in their July 2008 LoanStats newsletter, “arrangers say they are hitting the pause button on new deals until the current turbulence subsides, while investors husband dollars to focus on jut the most compelling situations.” Whenever there are tough times in the financial marketplace, it is important to remember, however, that these equity funds and banks are in the business of loaning money. While it may be tough for a while – both in terms of conditions and rates – that will pass.

In addition to the tough economic and financial conditions, new owners are also confronted with challenging industry conditions in radio and television. The entire radio industry has seen negative overall revenue growth for years running with an expectation of negative growth for next year, though not as bad. This overall national negative growth does mask the better, positive performances of the radio industry in medium and small markets, but those positive growth rates are not overwhelming. Yet, radio is still an important player in the local media markets, providing access to local audiences for local advertisers. There are underperforming stations in these markets that could be turned around providing good cash flows. Additionally, radio stations are increasingly generating revenues from other sources, in particular Internet related revenues, opportunities that were discussed in another panel today.

In the television market, local stations are generally going to do well this year with the impact of political revenues, especially in Presidential battleground states and states with competitive Senate contests. Following this year, 2009 will show a downturn with an upturn expected in the succeeding year. There are some ominous warning signs affecting local television, specifically the tough times facing the automobile market. If those companies and their local dealers cut back on their advertising, this will have a depressing effect on the growth on television advertising revenues.

Yet, much like radio, local television stations are still very important players in the local advertising marketplace offering access to local audiences. Television stations have opportunities to move into other areas to generate additional revenues such as their Internet sites. Some television stations receive as much as 20% of their revenues from their Internet site and related activities. In addition, local television stations have a potential new revenue source associated with mobile/handheld DTV services (M/H DTV). This new technology is progressing through a standard setting process and might be rolled out by late 2009.

What do these challenging economic/financial/industry conditions mean for new owners and companies trying to secure financing? First, and foremost, these new owners need a STRONG story, with grounded research, as to why they will rise above the industry revenue trends. No longer can you just show that you will ride the crest of the industry, it has to be more compelling.

Second, in that STRONG story, you need a digital, other revenue component to insure that your revenue growth and bottom line growth is sufficient to attract the needed equity and bank investors. Without that potential upside, these financing sources will not take the risk.

Third, and finally, you need to be incredibly DILIGENT in assessing and researching opportunities. Through comprehensive examinations of these opportunities, you will either come up with some hidden problems that will make you walk away (and be glad you did), or other information that might lead you to be able to acquire the property at a lower price, making it more likely to secure the necessary financing.

In closing, let me emphasize that while it is challenging to secure the necessary financing in these tough economic and financial market times, there are still opportunities in the market, properties that can be purchased for reasonable prices, to make the effort.

Presentation to the FCC En Banc Hearing on Barriers to Communication Financing

Mark Fratrik, Ph.D., was invited to appear at the FCC’s En Banc Hearing on Barriers to Communication Financing at Barnard College in New York City on Tuesday, July 29, 2008. Dr. Fratrik will discuss the current state of capital markets. The following is a transcript of his message.

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Mr. Chairman and fellow commissioners let me first thank you for inviting me to participate in this important hearing. The ability of new entrants into these industries, much like all other industries, provides the competitive and entrepreneurial spirit that leads to new innovation and improved services to the American public at large. Additionally, new entrants have and will continue to provide new diverse voices to our media markets, also leading to the benefits of all Americans.

Others such as Susan Patrick immediately following me, and the two panels following her will provide much more detail on how new entrants can secure financing and at what costs. My charge is to provide a quick overview of the present status of the capital markets and how that status affects the ability of new entrants to secure the necessary equity and debt financing.

I would like to tell you that equity investors and bank lenders are out there abundantly for established and new broadcasters that have good ideas for acquisitions. I would like to tell you that new entrants can easily get financing with sound business plans and good opportunities facing them. I would like to tell you that these financing opportunities are so prevalent that the cost of this financing is reasonable and does not unduly burden these new entrants with extreme borrowing requirements or difficult covenants to comply with.

Unfortunately, and probably not surprisingly, I cannot offer those statements on the capital markets. Anyone reading the general press or watching and listening to local television and radio stations know only too well that the capital markets are very tight. These markets are in “turmoil” with uncertainty on the overall economy and the soundness of some groups of loans playing a very significant role in making investors and bankers very hesitant.

One indication of the tightness of these capital markets is the large drop off in the amount of loans being issued. Standard & Poor’s, in their recent midyear recap, stated that second quarter loan volume was down 76% from the previous year’s second quarter. As they point out, that previous year’s 2nd quarter total was a record amount, when the capital market was incredibly active and it was still prior to the onslaught of the mortgage crisis. Still, that large decrease is a clear indicator of the lack of available funding for companies in the telecommunications field and in general.

Why the decrease? Clearly the slowdown in the overall economy has taken its toll. The difficulties in the mortgage area have put tremendous pressures on many financial institutions and banks. Everyone is very apprehensive. Let me quote again from that mid-year S&P report “arrangers say they are hitting the pause button on new deals until the current turbulence subsides, while investors husband dollars to focus on just the most compelling situations.”

A recent Federal Reserve study showed that the funding costs borrowers are paying are exceeding highs seen in 1991 and 2001 when there was a similar type recession. That same study also indicated that borrowing standards are also just shy of their all time highs.

At the same time, credit is tight in global financial markets and industry specific conditions make it even more difficult to obtain financing. Lenders – both equity financing sources and banks – look to business plans for growth opportunities, and regrettably there is a feeling that there are few growth opportunities in radio and television.

These lenders and investors are looking at the recent total radio industry revenues that will probably show, according to our estimates, a 3-5% decrease this year following decreases and anemic growth in previous years. I will point out, and many in the industry also point out, that national percentage masks the better performances in the medium and smaller markets for radio, where there may be opportunities for new entrants. Turning to television, of course, there will be an increase in revenues for local stations this year, due to the elections and the upcoming Olympics, but next year will show a negative change in total revenues. Further, challenges are out there with several of the major advertiser groups for many local television stations; the automobile industry, in particular is facing incredibly tough times. One can see that this industry may cut back on their advertising for a while as they regroup in an era more concerned about energy costs.

With these more challenging industry forces amid the tougher credit market, it is not surprising to see a dramatic downturn in the number of deals occurring in both radio and television. According to the records we keep at BIA Financial Network, the number of radio stations sold through June of this year has decreased by 44% and the number of television stations decreased by 79%. Many stations are available for sale, but the inability to secure enough equity and debt financing is just proving too difficult.

Even in tight conditions, it is important to remember that equity funds, banks, and other financial institutions are still in the business of lending money. This is how these companies make their own money. So, they are looking for opportunities to invest and lend money, though with greater restrictions and possibly higher rates.

One limiting force that would turn around these decreasing numbers and allow for new entrants to secure financing is that some financial institutions that have been lending and investing in the broadcasting industry have cut back on their activity. Some have consolidated their broadcasting lending divisions into larger, broader areas, while some have found it difficult to entice investors to their companies to lend in this area. These companies do not see enough of an upside to the industry to warrant maintaining their large presence.

Yet, there are companies still remaining in this area – some of which are represented in the panels later today. They still see opportunities out there for new entrants and existing broadcasters to take over under-performing stations, change its programming, marketing and other business activities to make those properties more viable in the local marketplace. Having a business plan laying out these changes is essential for new entrants – one cannot just ride the wave of the industry growth anymore. Additionally, any business plan to turn around a particular situation must include some ideas on how to tap into other revenues, for example revenues generated from Internet sites as many broadcasters are now doing. Any equity or bank investor must see some potential for growth, with grounded research, before he/she commits their funds.

And, while the overall national indicators for these industries are not overly promising, there are still valuable prospects. As I mentioned before, medium and small market radio stations are doing noticeably better than their larger market brethren. Television stations, especially in the smaller markets, offer good, sound investments. These are local radio and television stations that are still viable players in their local advertising markets. They are facing incredible challenges to their businesses, forcing them to find of new ways of operating and new avenues of generating revenues.

Many new entrants into these industries have these necessary new ideas. Yet, in order to secure financing, the investors and lenders must be better convinced that those ideas will bear fruit. They will need to be better convinced that the industry does have growth potential. Anything the Commission can do to promote that growth potential, to foster broadcasting as a good business, will pay dividends in freeing up the necessary financing for new entrants.

In closing, let me thank you again for allowing me to offer my thoughts on the overall capital markets and how those conditions affect lending to the telecommunications industries. I am sure the upcoming speakers will provide more detail on some of the issues I have raised, as well as discuss other issues that are relevant to the lending market for broadcasters.