Radio One
Radio One INC.
This case involves an expansion of Radio One Inc. The company is evaluating several stations that are currently available due to a divesture that Clear Channel was required to complete. Radio One’s strategy is to be the number one urban- oriented music, entertainment, and information to African-American in as many major markets possible. With this opportunity Radio One can acquire an additional 12 stations in areas they have not been able to search before. The results of the expansion would bring greater advertising revenue and open avenues for the company to expanding to other forms of media such as cable, internet, and etc…. Liggins and Royster have purchased underperforming radio stations and gain a greater market in several …show more content…
cities. To capitalize on this great opportunity, Liggins and Royster will have to decide should they purchase these 12 stations and if yes, on how much should they offer to obtain them.
With the population of African-Americans growing in the late 80's early 90's , expanding the radio stations to these growing demographics will help Radio One's audience share ratio to increase. The African-American population has been increasing in income growth making them a population in which advertising companies would like to target. The Power ratio is the calculation of revenue share divided by audience share. This ratio indicated how much radio advertising dollars in a certain market was being gathered by a particular station relative to its share. Historically, Radio One has experience power ratios resulting in less than one due to the income levels of the target market they were outreaching. By the year 2000 Radio One has increase their power ratio from .71 to .85 and still rising.
In 1999 Radio One Inc became a publicly traded company.
Evaluating the company's Balance Sheets from previous years, Radio One was having issues with long-term debt. Their total debt ratio and the long term debt ratio were both over 95%. Before Radio One went public , their financial situation were not stable. If the economy were to suffer, Radio One would have not made it through. The IPO may have actually save the company from filing bankrupt. In 1999 Radio One received 4.46 million dollars the first year as a publicly traded company which increased the equity and the investments made back into the company. The long-term debt also decreased from the prior year (1998) but was still higher than the year before (1997). Analyzing the Income Statements from 1997-1999 shows that Radio One has not been generating any net income. The operating ratio averaged about 80%. This demonstrates that this organization has less ability to generate profit if revenues were to decrease. Management will need to focus on cutting cost in the selling, general and administrative expenses to improve the ability to generate profits.
In the radio industry there are tight regulations that one must follow in order to expand in particular markets. The Federal Communications Commission (FCC) regulates the number of broadcasting stations one company can own. October 1999, Clear Channel one of the largest radio stations announced their plans to merge with AMFM Inc. Due to the FCC regulations, Clear Channel was required to divest some its radio stations creating the opportunity for Radio One Inc. In addition to the divestiture announcement, Radio One's stock increased from the mid $40s to the high $90's per
share.
To evaluating the benefits of the potential new markets, we must calculate several ratios to project the overall financial growth of Radio One inc. The actual and projected financial performance of the existing markets and the potential new markets can be used to calculate the Broadcasting Cash Flow. By separating the existing markets gross revenues, direct cost, Net revenue, and Operating expenses from the potential markets; we can analyze the total Pro Forma for the year 1999-2000 and the projections for the next few years. Creating a Net Present Value table allows us to compare the value of the potential stations now to what the value maybe in the future. With a growth rate of 8%, the net revenue seems to be increasing in the future showing a good sign of growth. The Broadcasting Cash Flows (BCF) are calculated from the total new market gross revenue minus total new market direct expense minus total new market operating expense with the addition of the taxes included. The Net present value of the BCF is $1,565,180.
Mr.Royster should offer the price of $1,052,389,000 to Clear Channel for the 12 radio stations. It is an estimate of what the net present value of these stations maybe worth with a growth rate between 4% and 8%. .
This case involves an expansion of Radio One Inc. The company is evaluating several stations that are currently available due to a divesture that Clear Channel was required to complete. Radio One’s strategy is to be the number one urban- oriented music, entertainment, and information to African-American in as many major markets possible. With this opportunity Radio One can acquire an additional 12 stations in areas they have not been able to search before. The results of the expansion would bring greater advertising revenue and open avenues for the company to expanding to other forms of media such as cable, internet, and etc…. Liggins and Royster have purchased underperforming radio stations and gain a greater market in several …show more content…
cities. To capitalize on this great opportunity, Liggins and Royster will have to decide should they purchase these 12 stations and if yes, on how much should they offer to obtain them.
With the population of African-Americans growing in the late 80's early 90's , expanding the radio stations to these growing demographics will help Radio One's audience share ratio to increase. The African-American population has been increasing in income growth making them a population in which advertising companies would like to target. The Power ratio is the calculation of revenue share divided by audience share. This ratio indicated how much radio advertising dollars in a certain market was being gathered by a particular station relative to its share. Historically, Radio One has experience power ratios resulting in less than one due to the income levels of the target market they were outreaching. By the year 2000 Radio One has increase their power ratio from .71 to .85 and still rising.
In 1999 Radio One Inc became a publicly traded company.
Evaluating the company's Balance Sheets from previous years, Radio One was having issues with long-term debt. Their total debt ratio and the long term debt ratio were both over 95%. Before Radio One went public , their financial situation were not stable. If the economy were to suffer, Radio One would have not made it through. The IPO may have actually save the company from filing bankrupt. In 1999 Radio One received 4.46 million dollars the first year as a publicly traded company which increased the equity and the investments made back into the company. The long-term debt also decreased from the prior year (1998) but was still higher than the year before (1997). Analyzing the Income Statements from 1997-1999 shows that Radio One has not been generating any net income. The operating ratio averaged about 80%. This demonstrates that this organization has less ability to generate profit if revenues were to decrease. Management will need to focus on cutting cost in the selling, general and administrative expenses to improve the ability to generate profits.
In the radio industry there are tight regulations that one must follow in order to expand in particular markets. The Federal Communications Commission (FCC) regulates the number of broadcasting stations one company can own. October 1999, Clear Channel one of the largest radio stations announced their plans to merge with AMFM Inc. Due to the FCC regulations, Clear Channel was required to divest some its radio stations creating the opportunity for Radio One Inc. In addition to the divestiture announcement, Radio One's stock increased from the mid $40s to the high $90's per
share.
To evaluating the benefits of the potential new markets, we must calculate several ratios to project the overall financial growth of Radio One inc. The actual and projected financial performance of the existing markets and the potential new markets can be used to calculate the Broadcasting Cash Flow. By separating the existing markets gross revenues, direct cost, Net revenue, and Operating expenses from the potential markets; we can analyze the total Pro Forma for the year 1999-2000 and the projections for the next few years. Creating a Net Present Value table allows us to compare the value of the potential stations now to what the value maybe in the future. With a growth rate of 8%, the net revenue seems to be increasing in the future showing a good sign of growth. The Broadcasting Cash Flows (BCF) are calculated from the total new market gross revenue minus total new market direct expense minus total new market operating expense with the addition of the taxes included. The Net present value of the BCF is $1,565,180.
Mr.Royster should offer the price of $1,052,389,000 to Clear Channel for the 12 radio stations. It is an estimate of what the net present value of these stations maybe worth with a growth rate between 4% and 8%. .