On-the-air niche Radio: Two entrepreneurs turned their backs on cable TV to go on a timely buying spree in radioland.

September 23, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Five years ago, Bruce R. Spector was a partner in a little Washington cable TV company when he thought he saw the future. And for all the breathless whiz-bang hype of the Information Age, it wasn't cable.

Humble as it seemed -- and as pitiful a financial shape as it was in after a series of failed or struggling leveraged buyouts -- Spector and partner Joseph L. Mathias IV decided the future was radio. Based on that insight, they launched Benchmark Communications, a Baltimore company they hope to take public later this year, one that an industry peer says could be worth up to $160 million.

Benchmark has been on an acquisition spree since Congress approved the Telecommunications Act of 1996, which let companies such as Benchmark own many more stations in the same radio markets. This month alone, it has bought six stations to bring its total to 33, all in the southeastern United States, in small cities where the company can avoid such giant players as Westinghouse Electric Corp.

"In 1991, the radio industry was at its darkest hour, which to me signified great opportunity," said Spector, a 44-year-old former lawyer. "Things were no different. People still listened to the radio."

The 1990-91 recession, Spector said, had cut radio advertising for the first time in 40 years, at precisely the time when a series of entrepreneurs had loaded debt onto radio companies they had thought would grow indefinitely. A lot of people in that spot were hurting and preparing to sell out on the cheap.

"In 40 years, there's only been one year where [radio] revenues were not higher than the year before. That was 1991, and it wasn't much," Spector said. "It was only single digits. [And] historically, those were the lowest prices ever offered for media properties."

As Spector and Mathias saw it, this was their choice: Should they fight to buy local cable franchises against such then-emerging giants as Comcast Corp. and Tele-Communications Inc., all for the privilege of growing in a business where Congress was about to pass the 1992 law putting cable rates under federal scrutiny? Or should they buy into a cheap but fundamentally healthy industry in which new rules let companies buy more stations in each market than ever before, raising the prospect of cost savings and sales gains?

It was a no-brainer.

"We basically were riding the regulation wave," said Mathias, a 31-year-old who met Spector when they both worked at the cable company, which also was named Benchmark Communications. "Cable was being re-regulated, and consolidation in cable was so strong it made it hard for an entrepreneur to compete."

The pair bought their first station in 1990 and have gone from there. Today, the stations are owned by seven different partnerships under the Benchmark umbrella, with investors ranging from a Pittsburgh venture capital firm to executives at Alex. Brown Inc., the Baltimore investment bank.

Spector and Mathias together own 30 to 35 percent of the partnerships, said Spector, who put privately owned Benchmark's annual revenue at $45 million and its profits before interest payments at $16 million to $17 million.

Though their company has gotten relatively large, its success was built on the lesson Spector and Mathias learned in the cable industry: Stay out of the way of the big boys.

That's why Benchmark's 33 stations are all in unglamorous, even minor markets, nearly all in the Southeast. While the $3.9 billion merger between Westinghouse and Infinity Broadcasting Corp. puts it in the lead in such markets as New York and Chicago, Benchmark's motto is to rule Roanoke, Va., and to be the king of Columbia, S.C.

"Greenville [S.C.] was growing faster than Detroit last I checked," said Mathias, the more blunt-spoken of the pair, who plays the operations expert to Spector's deal-maker. "We can get better market share in our markets than they can. Four or five stations in New York City won't give you 50 percent. In Roanoke, I can get that."

Spector calls this a Wal-Mart strategy: Like Wal-Mart in the early days, Benchmark's theory is about concentrating on a handful of small markets -- its biggest is 59th-ranked Greenville. And the new law allowing firms to own up to eight stations per market (fewer in smaller markets) makes the strategy work better.

With more than one station in a market, Benchmark can have fewer people divide the sales and back-office work, while boosting revenue by using the stronger stations to beef up their weaker siblings, Spector said. Owning several stations in one place makes radio a lot like owning television stations -- it's a highly profitable business that investor Warren Buffett has called a "be-smart-once" business because the stations are so easy to run an owner needs only to be smart enough to buy them in the first place.

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