Can positioning yourself as the low-cost producer work in television broadcasting?
Down in New Orleans, the business community was surprised -- shocked, even -- when it heard that a new television station was preparing to set up shop. After all, the local economy was hurting; advertisers were few and far between. And the Big Easy had five commercial TV stations already, some of them barely managing to break even. Who was this New York City hotshot, the town elders asked themselves about WCCL-TV founder and chief executive Barbara Lamont, who thought she was going to move into New Orleans and carve herself a piece of its already shrinking pie?
Then came the crabs. There were hundreds of the little crawlers, fresh and gritty, straight from Lake Pontchartrain. Packed in cardboard boxes that were discreetly labeled "perishable -- open immediately," they were hand-delivered on a single day by WCCL's staffers to the heads of every single advertising and media-buying agency in the area. The locals took notice.
It was an unusual introduction to one of the most unusual entrepreneurs this city has seen in a long while. Lamont, 50, speaks seven languages, including Mandarin Chinese and Yiddish, and comes to TV-station ownership with a rÃ©sumÃ© that includes a stint as an international cabaret singer. She's insatiable when it comes to taking on new challenges. After 20 years as a successful broadcast journalist in New York City's high-profile radio and TV markets, Lamont led a team of 23 to Nigeria, where she managed the state-owned television network. A 1984 military coup sent her home via a tortuous northern escape route to the city of Kano, where she caught the midnight flight to Paris. Somewhere along the way she decided that it was time, finally, to think about going into business for herself.
But what a business she chose. Independent television stations, or "indies" -- stations unaffiliated with any of the three major networks -- have been on a roller-coaster ride since the early 1980s, when new owners and financiers started flocking in, convinced that an FCC license to build a TV station was a license, plain and simple, to print money. And for a while they were right. Thanks to investment tax credits, accelerated depreciation, and some of the other tax goodies available before 1986, backing a new station could be lucrative for investors -- even if ad revenues, the heart of TV-station viability, were sluggish or market shares small. Given those incentives, it's not surprising that the number of independent stations in the United States rose from about 250 in 1984 to some 400 today and now account for around 25% of all TV-station revenue. "The hard part was getting the FCC license. The rest used to be easy," says Lamont.
Not anymore. After tax reform wiped out those breaks for investors, indies were forced to become something more than a clever tax play. To attract needed capital they had to start making money the old-fashioned way -- by taking in more cash (in ad sales) than they spent (on overhead, transmission and selling costs, and program creation or purchase). All the new stations only made things tougher; increased competition for the syndicated reruns, movies, and original programs that indies buy for broadcast led to higher prices, sending programming costs ever upward.
Still, Lamont -- resettling stateside after her Nigerian escape -- saw an opportunity in operating as the low-cost TV station in a low-cost city. (She chose to apply for the New Orleans license instead of Tampa, the other available FCC slot, because its market seemed to be close to bottoming out, with plenty of real-estate and construction bargains available.) Her business plan concentrated on controlling fixed and operating expenses as the key to profitability, rather than the more typical industry approach of building audience share and subsequently raising advertising prices. It would be OK if her programming didn't bring the viewership other stations got; she wouldn't need as much ad revenue as they did to cover costs. "I decided to run my television station like a lean, mean radio station," Lamont declares.
Lamont's strategy focused at all times on building cash flow, which in the TV industry is seen as the ultimate indicator -- rather than net aftertax profits -- of a station's viability and market value. (It's worth noting that WCCL's cash-flow formula is controversial. Unlike most stations, WCCL considers program amortization a noncash expense, leading to a more attractive cash-flow figure than standard industry accounting would yield.) The reason for her focus: her goal is to sell most or all of WCCL-TV to investors after six years, for what she hopes will be between $27 million and $34 million, or 10 times projected cash flow -- about the multiple that TV stations currently fetch.
OPERATIONS: Barbara Lamont figured she was coming into the market at a good time. Most of her competitors were locked into the kind of longer-term, high-cost programming contracts that were popular in the mid-1980s. But she would be free to buy whatever shows came on the market cheap. In addition, New Orleans's economic problems gave her room to bid down her construction costs.
She wound up spending about $3.6 million on land as well as transmission and broadcast equipment -- a good price, thanks to bargains such as the state-of-the-art production equipment that she bought, slightly used, after it had been deployed at the Seoul Olympics. Lamont's offices, set up in an old glue factory in an industrial corner of the city, are equipped with furniture, computers, and even stationery that she bought at a bankruptcy auction.
Lamont won't disclose precise cost figures for WCCL's programming, but she says that she paid about one-tenth what her competitors typically spend. As a result, her 20-hour programming day is littered with well-worn oldies like "Kojak" and some best-forgotten dogs such as "Dobie Gillis" and "Airwolf." As a result, WCCL projects annual expenses of $2.2 million. "Most people coming in with this kind of station and equipment would run costs about three times ours," she claims. To cover her yearly nut, she figures she'll need about a 4.5% market share and nearly $4 million in sales.
As the third indie in a crowded market, Lamont doesn't expect to achieve those numbers quickly. She projected net ad sales of about $1.7 million for her first operating year, ending June 30, 1990; that would translate into a net operating loss of $508,000 and -- after taking into consideration fixed expenses such as loan interest and equipment lease costs -- an aftertax net loss of $1.9 million. But by fiscal 1991 she expects to achieve her 4.5% market share and to report operating profits of $1.6 million (aftertax profits would run about $175,000). Keeping the focus on cash flow, she hopes to turn a first-year negative of $816,000 into an impressive $1.2 million in positive cash by year two.
By year six, when Lamont expects to put her station up for sale, she's counting on about $8 million in net sales and at least a 6% market share. That would translate into about $2.4 million in aftertax profits and, better still, nearly $3.5 million of positive cash flow.
MARKETING: But getting from here to there will take more -- much more -- than tight control of WCCL's purse strings. Lamont must figure out how to carve a niche for her station in a market that was already saturated without her. (Most midsize cities like New Orleans, which is the 35th-largest TV market, have three network affiliates and only one or two indies.)
Lamont turned for help to a man she considers one of the marketing geniuses of the industry -- George Stantis, a veteran of more than 30 years in the management of independent as well as network-affiliated TV stations. The pair faced some real obstacles: the New Orleans market, depressed as it is, is heavily dominated by one station, owned by Loyola University, a Jesuit institution with less incentive to show a profit and thus able to keep its commercial spot prices low. To make matters worse, the two non-network independents that WCCL planned to tackle were owned by the Tribune Co. and TVX Broadcasting Group Inc., backing that gave them the kind of marketing, programming, and staying power that a thinly capitalized station like Lamont's just wouldn't have.
Lamont and Stantis decided to position the station as the city's "local" alternative -- not as improbable as it might sound, since Lamont and the Jesuits are currently New Orleans's only home-based television-station owners. To build up their local image fast, Stantis adopted a logo mascot: a well-known French Quarter mime who looks like Charlie Chaplin with shocking-red hair. His image was eye-catching, especially when WCCL splashed it for three months across city billboards, complete with a 22-foot spinning cane. "We came to town and tried to sell some sizzle," Stantis says.
They had no other choice, because there weren't going to be any market-share numbers to speak of, perhaps for quite a while. After all, it takes time to attract viewers to a new station. And WCCL faced an even tougher battle precisely because Lamont had done such an admirable job of penny-pinching on programming: her competitors could pull viewers in with shows such as Oprah Winfrey's and Arsenio Hall's while she ran cheapies on the order of "Room 222." Unfortunately, many potential advertisers decided to wait for proof of at least a 3% rating before they would consider buying into a show. And WCCL has been able to score that only at scattered time periods as recently as August, when official July ratings were issued.
The reason for WCCL's rating-share shortfall actually has less to do with its programming than it does with a Supreme Court ruling that put an end to an FCC regulation known as "must-carry." The regulation had required cable operators to carry every television station located within a specified area. Now, cable companies have the right to decide whether to carry a station, which they do on purely economic grounds.
Some indies have closed up shop to conserve cash and hope for congressional intervention, but Lamont, always a fighter, decided to tough it out and try to build market share without the help of must-carry -- despite the fact that one of the city's two major cable carriers, the one that serves the desirable, upscale Jefferson Parish, has only recently reconsidered its earlier refusal to carry her station. "I went home feeling pretty devastated when I found out that we were the only local station they had decided not to carry," Lamont recalls. But then she and Stantis launched a lobbying campaign aimed at every relevant government official from the Jefferson Parish city council all the way up to Congress, even targeting representatives from Atlanta, where the cable carrier's parent company is based. At press time, the two were waiting for the carrier to make a commitment to carry WCCL-TV.
Meanwhile, Lamont has been forced to be imaginative -- to put it mildly -- in her efforts to build audience share by "counterprogramming" the existing offerings from the network affiliates and indies. In a time slot where all of the other stations are showing the news, WCCL schedules a game show. Or if there are situation comedies on the other stations, WCCL will offer an action show. The goal is always to provide an alternative to what the competitors offer.
Local programming, particularly sporting events, is clearly the best way to capture audience share and advertisers quickly, but it's costly to produce; also, most of the desirable sports events are already contracted for. WCCL managed to score one touchdown when Lamont negotiated her way into an exclusive five-year contract to produce and syndicate the Bayou Classic, the Superbowl of black-college football games. And she has just followed her WCCL-produced show, "Step by Step Cosmetic Surgery," with a new entry, "Saints' Better Half," which takes a weekly "intimate" look at the tumultuous (she hopes) home lives of New Orleans' professional football players.
Lamont and Stantis also have been forced to be inventive about selling their ad time. And that doesn't just mean offering good discounts -- which of course they're doing. "We're reaching out to a lot of advertisers who have never tried television before; we can produce their commercials for them right here in our own production studio," says Stantis. So far, results are positive. One locally based store concluded that increased sales paid for the cost of producing and running its WCCL commercial six times over.
The pair scored a real coup -- and won credibility -- this summer when they convinced a major national ad rep firm, Blair Television Co., to take them on as a client. But the question now is whether they can attract national advertising to a sluggish market: net ad revenue in the city was only $75 million in 1988, not much better than the $58 million netted in 1983.
FINANCE: While Lamont's marketing problems are large, her financing difficulties have often seemed insurmountable. WCCL lost some of its original investors in 1985. "I went to all the big Wall Street firms looking for new backers -- but nobody wanted to hear anything about an independent television station, especially one in Louisiana," she says with a laugh.
But by then the company had spent nearly $1.5 million on lawyers' fees and settlements to other applicants for the same frequency (the procedure encouraged by the FCC in such cases). So Lamont had no intention of giving up her hard-won license. Instead, she gave herself a crash course in government incentives for entrepreneurs -- especially minorities, since she's black -- and came up with a shrewd substitute for all those nifty tax breaks that TV-station investors had lost. She offered her backers minority tax credits, which allowed them to earn tax-free dividends on their WCCL investments, the first time MTCs had been used for a television start-up.
The tax breaks helped her attract seven investors at a time when her FCC license was her only asset; in return for some $250,000, investors bought about 5% of Crescent City Communications Co., WCCL-TV's operating company. That tided Lamont over until she could obtain about $3.5 million of land, construction, and equipment loans. While waiting for her airdate -- which finally came on March 19, 1989 -- she convinced First City Texas bank to give her $2 million of working capital collateralized with her personal assets. (In all, the bank holds another 20% of Crescent City's stock warrants.)
Lamont was on a roll. She got the state to name her office/production site an enterprise zone. This status frees her from state income and corporate franchise taxes until 1993 and lets her skip some state sales and use taxes during construction. She also qualifies for a tax credit every time she creates a new job.
But WCCL is still running out of money, thanks to negative cash flow that's been about $150,000 monthly. Lamont's original projection of fiscal year 1990's negative cash in the range of $800,000 was already looking too low by October, when cash was in the red to about $500,000. It isn't an expense problem -- she's been keeping labor costs, for example, about 20% below budget. The trouble is ad dollars, which are coming in slower than expected.
So Lamont has decided to sell another 15% stake in the company, which would cut her to about 51% ownership. The deal was still pending at press time, but Lamont hoped to raise another $2 million, thanks in large part to the advantages offered through the minority tax credits. "It's going to give me the money to pay my bills," she says. "That's how I'll hold on until I build the market share I need."
Can she raise this new round of financing? Undoubtedly, given her high-level contacts in the media world and New Orleans' business community. But will it help her hold on long enough to build an audience and turn her station profitable? Will she ever have the programming that viewers want? It all remains to be seen. But, says Wilbert "Bill" Tatum, publisher of the New York City based black newspaper New York Amsterdam News, and one of her earliest investors, "if energy, commitment, talent, and competence can make any venture work, then Barbara Lamont is the person who can do it. I have complete faith in her abilities."
She does have her work cut out for her. Still, Lamont is more than capable of inspiring those around her with her boundless energy and enthusiasm. "I don't want to sound naÃ¯ve," she confesses from her tiny, windowless office, speaking above the WCCL shows that play from morning till night on her office television set. "But I feel as though we've already succeeded -- just by winning the FCC license, getting on the air, and building something with a high asset value."
She smiles. "It's not that everything else will be easy. But I do believe we're going to make it."
For an update on this company, see Anatomy of a Start-Up Revisited: Broadcast Blues
Research assistance was provided by Leslie Brokaw.
Crescent City Communications Co./WCCL-TV, New Orleans
Concept: Launch an independent TV station as the low-cost producer in its market, seeking profitability more by controlling expenses than by building audience and ad revenues. Develop cash flow of $3 million to $4 million in six years in order to sell the station for up to $40 million
Projections: Losses in year one, ending June 30, 1990, of $1.9 million; profits in 1991 of $175,000 on net sales of $3.9 million. Positive cash flow in 1991 of $1.2 million
Hurdles: Building enough of an audience on bargain-basement programming to attract projected ad revenues; getting carried on the cable systems that control access to New Orleans viewers; securing enough capital to hold on until cash flow turns positive
Barbara Lamont, President and CEO,
Crescent City Communications Co. (WCCL-TV)
Source of idea: Former employer suggested she apply for a TV license after the FCC streamlined its procedures for minority applications
Personal funds invested: $1 million
Equity held: 66%
Other businesses started: Notel Inc., a teleport (satellite transmission facility) in New Orleans, in 1988
Other jobs: Reporter, WINS-AM, WNEW-TV; writer/reporter, CBS network, all in New York City; anchor, WNEW-TV; producer, ABC radio network; director of operations, Nigerian Television Authority
Typical workweek: 94 hours
Outside board of directors: Yes
What I lose sleep over: Money
Sources of inspiration: Mother, husband, Winston Churchill, Shirley Chisholm
Why I did this: "Because I want to earn $5 million before I'm 55 years old in order to ensure myself a comfortable lifestyle for the next 60 years."
Crescent City Communications Co. (WCCL-TV) Projected Operating Statement ($ thousands)
Year one Year two
June 30, 1990 June 30, 1991
NET SALES $1,738 $3,859
General & administrative 272 294
Accounting & traffic 145 157
Sales costs 339 366
Engineering 353 381
Promotion 273 295
Operations & programming 864 758
Total operating expenses 2,246 2,251
June 30, 1990 June 30, 1991
Net operating profit (508) 1,608
OTHER EXPENSES (FIXED)
Long-term debt -- land 69 68
Loan interest 275 259
Equipment loan/lease 415 443
Amortization & depreciation 663 663
NET PROFIT (LOSS)
After taxes (1,930) 175
Aftertax profit margin -- 4.5%
Cash flow (816) 1,150
WHAT THE EXPERTS SAY
Chairman, Peter A. Mayer Advertising Inc., a New Orleans agency. Has convinced some clients to buy time on WCCL
Lamont has done several things very well. She has a real first-rate staff, which is important; her staff has sold the advertising community. And she has created community awareness -- people know that there's a WCCL and that it's broadcasting.
Now, not so good: she has very poor programming. It's just trash, the dregs. You can't just buy old shows and plop them on the air; that day is gone. We've bought time for some of our clients because there are areas we're interested in; "CBS This Morning" is one of them. Although it has a minute audience, the cost of the spots was reasonable. There are things that we can cherry-pick, but that's not enough.
I think it's urgent that Lamont create a niche in the market with WCCL, and if I were in her boots, I would definitely slant my station toward the ethnic market. I would broadcast stuff of interest to the black and Latin communities -- New Orleans has the audience to sustain that. And she's got to get a couple of the current, viable shows that other people are picking up, and at least have something to base a promotion around.
I definitely think advertisers would support an ethnic station; we vigorously support two black radio stations and one Latin radio station, and they're doing very well. There are advertisers who want that audience, and I think she could do it in television. Sure, that'd mean more investment, because you'd have to get a local news staff, but right now she's just what everybody else is, but not as good.
I don't think she's going to make it without finding that niche. I admire the hell out of her, but she's really going into a storm here, and the market's not getting any better.
Director of sales, WGNO-TV, a Tribune Broadcasting station in New Orleans
Lamont's assumptions about ratings, market share, and selling out for $30 million to $40 million a few years down the line -- they're all way off base. We're looking at negative growth this year, with next year flat or maybe having slight growth.
She's built the station on the premise of three-point audience share and $4 million of ad revenue, and there's really no way that she can achieve those figures. In reality, because she's not on all the cable systems, she's got to double the actual viewing in the homes she reaches to a 6% share in order to get that three-point share of audience in the whole New Orleans market. And that's virtually impossible, because you're looking at two strong independents -- us and WNOL -- and there just aren't programs that she can afford that will garner that kind of audience. Anything that gets an audience has already been taken in the market, or it's way too expensive for us, WNOL, and any of the network affiliates -- and therefore way out of Barbara's league.
So put yourself in her shoes. How do you get where you want to go, ratings-wise, without having the programming to get there, or the available outlets to reach the people you have to reach? If you look at her strategy on paper it makes sense; it would work theoretically because any start-up station, unless it's backed by a huge company with deep pockets, has to go in with low program costs and build its way up. But when the programming that is available is so bargain basement that you really can't generate an audience, then you're in a catch-22 situation.
It's not the best time to put on an independent station, especially in a market where you already have two strong independents and a strong cable carrier that you're not on. I think it would take almost a miracle to have a new profitable station in this market.
I wish Barbara luck. But she may have picked the wrong market to do it in.
President and chairman, WCOM-TV, Mansfield, Ohio, an independent that went off the air while waiting for "must-carry" legislation to be reinstated
If WCCL were my station, I would have started out doing local news briefs and an "eyes and ears of New Orleans" show. The more local programming you do, the more people become aware of your TV station because they see your truck and reporters at school-board sessions, Kiwanis Club meetings, and high-school basketball games. That's the way for Lamont to get on the local cable carrier -- by doing so much local programming that the local audience demands to see WCCL, even if it means knocking someone else off the system.
I also think Lamont is wasting time and money on Blair Television. She doesn't need a national rep firm, because the national market is a pure numbers game; the big ad agencies won't go along until WCCL can demonstrate market share. And the way to do that is by concentrating attention and spending on local programming -- which, incidentally, is the way to bring in revenues from local advertisers.
Would I invest in WCCL? Absolutely, if I had the capital and time to watch my investment. New Orleans is a great market; the economic downturn is just a cyclical thing. The big picture in New Orleans is all that ad money that's not being spent on television. Lamont is right to go after those dollars by producing so much local programming that advertisers feel they can't afford to ignore WCCL.
General partner, TA Communications Partners, Boston, a venture capital firm specializing in media, including independent television stations
Good local programming can help, but remember: it's easy to overvalue it. Local shows usually don't bring in much audience, because they're specialized and often get lost in the shuffle on cable systems. The exceptions are news shows, which bring in the audience but are very expensive to produce. So I think Barbara would be better off moving into good-quality, mainstream syndicated programming as soon as she can afford it.
I like Barbara's marketing strategy. The third independent in any market has got to face some hard facts: other independents are usually well established and there's usually a fight over cable space. The fact that she's got "CBS This Morning" is fabulous, because anything that can convince people to turn on her channel is a step in the right direction.
This is too small a deal for us to consider investing in. But Barbara has shown remarkable resourcefulness and a refusal to give up. I think she'll be the determinant in whether or not the channel succeeds, and I would not bet against her.