TFM: The Financial Manager September/October 2020

INFORMATION AND INSIGHT FOR MEDIA FINANCE PROFESSIONALS SEPTEMBER/OCTOBER 2020 THE FINANCIAL MANAGER

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Radio’s Tough Road Credit Card Safeguards Relaxing Drone Rules

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INSIDE THIS ISSUE

The Financial Manager

FEATURES

The Official Publication of the Media Financial Management Association is published six times annually under the supervision of:

SPECIAL REPORT:

MEDIA VALUATIONS 10 Under Pressure

MARY M. COLLINS, President & CEO Mary.Collins@MediaFinance.org

BY KIMBERLY M. RANDOLPH & SAMUEL CALVERT

JANET STILSON, Editor TFMeditor@MediaFinance.org

Radio has been on a downward rollercoaster ride. When will it start to move up? The first in a series of stories on the performance of industry sectors.

BILL KNIGHT, Art Director wknight5@nyc.rr.com

Limited commercial messages of interest to our membership and readers will be accepted.

Rates and specifications on request to:

12 Above and Beyond

BY M. ANNE SWANSON

MEDIA FINANCIAL MANAGEMENT ASSOCIATION

There’s good reason to believe that the FAA will clear the way for a “license plate” for drones, leading to relaxed restrictions.

550 W. Frontage Road, Ste. 3600 Northfield, IL 60093 telephone (847) 716-7000 facsimile (847) 716-7004 and at www.mediafinance.org.

16 It’s a Small World

Subscription $69.00 per year.

BY GRIFF DUDLEY

Copyright, 2020. All rights reserved.

As more companies seek to attract small business advertisers and OTT subscribers, accounts receivable teams are tackling critical new issues.

What is MFM?

The Media Financial Management Association is a not-for-profit corporation organized in 1961.

The MFM membership includes more than 1,200 of media’s top financial, IT and human resource personnel, station general managers and other media management personnel as well as associate members in the allied fields of auditing, tax, software, sales and the law.

MFM sponsors telephone seminars and conferences, publishes special studies and surveys, files position papers with federal agencies on behalf of its members and its industry, cooperates with other media industry groups and helps its members grow and learn both personally and professionally.

MFM also is involved in media industry credit matters through its wholly-owned subsidiary, BCCA, which provides members with a Credit Inquiry Service, an annual Conference, directory of Credit Personnel, credit reports accessed via bccacredit.com online credit search, Commercial Credit Reports and a credit and collections handbook.

The information and recommendations contained in this publication have been compiled from sources believed reliable. However, no warranty, guarantee or representation is made by the Association as to the absolute correctness or sufficiency of any representation contained in this publication, and statements contained in advertising and articles submitted to the Association are the responsibility of the authors, not the Association or its officers, directors, staff or members. Moreover, this publication is provided with the understanding that the Association is not engaged in rendering professional services through its distribution. The views and opinions expressed are those of the author, and not necessarily the Association.

SPECIAL REPORT:

CONFERENCE ROUNDUP 21 Introduction

BY RALPH BENDER

22 Review of Sessions

BY PATRICIA ANDREWS-KEENAN

30 Photo Montage

BY MFM MEMBERS

DEPARTMENTS 4 From the President Our Brave New World 6 Dear Expert Carriage Elections 7 Human Factor Retooling the Staff

8 Credit Where Due Special Payment Plans 9 Board of Directors With Association News 34 Last Word Tips on Trademarks

The Financial Manager • September/October 2020 3

FROM THE PRESIDENT

Our Brave New World

Pandemic conditions might have hobbled our businesses much more severely in the past. But despite our difficult burdens, key innovations are adding new layers of strength.

The difficult is done at once. The impossible takes a little longer. – Author unknown ust 20 years ago, a pandemic would have wiped out our annual conference. Even 10 years ago, we would have had a hard time making things work. Now, look at what we’ve been able to do with your support.

While not the same as meeting in-person, the virtual version of Media Finance Focus had its pluses. I’ve heard from a number of members who attended presentations they might not have, if they had to select among multiple concurrent sessions. So, too, has TFM’s traditional coverage of the conference involved changes. It kicks off on page 21 with a message from MFM’s immediate past chairman, Ralph Bender. Through the magic of digital photography, and phones with built-in cameras, we’ve even included a version of our post-conference photo montage. In her feature article, Patricia Andrews-Keenan wraps up of some of the many insights that were divulged. Our next issue will include even more coverage.

With all the changes in our Drones were the stuff of science fiction and businesses, the time was ripe military strategy until recently. Now they are for us to run a new series of an essential part of newsgathering. Changes stories on media valuations. in regulations could make them more vital.

Wilkinson Barker Knauer attorney Anne First up is a look at radio.

Swanson reports that the Federal Aviation Administration is considering a drone “license plate” that could loosen drone-coverage restrictions. And like that, the impossible becomes merely difficult.

Meanwhile, two new revenue opportunities that would seem inconceivable to many media companies 20 years ago – ads from very small businesses and direct-to-consumer streaming subscriptions – are on the rise. In his article, American Express’ Griff Dudley, seeks to highlight some of the payment solutions needed for these new customer groups.

With all the changes in our businesses, the time was ripe for us to run a new series of stories on media valuations. First up is a look at radio, which has been particularly hardhit by the pandemic. Stout’s Kimberly Randolph and Samuel Calvert review the industry’s fundamentals and its potential to attract investor attention.

As always, this issue includes our four regularly scheduled columns. “Dear Expert,” written by Lerman Senter’s Scott Pippin, focuses on changes to the retransmission consent system. It’s going digital. Stations will now upload carriage election letters to a public file. The difficult can be done at once.

An MFM committee member recently marveled about how quickly work-from-home solutions went from impossible to reality. In her “Human Factor” column, Laurie Kahn of Media Staffing Network encourages managers to consider new ways to streamline job functions and maximize results.

One of the challenges of the COVID-19 crisis is how it’s affecting collections. John Sloan takes on the topic in this issue’s “Credit Where Due” column. He notes that not all advertising customers are facing the same financial challenges. His advice on relaxing credit terms – while more difficult than a one-sizefits-all solution – should result in more dollars collected and a more stable cash flow.

Finally, our “Last Word” column explains why filing for a trademark before using it is good business. Author Ronnie Raju of Wilkinson Barker Knauer calls this “an essential step in developing a thoughtful branding strategy.”

Membership in MFM and BCCA is particularly important now, when we can help each other. Together, we make Mary Collins is president and CEO of MFM and BCCA; Mary.Collins@MediaFinance.org. the impossible, possible.

J

4 The Financial Manager • September/October 2020

EDITORIAL ADVISORY BOARD SALLY BUCKMAN Member Lerman Senter PLLC MICHAEL DENSON Director, Credit Services NMCP INC. GREG LECHOWSKI Market Controller, Phoenix Bonneville International CAL MOSTELLA Vice President, Treasurer WarnerMedia JOHN SANDERS Principal Bond & Pecaro MEREDITH SENTER Member Lerman Senter PLLC C. ROBIN SZABO President Szabo Associates JAMIE GRANDE MFM/BCCA Staff Liaison

CONTRIBUTORS PATRICIA ANDREWS-KEENAN The Tallulah Group, MFM RALPH BENDER Manship Media SAMUEL CALVERT Stout GRIFF DUDLEY American Express Merchant Services LAURIE KAHN Media Staffing Network SCOTT PIPPIN Lerman Senter PLLC RONNIE RAJU Wilkinson Barker Knauer LLP KIMBERLY M. RANDOLPH Stout JOHN SLOAN M. ANNE SWANSON Wilkinson Barker Knauer

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DEAR EXPERT

Saving Trees, Reducing Stress

There’s a new system in place for stations to declare their carriage elections.

Regulatory maven SCOTT PIPPIN explains.

Dear Expert, I keep hearing about sending our station’s retransmission consent and mustcarry elections electronically this year. Do we still have to mail out stacks of election letters?

— Muddled in Mississippi Dear Mississippi, were required to send by certified mail. If Worry not! Yes, there are changes in how a letter came back from the post office unyou’ll make your station’s carriage elections claimed, stations tried to figure out what this fall, but they are all for the better. Re- went wrong and sent out a replacement transmission consent and must-carry elec- letter. This lengthy, slow-moving process tions will now be handled electronically. sometimes resulted in a last-minute mad This will require a few initial adjustments, dash to the post office to try to beat the Oct. but after that, it should be smooth sailing.

1 deadline.

First, a little background: every three Missed deadlines meant that stations were years, commercial broadcast TV stations stuck with the default status: must-carry for are required to tell the multichannel video cable, and retransmission consent for satprogramming distributors (MVPDs) in ellite carriage. This could be an expensive their markets whether they want to “elect” retransmission consent Stations only need to email cable systems (which requires negotiation of a carriage fee) or must-carry (forc- and satellite providers if they are changing ing distributors to carry a given their election from the previous cycle. station whether they want to or not, but with no compensation to the sta- consequence if a station had to forego retion). We are now in a carriage election year, transmission fees. and the next three-year cycle is 2021-2023.

Beginning this fall, the process will be sigIn the past, making this election involved nificantly streamlined. Election notifications an exercise in labor-intensive, time-con- will be handled electronically. Stations will suming and sometimes-expensive paper- upload their choices to their online public work. First, stations had to identify all the inspection files, and in some instances, send MVPDs in their markets, making sure that emails to MVPDs. They will not have to they didn’t miss any changes in ownership send individual election letters by postal mail. or operations that occurred since the last A nice feature of the new system is that three-year election. Next, they had to make if a station chooses the same election for all sure they sent the information to the right MVPDs in its market, it can upload a single contacts at those MVPDs. This was not “blanket” statement to that effect. The statealways a simple task, due to turnovers in ment can be something short and simple personnel, corporate reorganizations, acqui- like, “[Station call sign] elects [must-carry/ sitions or relocations. retransmission consent] on all MVPDs in Next, stations prepared individual elec- the [XX] Designated Market Area for the tion letters for each MVPD, which they 2021-2023 carriage cycle.”

The new electronic system allows stations Do you have a professional puzzle that to send election notices via email, rather MFM and BCCA experts might be able to than certified mail, to the affected MVPDs. answer? We’ll mine the contact base and find But stations only need to email cable systems the right person to answer your question.

Just contact TFM editor Janet Stilson at and satellite providers if they are changing TFMeditor@mediafinance.org.

6 The Financial Manager • September/October 2020

their election from the previous cycle. For example, if a station elected must-carry in the 2018-2020 cycle, but it wants retransmission consent for the upcoming cycle, it should inform the affected MVPDs by email, and also upload the election notice to its public inspection file.

“Carbon copies” of these emails must be sent to the Federal Communications Commission at ElectionNotices@fcc.gov, and copies of the emails must be placed in the station’s public inspection file.

Program distributors are supposed to acknowledge receipt of the emails. If they don’t, stations must call the MVPD. Even if a given MVPD doesn’t respond, a station’s choice is deemed effective when it uploads its election notice to its online public inspection file.

Stations are required to upload to their online public inspection files the contact information of the employee who handles carriage inquiries. The information goes in a new section of the files called Carriage Election Contact Information.

The deadline to upload this contact information was July 31, 2020, but if your station has not done so yet, upload it as soon as possible. MVPDs were required to upload their contact information to a separate database called the Cable Operations and Licensing System (COALS), also by July 31.

One final note: there are slightly different procedures for noncommercial, low power TV, and translator stations. Be sure to check with a broadcast attorney if you operate one of them.

Now you’re ready to make your electronic 2020 election notices. And you can save postage and trees in the process.

Scott Pippin is senior counsel at Lerman Senter PLLC. He can be reached at spippin@lermansenter.com or (202) 416-1081.

HUMAN FACTOR

Retooling for the Rebound

It’s a critical time to consider how to best utilize your staff, as we settle into new working conditions and begin the budgeting process. BY LAURIE KAHN

B

usiness is slowly starting to pick up.

People are getting used to working remotely and adjusting to the new normal. The shock of the pandemic is settling down so that business leaders can now start to strategize without making kneejerk decisions. Some of us have already begun the 2021 budget process.

This may be the perfect time to re-think your staff, especially your sales department.

I encourage you to really consider what and who you need on your team.

Over the past several years, when I’ve brought up offering flexible work options – such as working from home or unusual work hours – many owner/operators did not buy into the concept. It has been hard for some to deploy flexible working conditions, as employees were forced to conduct business remotely without a lot of planning. But now more companies have embraced some type of employee flexibility, no longer considering it a mere stop-gap measure.

That’s in line with the thinking of Microsoft co-founder Bill Gates. He’s been quoted as saying that flexibility is one of the top benefits that you can offer an employee.

Many of us have seen that productivity can be even higher for those allowed to work at home at least part of the time. Flexibility also helps build loyalty, reduces turnover and lowers expenses. Most importantly, it can help your recruitment and retention efforts. People want a strong life/work balance, and many are adapting well to the new norm.

Understand that if you want to bring on the next generations of workers, you may need to make some changes to your compensation, onboarding and training to retain them as long as possible. Know that if their needs are not met, they will not stick around. Whatever turnover you have experienced in the past, expect it to be higher in the future.

This year has also reminded us how important it is to have a diverse staff in place.

That does not just apply to race. We want to

strive to have a balance of gender, age groups and cultures. This is a good time to review marketing materials, social media messaging and websites to make sure they show that your company embraces diverse hiring.

This is also a good time to analyze your

following up on creative, inputting orders and handling the little details. This also creates a perfect training position for a new hire. This is a successful model for many companies because it allows the top billers to increase revenue.

Consider ways to be more flexible with part-time workers.

Think about how many Boomers are currently employed and find out when they plan to retire. If you have someone close to retirement, perhaps they will stay on longer with more flexibility. Consider pairing a top producer with a new hire who can benefit from being mentored.

Do not discount job shares, which can be done with any combination of people, not just two moms. Many young workers are juggling more than one job at a time, so you may find some who are perfect for sharing certain responsibilities.

Review marketing materials, social If your handbook states a set media messaging and websites to make number of hours of work per sure they show that your company week to qualify for benefits, you may save money there as well. embraces diverse hiring.

Last, but definitely not least, current job descriptions for your entire update your handbook and policies to team. You may have needed to downsize better reflect what is now the new norm. and reassign tasks, so it is especially im- If you show that you are progressive and portant to confirm that all duties are being embrace change, it can be a big turn-on for handled and that nothing is falling through many job seekers. the cracks.

As we navigate this If you now have a smaller staff, maybe time of change, I chalthis is the time to build a more skill-based lenge you to rea l ly team where you take advantage of individ- rethink your needs ual strengths. For example, you might task and add some positive a part-time person to set up new business changes to better move calls. Assign a person who is adept at con- forward. ducting customer needs assessments to focus Laurie Kahn is president of Media Staffing on gathering that information.

Network, which helps media companies with all of Your strong sellers can spend more time their talent acquisition needs, including diversity drumming up new business if someone planning. She can be reached at (480) 306-8930 or laurie@mediastaffingnetwork.com. else supports them by creating proposals, The Financial Manager • September/October 2020 7

CREDIT WHERE DUE

Steering Past Adversity

Clients dealing with financial hardship due to global crises, like COVID-19, may require specialized plans for payment. BY JOHN SLOAN “True genius lies in the capacity for evaluation of uncertain, hazardous and conflicting information.”

–Winston Churchill

C

redit professionals have certainly faced unique and unprecedented challenges this year. The coronavirus pandemic along with civil unrest have devastated many businesses and severely impacted the advertising marketplace. On the positive side, the election may provide some sorely needed ad dollars.

But extending credit to, and collecting from, advertisers affected by the volatile environment requires thoughtfulness and creativity.

The key to solving problems of this magnitude rests in breaking them down into manageable pieces. First, categorize and group customers with common problems and determine action steps for each group. Priority should be placed on analyzing the 20% of customers who account for 80% of one’s revenue.

The focus should be on advertisers since the ability of agencies to pay is wholly dependent on their ability to collect from their clients. Joint and several payment terms – which holds both agencies and advertisers liable for payment until media is paid – are helpful in getting agencies to cooperate.

The analysis should result in groups of customers with the following characteristics: 1. Customers who have suffered financially and cannot recover and who are not currently placing schedules; 2. Customers who have suffered financially but are in the process of recovering and want to continue to advertise; 3. Customers that are unaffected by the pandemic or have not experienced any disruption to their business.

Each of these groups requires a different solution, and one should refrain from treating them the same. Above all, relaxing payment terms for everyone is not a viable approach and should be resisted.

The first group – those that can’t recover – should be identified as soon as possible.

Some may have taken the step to formally file bankruptcy, and one may have received notice of those proceedings. The amounts due should be separated from the regular accounts receivable (AR), either by establishing another AR account or writing them off.

While it is unlikely that any recovery of the amounts outstanding will occur, one should file proofs of claim in the bankruptcy.

Others may not have filed bankruptcy but simply closed their doors. Refer those accounts to a collection attorney or firm that can determine if any assets remain or if there is any other means of recovery.

Members of the second group – those attempting to recover – may have also filed bankruptcy as a means of reorganizing under Chapter 11. The issues involved with continuing to accept business from a company in bankruptcy are too numerous to outline here, particularly if the bankruptcy occurred while the customer was running a schedule or had placed advertising to run in the future. Consult a competent bankruptcy attorney to fully understand one’s rights and obligations in that scenario. (Also see the “Retailers in Distress” article in TFM’s May/June 2019 edition.)

Most companies in the second group will not file bankruptcy but may need some form of reduction in the amounts they have outstanding. Identifying customers who genuinely require relief requires some

8 The Financial Manager • September/October 2020

investigation and ideally should involve confirmation in the form of financial information. At the very least, interviews via phone or in person should occur with the principals to confirm their financial plight.

If it becomes clear that a financial situation merits relief, negotiate a payment plan. Each customer may require different terms, depending on their unique financial circumstances. Most will also need to purchase additional advertising to attract new business. Part of the agreement to forego immediate payment of past-due amounts should stipulate that the client pay for new advertising within normal credit specifications.

Any renegotiated plans should be confirmed in writing. A promissory note for the past-due amount spelling out the payment terms is ideal. At a minimum, however, a signed document acknowledging the past-due amount and payment terms is essential.

Since payment of t he pa st-due amounts will not come in as originally planned, they will impact cash flow projections. Consider establishing a separate AR account for these special agreements.

Customers in the third group – those who haven’t experienced disruption – should be required to pay within normal credit terms.

Again, attempts to stretch payment due dates for this set of customers should be resisted as much as possible.

Finally, credit and sales must be on the same page regarding how these issues should be handled. Plans for re solv ing pa st-due amounts, negotiating payment plans and establishing terms for new business must be presented to the customer with one voice.

John Sloan is a former executive director of credit services for Turner Broadcasting System. He can be reached at john_sloan23@yahoo.com.

ASSOCIATION NEWS

MFM

BOARD OF DIRECTORS As of July 2020 CHAIRMAN MELISSA MITCHELL Bonneville International PRESIDENT & CEO MARY M. COLLINS MFM/BCCA VICE CHAIRMAN/CONFERENCE CHAIR DAVID BOCHENEK Sinclair Broadcast Group

FREE AND FABULOUS — UPCOMING EVENTS Media Outlook 2021

Tues. Oct. 20 & Weds. Oct. 21 1 to 3 PM ET Each Day A futurist at Paramount Pictures, Ted Schilowitz, will be the opening keynote speaker for the reimagined virtual version of MFM’s signature Media Outlook event.

To better serve our members during these unprecedented times, MFM is making this event free to all its members in good standing.

Other Media Outlook sessions will include an overview from an industry

analyst as well as a presentation about leadership and ways to develop staff.

Check mediafinace.org for more information.

BCCA Credit Seminar

November 2020 Date to Come BCCA is planning a no-charge virtual version of its popular Credit Seminar. As TFM went to press, many of the details were a work in progress. More information will be posted on bccacredit.com as it becomes available.

SECRETARY/CONFERENCE CO-CHAIR MIKE LAVEY Tribune Publications TREASURER DAVE BESTLER Hubbard Radio IMMEDIATE PAST CHAIRMAN RALPH BENDER Manship Media

MFM/BCCA DIRECTORS MARCUS ANJEWIERDEN Deseret Management Corp.

TRACY CLARK Hearst Television

PAUL RAHMLOW Midwest Communications

DEE STEVENSON Gray Media Group

STANLEY HERRIOTT Hearst Television

ELIZABETH BRAMOWSKI Entercom

LORI LOCKE Discovery

CLIFFORD EJIKEME A+E Networks

ANTONELLA RICCIARDI NBCUniversal/ Telemundo

SEAN HETZLER TEGNA

PAUL KELLY KTRK-TV/ABC/Disney

JENNA HARDY Gearbox Software

DAN MCGUIRE KPMG

CAL MOSTELLA WarnerMedia

BCCA Board Member Rep

KIM PARKER Graham Media Group

The Basis for Your Decisions

ApprAisAls FeAsibility studies expert testimony And relAted FinAnciAl services For the communicAtions industry

JENNIFER HURLEY The Washington Post

MARIE TEDESCO Beasley Broadcast Group

CHRISTINE OLIVER Deloitte & Touche

BOND & PECARO

ED IENNER Meredith Corporation.

1990 M STREET, NW SUITE 400 WASHINGTON, DC 20036 (202) 775-8870 E-mail: BP@BondPecaro.com www.BondPecaro.com

The Financial Manager • September/October 2020 9

SPECIAL REPORT: MEDIA VALUATIONS

UNDER PRESSURE

BY KIMBERLY M. RANDOLPH & SAMUEL CALVERT

Despite high hopes in early 2020, radio has been on a downward rollercoaster ride. When will it start to move up? This is the first in a series of stories on the performance of various industry sectors that will run over the next five issues.

T

HERE WAS SOME LEVEL OF OPTI-

mism regarding how the radio industry would fare in 2020 as last year drew to a close. After all, there was a relatively healthy economy, a strong core advertising market and expectations of record political spending. This was reflected in the market performance of the radio industry in general. It closely mirrored the S&P 500 Index (S&P) through the first two months of 2020 and hit an index high of 4.9% on Jan. 22.

The index was bolstered in large part by Beasley Broadcast Group Inc. (BBGI), which cited a 28.5% year-over-year increase in digital revenue. While BBGI supported the index, its trend reflected a recovery of the stock rather than a market outperformance. BBGI’s share price had steadily decreased in the prior three years.

That optimism for the radio industry turned sour quickly in the last part of the first quarter, when the World Health Organization

declared COVID-19 a pandemic. The radio industry’s equity performance was much more significantly impacted by the crisis than the overall S&P. By June 30, radio stocks were down 23.5% from their value on March 11.

In comparison the S&P was down 13.1% in the same period.

Radio’s equity performance indicates shareholder skepticism regarding the sector’s ability to maintain market share. There are some positive aspects to the business, such as its local presence and ties to individual communities.

However, its audience may have shifted to other media choices as a huge segment of the population began working at home rather than commuting to work. In addition, lack of live sports and other local-event-driven activities also have had a negative impact on listener levels.

A heavy debt load has increased the pressure, further hampering stocks. Over the past three years, several companies in the radio broadcast industry have made significant

10 The Financial Manager • September/October 2020

strides to de-lever their balance sheets. But the industry remains just under 3.0x more levered than the S&P. Prior to the pandemic, radio stocks averaged a net debt/EBITDA (earnings before interest, taxes, depreciation and amortization) of 5.4x, which is below the five-year historical average of 6.3x. With further weakness expected in the radio advertising market, these multiples are set to increase, bringing them back in line with the historical average.

TRANSACTION ACTIVITY As the public market slumped, transaction activity did as well, both in terms of the dollar value of transactions and the number of stations sold. The total dollar value for transactions announced through May was $49.1 million (223 stations) – well below results for the last 10 years, comparing the same five-month period. That’s according to data reported by Kagan, a media research

Radio Station Transactions Year to Date Through May 602

Number of Stations

600

Number of Stations

500 400

457 393

300

$3,000.0 $2,500.0

427

377

405 426

299

$3,500.0

Dollar Value (in millions)

$2,000.0

291

273

$1,500.0

223

200

$1,000.0

100

$500.0

0

FY ’10

FY ’11

FY ’12

FY ’13

FY ’14

FY ’15

FY ’16

FY ’17

FY ’18

FY ’19

Dollar Value (0 0 0)

700

$0.0

YTD ’20

SOURCES : Industry Data, Kagan Estimates

Enterprise Value / EBITDA

11.00x

COVID-19 INDEX: CMLS, ETM, SGA, BBGI, SALM, UONE.K, EMMS, IHRT, TSQ, EVC — EV/EBITDA 100 Day Moving Average

10.00x 9.00x 8.00x 7.00x 6.00x 5.00x

6/30/17

1/8/18

6/1/18

1/1/19

6/3/19

1/1/20

6/26/20 SOU RC E : Capital IQ

group within the TMT offering of S&P Global Market Intelligence.

By comparison, the next lowest year-to-date comparison was May 2016 at $101.5 million, more than double the dollar volume. Given that the radio industry does not have a solid growth story or recent history of financial health (mostly hampered by a few industry players), it is unlikely that a rise in transaction volume will occur anytime soon.

Even prior to the pandemic, transaction trends in the radio industry were not increasing. Multiples, both in the public market and private market, trended downward over the past three years, finishing 2019 at around 6.5x, which was relatively consistent between broadcast cash flow (BCF) and EBITDA. Private-market transactions trended down from around 7.0x to 6.5x BCF over the last three years. But the situation was much more dramatic for public market stocks, which trade on an enterprise value and EBITDA basis. Three years ago they traded close to 9.5x EBITDA and were trading closer to 6.0x in late June 2020.

While results have varied, the 100-day moving average of the multiple captures the downward trend that has defined the radio industry for the past three years. This trend

is set to continue as the decline grew steeper heading into the third quarter, ending with a 100-day moving average of 6.2x.

LOOKING AHEAD The timing and velocity of an economic rebound is still heavily debated. Will it recover quickly, or will the lag continue into 2021?

While the overall health of the economy

traditionally go to local TV sources.

This could provide a solid finish to the year for radio. However, a longer-term growth strategy needs to be more clearly defined.

Radio still plays a significant role in the media ecosystem. But as alternative forms of media become more prevalent and more easily accessible, radio needs to continue to re-invent its position in the market.

A longer-term growth strategy needs to be more clearly defined. Radio still plays a significant role in the media ecosystem. more directly impacts local and national core advertising dollars, the big unknown for all media is political.

Certainly, 2020 is expected to be a record political year due to the increased polarization between Democrats and Republicans (and even within the parties themselves).

And there may be new opportunities from issue-oriented ads due to the rise of social justice movements, like Black Lives Matter and defunding the police.

Given the volume of political dollars expected, the radio industry could stand to benefit from the “spill-over” dollars that

This could drive topline growth and help it maintain market share. Accentuating its ties to local communities – and appeal to a wider audience base than just commuters – could help it during the upcoming election. And that could, in turn, help radio compete with stocks that have done well during the COVID crisis and attract investor attention.

Kimberly M. Randolph is a managing director and Samuel Calvert is an analyst at the valuation advisory Stout. They can be reached at krandolph@stout.com or (646) 810-4305 and scalvert@stout.com or (646) 810-4403.

The Financial Manager • September/October 2020 11

ABOVE AND BEYOND There’s good reason to believe that the FAA will clear the way for a “license plate” for drones, leading to relaxed restrictions.

I

BY M. ANNE SWANSON MAGINE A SCENARIO IN WHICH A TV

network’s sports team is covering a surfing competition in Oahu, HI, by flying a drone high above several contenders, some beyond the sight of the drone operator. The competition’s organizers and law enforcers become concerned about who’s operating the drone and their intentions. Is the errant drone operated by a clueless, careless or criminal operator?

Fortunately, authorities are able to utilize a database to read a remote identification, or “license plate,” that pinpoints the drone’s origins. And coverage goes on to wow surfing enthusiasts everywhere.

So far, scenarios like that one are pipe

12 The Financial Manager • September/October 2020

dreams. But license plates for drones, or “unmanned aircraft systems” (UAS), may start to emerge next year. Federal Aviation Administration (FAA) officials say the agency is on track to issue rules this coming December that will implement a remote identification system for drones. The rules will apply to all UAS weighing more than 0.55 pounds and will affect commercial drone operators, hobbyists and manufacturers.

If the regulations are put in place, the new license plates will be liberating for legitimate drone operators. For the last several years, federal security agencies have blocked the FAA’s efforts to adopt rules allowing expanded UAS operations because of the lack of a remote

REGULATION REVAMP

ID system. Remote ID rules would bring numerous UAS industry benefits.

The FAA would be able to move forward on adopting rules allowing flights “beyond visual line of sight” (BVLOS). In other words, drones could soar beyond the eyesight of the pilot. The FAA would also then allow drone operations over people. Indeed, when the FAA considered rules last year for flight operations over people and at night, the agency said it would condition the implementation of any such rules on adoption of a remote ID system.

New remote ID rules will also lay the groundwork for development of a UAS traffic management system, or air traffic control, for drones.

The media industry will finally be able to explore the true technological potential of drones. Already a number of media outlets around the country have embraced drones, using them to capture video footage that manned aircraft cannot provide at all, or only at a much greater cost.

For instance, drones have been extremely valuable for covering natural disasters – from hurricanes to volcanic eruptions to wildfires – sending back video footage from places where even manned aircraft may not be able to fly. Drones can be used to shed light on newsworthy events in a way, and on a scale, not previously thought possible.

Today, newsrooms that want to fly drones directly over people, at night or BVLOS, have to obtain waivers, due to the FAA’s restrictions adopted in 2016 when it issued the first drone regulations. The waivers can be expensive and time-consuming to obtain. A waiver request needs to include extensive (and costly) testing data to demonstrate operational safety. Once granted, the waivers often include lengthy conditions to ensure operators meet FAA safety standards.

There were signs of progress at the end of last year when the FAA proposed the new remote ID rules and set a comment deadline of March 2, 2020. Over 53,000 parties filed comments, a volume that has inundated the FAA. Many commercial drone operators, including members of the media industry, supported the general concept of implementing remote identification for drones but suggested changes and qualifications. As discussed later in this article, the media industry proposed adoption of an “accredited news representative” designation to exempt the industry from certain proposals that it argued would otherwise infringe on media’s First Amendment protections.

THE TECHNICAL BASICS The FAA’s rulemaking notice proposed two categories of remote ID capabilities: standard remote ID and limited remote ID. Standard remote ID would provide information about the UAS and its ground-control station using radiofrequency broadcasting. And it would also transmit information over the internet to a remote ID UAS “service supplier” (USS).

Under the FAA’s proposals, UAS equipped with standard remote ID would be allowed to operate BVLOS. This isn’t an entirely new approach to offering drone services. Over the last several years,

the FAA has successfully relied on third parties, commercial USSs, to implement a new system for airspace authorizations called “low altitude authorization and notification capability” (LAANC). USS provision of LAANC has drastically shortened the time for such approvals from several days to several seconds.

The FAA is now proposing to utilize a similar third-party approach to effectuate remote ID. The second form of remote ID – limited remote ID – would provide the remote ID message only to a USS and would not broadcast information using radiofrequencies. UAS with limited remote ID could only be operated within 400 feet of the pilot and within the pilot’s visual line of sight.

UAS not equipped with either form of remote ID would be restricted to flying in specially designated areas, called “FAA-recognized identification areas” (FRIAs). In most cases, the FAA anticipates that FRIAs would be operated by community-based organizations on behalf of recreational drone users.

For both standard and limited remote ID, the remote ID message would include the following information: ■ A UAS ID, which would be a UAS serial number or session number ID; ■ The latitude, longitude and altitude of the control station; ■ A time stamp.

Standard remote ID systems would also be required to provide information on the location of the UAS itself and not just the ground control station.

Under the proposed rules, UAS manufacturers would have to meet four basic requirements: ■ Equip the UAS with remote ID capability using an FAA-approved means of compliance; ■ Provide each UAS with a serial number that meets the ANSI/CTA-2063-A drone serial number standard; ■ Label the UAS to indicate remote ID compliance and the type of remote ID (standard or limited); ■ Submit a declaration of compliance for acceptance by the FAA. To obtain FAA approval, a manufacturer would need to file test data and validation procedures that indicate the remote ID system will operate as intended and in compliance with FAA rules.

From a technical standpoint, the remote ID rules are performance-based, rather than Continued on page 33

The Financial Manager • September/October 2020 13

Acceptance to help your buyers make payments.

American Express can offer, on average, 3X greater spend capacity for US Small Businesses versus competitors.* • Leverage extended capital by reducing days sales outstanding (DSO).

• Integrated business model allows us to connect suppliers with advertising vendors for scaled efficiency and access to our innovative payment solutions.

• Help reduce costs of credit losses and processing paper payments.

To learn more about how American Express can grow your business, use the camera app on your phone to scan the QR code and be directed to the Business Solutions Page or visit americanexpress.com/business-solutions.

Griff Dudley Director, American Express Global Merchant & Network Services Email: Griffith.k.Dudley@aexp.com

Leila Garcia Senior Manager, American Express Global Merchant & Network Services Email: Leila.Garcia@aexp.com

* Source: November 2018 Amex US Small Business data for customers with over $1MM annual revenue and more than $500K in annual spend; Competitor lines based on Small Business Financial Exchange (SBFE) data from Dun & Bradstreet.

14 The Financial Manager • September/October 2020

Broadcasting Entertainment & Syndication Fitch Group Hearst Health Magazines Newspapers Real Estate Transportation Ventures

During these challenging times Hearst would like to recognize the hard work and efforts of the MFM staff and our Industry Colleagues.

IT’S A

SMALL

WORLD

AS MORE COMPANIES SEEK TO ATTRACT SMALL BUSINESS ADVERTISERS AND OTT SUBSCRIBERS, ACCOUNTS RECEIVABLE TEAMS ARE TACKLING CRITICAL NEW ISSUES.

BY GRIFF DUDLE Y,

M

FROM AMERICAN EXPRESS

OST OF MY CONVERSA-

tions with merchant clients across the U.S. these days have one thing in common. They are eager to trade notes on building (or rebuilding) strategies with unfamiliar customer profiles.

These conversations contain two primary “flavors” of a similar cuisine. On one hand, they want to meet the evolving advertising strategies and nimble needs of small business clients. On the other, they are building and/or branding direct-to-consumer content platforms.

Advertising sales departments have a rightful focus on expanding digital assets that drive a better union between budget and strategy for a

small business. In parallel, content platforms are eager to expand unbundled over-the-top (OTT) offerings directly to consumers, many of whom are cutting the cord with traditional pay-TV services. That OTT trend was accelerated by 2020’s seismic impact on personal economy, behavior and preference.

Both types of teams have one theme in common: they need to adapt to smallness – a customer base with smaller and more frequent transactions than they might be used to.

All in all, the future growth will be captured by those who have the processes, products and strategies that meet the needs of customers with tighter purse strings.

This creates challenges for every business unit, but none more so than accounts

16 The Financial Manager • September/October 2020

receivable (AR) teams. At the front lines of customer experience and retention, AR professionals cannot be perceived as matter-of-fact support staff in the order-to-cash cycle within their own firms. Rather, they are mission critical agents of change in meeting the new and evolving needs.

IN THE DRIVER’S SEAT Media companies must adjust to how small businesses and consumers shop and manage their payables and purchases differently than larger legacy customers. The new norm of one-to-many at scale versus the one-to-some model of the past requires a new set of accounts receivable tools.

The inherent scale and frequency of new customer interactions via a digital and often

CREDIT & COLLECTIONS

self-servicing channel with a new small business or consumer focus makes process inefficiencies more painful to the bottom line.

It also makes the risk of dealing with an unknown customer or “hands-off” transaction more common.

AR teams should be in the driver’s seat to capitalize on and protect their firms from these changes by enabling financing tools and modernizing the accounts receivables process to drive efficient and legitimate payments.

NEW BUYER, NEW SUPPLIER Unlike their midsize and large enterprise counterparts, small businesses have different financing needs – primarily driven by their utilization of different sources of credit. Consider this: even prior to the current stress on cash flow driven by our present economic circumstances, research with small businesses highlighted credit cards as a critical means of financing.

prioritized for near-term primary needs outside of the advertising and promotion budget, like payroll.

Not only are the financial needs of these small businesses evolving, but the decision maker behind the purchase has evolved as well. Industry publications and conferences are often rife with the vast, unending research and perspectives about attracting the proverbial “Millennial B2C customer.” But the industries looking to attract this demographic have hired Millennials to also make purchasing decisions.

Millennials will make up 44% of the workplace by 2025, and 73% of them are already involved in B2B purchasing decisions, according to Forrester’s 2017 report Millennial B2B Buyers Come of Age. This new generation of purchasers have different expectations driven by the one-click norm of payments and financing in their personal lives.

these transactions or the underlying business processing these payments or requests legitimate in the first place?

These are tough questions to answer with limited information about a customer, especially one who’s setting up a relationship with your business for the first time.

Payment networks have insights into trends within the global transactions landscape that can help with that. Consider American Express’ no-cost “enhanced authorization” capability. It takes incremental data sent by suppliers (a business or IP address) with each transaction and compares those inputs against the vast network of transactions occurring on the American Express network.

If network teams and algorithms discover that the incremental data sent by a supplier in a credit card transaction is connected to known or emerging fraudulent activity,

Tracking Levels of Credit Card Fraud

Additional data fields turned back on

Additional data fields turned off

In this example, the gray bars represent months when a merchant sent incremental data about credit card transactions to its payment network.

When the merchant stopped sharing the additional inputs, in months represented by blue bars, the rate of fraud and gross fraud dollars climbed.

A 2018 Mercator Research Team study, Small Business Payments and Banking Survey Series Report, showed that over 50% of small businesses were borrowing on credit cards, and one in four did so regularly. What’s more, 78% of small businesses claimed that a generous line of credit was both important and often used to run their business.

Enabling a customer to use credit as a form of payment isn’t just a matter of convenience or rewards, it’s a mission-critical strategy for small businesses to manage cash and workf low, keeping their operations running.

A small business that can only use legacy forms of payment like automated clearing house (ACH) networks or checks is restricted to the highly valuable, highly liquid cash in a checking account. That money is often

Research backs up this trend: nearly 70% of business buyers indicate that they expect a “consumer-like” buying experience from their business vendors, according to Salesforce’s 2018 report, Transforming the B2B Sales Function.

BAD & GOOD TRANSACTIONS When building an AR process to deal with a larger base of customers with smaller, more frequent interactions, it’s important to guard against fraudulent behavior. And the scale of one-to-many can make the pain of inefficient AR practices all the more costly.

When setting up payments with customers, two key questions need to be answered. How much am I willing to leave outstanding for a customer on terms? More fundamentally, are

American Express can assist a merchant in applying additional scrutiny, or in declining a transaction.

For example, the bar chart above shows that a merchant sent incremental data to its payment network about each transaction in the left-most months in grey. In month nine, the merchant stopped sharing the additional inputs.

Without evaluating the legitimacy of transactions against broader payment network data, both the rate of fraud and gross fraud dollars skyrocketed. When the supplier went back to comparing its transactions with the American Express network, it could more easily recognize and combat bad transactions – reducing fraud to manageable levels.

Enhanced data tools in accounts receiv-

The Financial Manager • September/October 2020 17

CREDIT & COLLECTIONS able are key to managing the shift to a larger, scaled audience of small customers.

AR teams aren’t just trying to identify bad transactions; there are vast challenges in managing receivables for good customers as well.

Just over 40% of B2B invoices in the U.S. weren’t paid on time, and 90.3% of suppliers interviewed in the Americas reported late payments by their B2B customers, according to the insurance credit company Atradius’s 2018 report, The Americas: An Increase of Overdue B2B Receivables.

Today, during such economically challenged times, frustrations with cash flow gaps have mounted as processes that depend on manual or in-person interaction have become extremely difficult. That makes the move to credit card payments all the more critical.

AR professionals are essential agents of change within their own organizations to handle the needs of smaller customers. They can provide a mission critical strategy for growth, as they help manage the order-to-cash process.

Griff Dudley is director of American Express Merchant Services.

FOLLOW THE TRENDS

N

UMBERS HELP EXPLAIN WHY OVER-THE-TOP SUBSCRIBERS AND advertising from small businesses have become critical to many media companies.

For the better part of a decade, the traditional pay TV subscriber universe has been declining. In fourth quarter 2016, the base was down 2%, versus the same period the year before. And the decline accelerated from there. By fourth quarter 2019, MVPD subscribers were down 7%. Those numbers are according to MoffettNathanson’s April 2020 report U.S. Media: Say Goodbye to Hollywood.

On the flipside, streaming has gained huge momentum. According to the same MoffettNathanson report, consumers streamed a total of 69.8 billion minutes of content during the week of April 1, 2019, and the number grew to 75.7 billion minutes the following week. Fast forward to the week of March 30th and April 6th in 2020: viewers streamed a collective 161.4 billion and 169.9 billion minutes, respectively — a 131% and 124% increase from the period prior.

As for advertising: a survey conducted in late 2018 of American Express Card Members who made B2B media purchases in the prior year showed that 39% of respondents purchased display ads online.

Facebook and Google grew the digital advertising pie with small business customers by making it easy for them to use credit card payments. Together they have more than a two-thirds share of the total digital marketplace, according to MoffettNathanson’s State of the Industry — US Media & Global Internet, September 2019 report.

18 The Financial Manager • September/October 2020

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MEDIA FINANCE FOCUS 2020

CONFERENCE ROUNDUP

FINDING THE WORDS A special message from MFM’s immediate past chairman kicks off a report on our virtual conference — and where we watched it.

WHEN I COMMITTED TO WRITING A FEW REFLEC-

tive comments to lead off this post-conference special report in June, I thought the task would be easy. All that changed as the days continued. So many in our country are suffering; so many of our media colleagues are in battles not to merely achieve successful years but survive. They need to keep their staffs healthy, in good spirits and (oh yeah) employed.

Figuring out what to write became a daunting task, and I have struggled to find words that were meaningful and had purpose. As so many of you know, I am not one who’s usually at a loss for words.

They are often inappropriate, but words always have flowed so easily for me until now. And then, during all of this, we lost our dear friend Jeana Stanley. As so many of you know, she had been Hearst’s vice president of finance; treasurer of MFM’s Board; and a very active member of our community.

Like many of you, I am struggling with this loss.

But around 4 AM this morning, while on the elliptical machine, it occurred to me that I was overcomplicating things. There were only a couple of messages that are demanded at a time like this. Most importantly, thank you!

Manship Media is a very small fish in a very small pond as the media business goes, but for most of my professional life, MFM and you its members have accepted me, befriended me, entrusted me with responsibility and honored me. MFM’s wonderful professional team and its hundreds of volunteers move mountains with their efforts. (Try converting a national meeting to a virtual event in six weeks.)

MFM is only successful because of efforts of so many of you. I never miss a chance to plug my beloved LSU Tigers. But for over 30 years I have had the pleasure and the awe of being around real champions: MFM members. That happens whenever we get together in person, by phone and now by Zoom. There are no words to fully express the impact of your friendship and guidance. “Thank you” is perhaps the best I can do, but it is far too inadequate a sentiment for all you have done for me personally and professionally.

That is the easier of the two messages I want to convey. The second is more difficult. Because I live within a small media company, my life is not as constrained as it is for so many of you that are constantly under the bullseye of Wall Street analysts. Simply put, I wish that each and everyone of you were able to experience MFM as I have.

To go to an MFM conference and come home with an idea that saves a million dollars creates an incredible emotional high.

But this pales in comparison to what I’ve felt when receiving calls and emails of concern during a hurricane or the congrats at another LSU national championship. And there’s nothing quite like having surgery in a strange city and waking up to find the daughter of a dear MFM friend reading your chart.

I urge each and every one of our members to press their companies to continue to be involved in MFM at a high level. I truly believe that by being active in our organization, you will experience real rewards both professionally and personally, and a significant return on investment for your company.

Here are a couple of extra thank yous. To my exec committee colleagues, MFM board and staff, love you guys. You rock! To my family – Edie, Boo, Sissy and Becca – you light up my life and never complain when I am not around. (But you do celebrate.)

And a special wish that all of you should one day have a work family like I do. There are no words to describe the feeling when one of your closest friends and the CEO of your company tells the Justice Department in a deposition, “He’s the member of the family that doesn’t owe the $%^&*ing bank any money.”

As we navigate this difficult year of 2020, thank you for the honor of being part of you. Stay safe, in good spirits and remember to laugh every day.

Peace & Love, Ralph Bender Ralph Bender is the immediate past chairman of MFM and CFO of Manship Media. He can be reached at rbender@wbrz.com.

The Financial Manager • September/October 2020 21

Media Finance

FOCUS

2020 CONFERENCE

ROUNDUP

The world is facing a mound of troubles, but Media Finance Focus 2020 unearthed positive changes and opportunities ahead. The second part of our conference review will appear in the Nov./Dec. edition.

Gold in the Hills

BY PATRICIA ANDREWS-KEENAN

22 The Financial Manager • September/October 2020

Morphing Trends and Technology SHIFTING CONSUMER MEDIA HABITS AND THE WAYS

companies can markedly improve their competitive edge were very much on the minds of two keynote session speakers – Deloitte’s Kevin Westcott and Sinclair Broadcast Group’s Brian Bark.

Video subscriptions accelerated markedly after the COVID-19 crisis arrived, noted Westcott, who is a vice chairman, principal and the U.S. telecom, media and entertainment lead at Deloitte. “Rather than purchasing a bundle of content, consumers now have complete control over what they want in their households and on what devices,” he said.

Before the coronavirus reached epic proportions early this year, the average American household had 12 media and entertainment subscriptions, three of which are paid.

Afterwards, the number jumped to 17, according to Deloitte.

The company’s findings also showed: ■ 32% of all consumers added at least one paid video service since the crisis; ■ 15% of consumers added gaming and/or audio services; ■ 73% of households had streaming services before the pandemic, and that number is now 80%.

What’s more, the average number of paid subscriptions per household moved from three to four, which Westcott said is a huge financial boost to the industry.

Media companies will need to figure out how to retain and engage these consumers moving forward, he noted.

Original, exclusive content is the No. 1 driver of both acquisition and retention, according to Deloitte’s research. The data also indicate that most families are price sensitive, so free and discounted offers will be key.

Competition from technology Goliaths was very much on the mind of Bark, who is the senior vice president and chief information officer at Sinclair.

Quoting data from 2017 Forrester Research, Bark said that Facebook, Amazon, Netflix, and Google would take over $1 trillion from the market. And while gross domestic product was growing between 3% and 4%, these companies have grown at a rate of nine to 10 times over the last three years.

All four have reorganized their management structures around supporting a data-driven workforce. They’ve also acquired artificial intelligence (AI) startups and begun using AI as a common feature inside their products. These socalled FANG companies, along with Microsoft and Apple, have a total market cap of $5 trillion, Bark said.

Big data analytics are clearly key to the future health of media companies. Machine learning offers a huge opportunity, Bark noted. Some companies are using it to detect

After the pandemic hit, the average number of paid subscriptions per household moved from three to four, according to Deloitte data.

Deloitte’s Kevin Westcott

unknown patterns. Others are formulating predictions based on machine learning and then incorporating them into automated software or AI-driven actions.

While blockchain is still a developing technology, its ability to solve fraud and inefficiencies could reengineer business relationships and workflows, Bark said. He cited predictions that the technology will generate about $3.2 trillion in revenue for blockchain-enabled comSinclair panies by 2030.

Broadcast Today blockchain Group’s is being used most efBrian Bark ficiently in the financial and telco industry, with the media industry just a bit behind them. Security is a strong selling point because transactions are encrypted.

Bark also touched on public cloud infrastructure, which continues to expand and is big business for companies like Amazon and Google. Private clouds are expected to grow in popularity. “A lot of companies are transitioning to a hybrid, multi-cloud capability,” said Bark. “It is the right mix, but a lot of analysis has to go into running the right workloads with the right levels of performance and quality.”

MORE CONFERENCE ROUNDUP ON PAGE 24

The Financial Manager • September/October 2020 23

CONFERENCE ROUNDUP

A List of Predictions In a conference session on the future of media two partners at the consulting firm A.T. Kearney offered up some predictions. Michael Felice and Leslie Parker expect that in the next five years: ■ Netflix will be an acquisition target. The

streaming service is morphing into a standalone production house and will need distribution muscle to survive.

The buyer will have deep pockets, but it won’t be The Walt Disney Co.

■ The streamers Disney+, HBO Max and

Peacock will have more than 100 million subscribers each.

■ More than 25% of the content on over-

the-top (OTT) will be user generated.

■ There will be three to four content super

aggregators that help consumers sort through the options.

■ Only three newspaper publishers will

be profitable, and there will be a push to hyperlocalism.

■ There will be significant merger and

acquisition activity within media, driven by the acquisition of niche services like the short-form content platform Quibi.

■ Most national and television advertising

will be targeted directly to the household.

■ There will be deep collaborations

between traditional media and the FANG four: Facebook, Amazon, Netflix and Google.

Gaming’s Explosive Growth “GAMING IS BIGGER THAN MUSIC, BIGGER THAN FILM, YET MOST

people don’t know how it works,” said Joost van Dreunen in a session that covered how the video games business has mushroomed.

Van Dreunen is a startup advisor and co-founder of SuperData Research, which specializes in digital games intelligence and was sold to Nielsen.

In the session, van Dreunen traced the evolution of the industry from games like Super Mario Brothers and consoles from Nintendo, up to the present-day esports phenomenon Fortnite and Microsoft’s Xbox. The industry now ropes in some $30 billion a year.

“Much like its cousins in Hollywood, [Fortnite] is an overnight success 10 years in the making.”

—Joost van Dreunen The transition to mobile gaming and the popularization of smartphones opened up the industry in a big way. People on both the supply and demand side entered the space because of the lower barrier to entry via mobile, he explained.

Gradually game companies moved from a product-based to a service-based model. Players no longer go to a GameStop or WalMart to buy disks for consoles or PCs. Rather they are going online. With more digital distribution platforms and bandwidth, “we can download a greater number of titles in a reasonable amount of time,” van Dreunen said.

The distribution of free, third-party content from independent game developers paved the way for monetization. “Consoles are important again as well, driven by free titles and more accessibility,” van Dreunen said.

Today titles like Minecraft and Pokémon Go are played by hundreds of millions of diverse consumers. Then came the incredible success of Fortnite, which is a tremendous attractor for audience attention and consumer spending, said van Dreunen. “Much like its cousins in Hollywood, it is an overnight success 10 years in the making.”

Tech companies are in the gaming business for the long haul said van Dreunen. Amazon acquired Twitch in 2014 for $1 billion from Google.

Facebook is now reinvigorating its gaming efforts. Apple develops games for its MacBook. Microsoft continues to grow its Xbox division. And 27% of Sony’s revenue comes from the video games space alone.

As with legacy media, content is clearly king in the games business today, van Dreunen concluded. But monetization is key.

MORE CONFERENCE ROUNDUP ON PAGE 26

24 The Financial Manager • September/October 2020

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The Financial Manager • September/October 2020 25

CONFERENCE ROUNDUP

Blending in Digital TRADITIONAL MEDIA IS FAR ALONG IN ENTERING THE DIG-

ital advertising space, but companies are still searching for the best ways of integrating the newer revenue stream into the larger financial “universe” with special processes and outside solutions.

That was front-and-center during a panel session featuring Bob Parrish, director of business development at Emmis Marketing (an agency within radio-focused Emmis Communications); Darrin McAfee, executive vice president of digital sales at the radio company Point Broadcasting; and Carmen Reyes, director of order to cash and accounts receivable cash management, U.S., at WarnerMedia.

Moderating the discussion was J.B. Ozuna, senior director, digital strategy at the software solutions and services company Marketron.

Technology solutions can only go so far. “As easy as things can be made using technology, we’ve got to have human eyeballs on the process to ensure sales is engaging with the right potential clients,” McAfee said.

Organizing a media company’s staff to effectively handle digital revenue needs is key. Parrish suggested that financial leaders identify a subject-matter expert, who might be in management or in a sales strategist role. At WarnerMedia, Reyes works to develop

26 The Financial Manager • September/October 2020

subject-matter expertise in house through internal learning processes.

McAfee said that a detailed roadmap is crucial to effectively engage a sales team. He created a “digital bible” for Point Broadcasting’s sales teams that covers everything from the products and sales training to billing and finance. His goal is not just to acquire or retain a digital client but to also make sure the company does not lose a broadcast client due to missteps.

For Reyes, communications is key right from the point when an order is At WarnerMedia, placed so that her team can troubleCarmen shoot issues that might arise at the time Reyes works of invoicing. For example, she wants to to develop make sure her people know specifics subject-matter concerning how a client wants their expertise in billing handled. house through The internal information flow beinternal learning tween sales and billing is critical, said processes.

McAfee. An order-management system that can facilitate it is vital. As part of that, sales teams need to communicate effectively with the business side on their commission set-up, he added.

While digital revenue may be lower now, that’s going to change.

Looking to the future, digital could make up 55% to 60% of a client’s marketing and advertising buy, said Parrish. So it’s important to keep sales reps incentivized.

A View From the Top “CRISIS HELPS YOU FOCUS. IT NARROWS

down your priorities very quickly,” said Darrell Brown, president of Bonneville International during a Media Finance Focus 2020 keynote session. He joined Ken Solomon, chairman and CEO of The Tennis Channel, and Randy Pitchford, president and CEO of gaming-focused Gearbox Software, in discussing the changing media landscape and assessing the impact of COVID-19.

Needless to say, with the majority of their employees working from home, many companies have increased demands on technology. Brown viewed this is an opportunity to double down on corporate culture and better communicate with employees, using technology to keep everyone in the loop.

With more people at home, Pitchford noted that the demand for video game content has spiked. People are looking for “joy and happiness,” he said. Entertainment is a great vehicle for that, and it works to the advantage of those companies that provide ways to experience it more efficiently.

Speaking of priorities for media companies overall, Solomon said: “Most of all we need to innovate and monetize.” After The Tennis Channel’s in-person competitive events ended, it created a new set of tours all over the world captured by drones and lockdown cameras.

Pitchford said Gearbox is continually looking at ways to customize its products and monetize them. A lot of gamers personalized their gaming avatars in recent months by having them wear COVID masks. All the money that Gearbox generated from the avatar masks has gone to charities actively engaged in fighting the pandemic. That’s something that affects mindshare while bringing in revenue, he said.

Tennis Channel views mental health as a national security issue, and their on-air contributors are showing people all over the world how to stay fit. Among them is tennis star Kristie Ahn, who showed how she combines exercise and cleaning her house in one segment on the channel.

Patricia Andrews-Keenan, chief strategist of The Tallulah Group, provides public relations services to MFM and BCCA. She may be reached at pkeenan1@comcast.net or (312) 206-2821.

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The Financial Manager • September/October 2020 29

CONFERENCE ROUNDUP

The Home Teams

During the conference, and in the months preceding it, MFM members were creative in the ways they worked and played.

OUR PHOTO CONTEST TURNED UP SOME GEMS.

MOST HANDSOME LEGS The streets of Washington, DC were filled with the National Guard, and Bond & Pecaro’s John Sanders getting some exercise.

BEST SIDE HUSTLE

BEST BEARD GROWTH

BYU Broadcasting’s Todd Allen listens to conference chairs Melissa Mitchell and David Bochenek address the virtual crowd.

30 The Financial Manager • September/October 2020

NBCUniversal’s Adrienne Davis took advantage of the lockdown to learn how to cook.

She gets a lot of help in the home office from her pal Snoop.

BEST SPLIT PERSONALITY

Ralph Bender used the break from his regular routine at Manship Media to form a house band.

MOST CUDDLY SUPPORT TEAM

AMC Networks’ Barbara Nolasco gets some comic relief from her canine pack.

BEST MIX & MATCH OUTFIT

Gary Rex of BYU Broadcasting is all business from the waist up. He listened to the MFM Conference while his daughter was getting her wisdom teeth removed.

CUTEST SEAT WARMER

Hearst’s Christina Anderson figured out how to make a very small desk work, with some help from her friend, Sierra.

BEST TGIF POSE

Ana Occhiuzi’s dog, Vinny, gets tired out just watching her do work for Hearst TV.

The Financial Manager • September/October 2020 31

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36453

REGULATION REVAMP DRONES—Continued from page 13 prescriptive. The proposed performance requirements, which manufacturers would need to meet, vary a great deal and do leave manufacturers latitude in designing their UAS. The UAS industry, working through ASTM International, a standards body, recently adopted voluntary technical standards for remote ID. Adherence to these performance-based standards will likely facilitate FAA approval.

TIMELINE FOR TRANSITION

F

OR MANUFACTURERS, THE NOTICE OF PROPOSED RULEMAKING

recommends a 24-month transition period after the date that the new rules become effective. After that date, all unmanned aircraft systems (UAS) sold in the U.S. would be required to have an FAA-accepted declaration of compliance.

For UAS operators, the FAA proposes a 36-month transition measured from the effective date of the rule. After that, UAS operators could only fly UAS that meet remote ID requirements, except in specially designated “FAA-recognized identification areas.”

Many commercial parties that filed comments urged shorter implementation periods, given the aviation safety and security benefits that will flow from the new rules. Some commenting parties proposed implementation periods of under a year, arguing that through software upgrades and technical advances made during the long pendency of the rulemaking, accelerated compliance will be very feasible.

In joint comments, the cable and movie industries said manufacturers should have 18 months, and operators 24 months, respectively, to come into compliance.

MEDIA INDUSTRY CONCERNS A coalition of news media parties expressed concerns that some of the proposals may result in impermissible government surveillance of journalists’ drone operations in a manner that violates the First Amendment.

As a threshold matter, the coalition urged the FAA to exempt newsgatherers operating tive designation to allow the news industry drones in Class G airspaces from compliance to operate manned aircraft in ways that the with any remote ID requirements by estab- general public may not, such as entering relishing an “accredited news representative” stricted flight areas and switching off flight designation. (Class G tracking data in certain airspace is typically the News media instances. airspace very near the Utilizing this precedent, ground, and it extends parties expressed the coalition said the FAA up to the next airspace concerns that can accommodate news level that may overlay it. media’s use of UAS in a some of the FAA Frequently it’s 1,200 feet manner that is technologor less above ground level.) proposals may result ically feasible and compliIf the FA A does not in impermissible ant with the remote ID create such an exception, proposals. the coalition said a num- government For instance, the level ber of the proposals’ key surveillance of of detail required for the elements would need to be data elements of the stanjournalists’ drone reconsidered. dard remote ID message The coalition raised operations. far exceeds the amount particular concern about of information that is how the remote ID regime, as proposed, required of manned aircraft operating in might allow near-simultaneous tracking of the same airspace. And manned planes are journalists by law enforcement and the public. significantly heavier and present potentially It also noted that, without more robust assur- riskier behavior. ances that UAS with standard remote ID will The UAS requirements, as written, accordbe allowed to operate in areas with unreliable ing to the coalition, constitute impermissible wireless internet access, the new rules could surveillance of journalists’ drone operations in preclude drone journalists operating in many airspace (i.e., Class G) that the FAA has already parts of the country – including rural areas concluded is low risk. And it creates a disparate and those impacted by natural disasters. impact on drone journalists compared to those Finally, the coalition expressed concern using manned aircraft. The coalition states about the cost of utilizing the proposed sys- that use of an “accredited news representative” tem, questioning an FAA conclusion that designation would avoid this result. standard remote ID would cost operators The coalition also supports use of a “session $2.50 a month, a number some other parties identification” option for UAS. A session ID have said actually overstates the likely cost. would help protect the privacy of journalists The coalition pointed out that the FAA has operating in restricted airspace by preventlong relied on an accredited news representa- ing public disclosure of their drones’ serial

numbers. Concern was expressed by the coalition regarding whether a session ID would be available for standard remote ID UAS when they are operating in areas that lack the wireless network connectivity necessary to generate a unique session ID. And the coalition urged the FAA to study this issue.

Finally, the news media coalition, along with the movie and cable industries, raised concerns about broad access to UAS database information. The coalition said the proposed regulations should articulate a legal standard for law enforcement and security officials accessing UAS database information.

It suggested that the regulations should prohibit law enforcement from accessing the identifying information of journalists except under very narrow, clearly articulated circumstances. It also said the regulations should require the FAA to maintain a record, subject to the Freedom of Information Act, listing all instances in which public safety officials access the UAS database.

Over the years, news media have developed a good working relationship with the FAA. Both institutions are committed to preserving aviation safety. Given the news media’s support of the overall adoption of a Remote ID regime, it is highly likely that the parties will be able to come to accommodations in the final rules.

M. Anne Swanson is a partner at Wilkinson Barker Knauer and has assisted clients in understanding the FAA’s remote ID proposals and submitting their ideas and concerns to the FAA. She can be reached at aswanson@wbklaw.com or (202) 383-3342.

The Financial Manager • September/October 2020 33

LAST WORD

Tips on Trademarks

Before sending your brilliant new product or content out into the world, make sure its name is legally protected. BY RONNIE RAJU

I

n this digital era, trademarks are often one of the most valuable things that a company owns. The “Brand Finance Global 2020” report lists Amazon as the most valuable brand in the world. Amazon’s trademark portfolio is estimated to be worth $220 billion or almost 20% of the entire value of the company. Next is Google with a brand value of almost $160 billion; Apple with $140.5 billion; Microsoft with $117 billion; and the Samsung Group rounding out the top five with $94.5 billion.

A trademark is a source identifier, indicating what products or services come from a particular source.

Although a trademark is usually thought of as a word, a phrase or a design, it can also consist of other things including color (think John Deere green), smell (the flowery musk scent used inside Verizon retail stores), shape (the contours of the glass Coca-Cola bottle) and sound (the NBC chimes and the roar of the MGM lion).

So, when your company is developing a new podcast, radio interview show, video game, online magazine or a mobile app, trademarks should be high on your priority list. Make sure that the trademark you want identified with the product or service is available for use and can be protected with a federal trademark registration.

Filing a trademark application before you spend valuable resources on marketing or developing programs will give you some assurance that you can prevent others from using a confusingly similar mark.

Prior to 1989, you had to prove that you were using the trademark in commerce in connection with the goods and services you provided before you could file an application for federal registration (in other words, a use-based application). Now, as long as you have a good faith intention to use the

mark, you can file an intent-to-use (ITU) application with the United States Patent and Trademark Office (USPTO) well before that new mobile app or podcast is available to your intended consumers.

As long as you have a good faith intention to use a mark, you can file an intent-to-use application with the U.S. Patent and Trademark Office.

There are two major benefits to filing an ITU application: ■ Your mark will be publicly available in the USPTO’s searchable electronic database.

Therefore, it will be easy to find even with a minimal clearance search. This puts others on notice and will often deter them from using or adopting a mark that could be confusingly similar to yours and could fend off trademark problems before they even start.

■ Often when there is a trademark dispute, whoever filed an application first will determine who wins the rights to the mark. Typically trademark rights accrue to whoever first used it. However an ITU application may allow you to obtain earlier rights. Once

34 The Financial Manager • September/October 2020

an ITU applicant provides proof showing that the mark is in use and a registration is granted, the date in which you can claim use of the mark will revert back to the filing date of the original ITU application.

■ It may seem easy to conclude that you should file an ITU application as soon as you decide upon a mark that you like and determine (with the help of a trademark attorney) that it is available to use. That is usually the right decision, but there are two wrinkles you need to be aware of: ■ Even though there’s no need to show use of the mark when an ITU application is filed, a registration will be not granted until proof of “use in commerce” has been submitted. The USPTO allows an applicant up to three years after approval of the application in which to show use. There are extension fees that will accrue during this time. More importantly if you cannot show use of the mark within this time, your application will be abandoned, and you will have to start the entire trademark application process over again.

■ Proving use requires additional filing fees and legal fees, which would not have been necessary if the initial application was based on the mark already being used in commerce.

Make sure to consult with a trademark attorney who can help you through the cost-benefit analysis before you proceed with an ITU application. Whether you end up filing an ITU application or a use-based application, filing for and obtaining a federal registration for your trademarks is a bargain. It’s also an essential step in developing a thoughtful branding strategy across your media platforms and social media feeds.

Ronnie Raju is of counsel at Wilkinson Barker Knauer, LLP. She can be reached at (202) 383-3370 or rraju@wbklaw.com.

Sharing our experience Deloitte’s Audit & Assurance Technology, Media & Telecommunications (TMT) industry practice is focused on quality and innovation, delivered by Audit & Assurance professionals who can provide deep industry knowledge and insightful audits. We’re service providers to many of the world’s most recognizable TMT brands in the market today. deloitte.com/us/tmtauditservices Copyright © 2020 Deloitte Development LLC. All rights reserved.

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