Matching Costs To Savings and Revenue Generated by Technology

A $50,0000 transmitter can be acquired for a monthly payment approximating $980 a month on a 60 month financing arrangement. Dividing that payment by 30 days results in a daily cost of approximately $33 a day. If a new transmitter offers energy efficiency that saves $33 a day then the transmitter pays for itself. If one advertiser places one or two more ad spots a day the transmitter pays for itself. If the transmitter expands the reach of the station so that more listeners and more advertisers join the station the transmitter pays for itself. Radio transmitters, be they analog or digital, whether 1KW or 50KW, have a "useful life" of somewhere between 10 and 25 years. Why not match the utility of the equipment to the timing of savings or revenues generated? This simple method allows the equipment to pay for itself by matching the equipment expense to the natural timing of cash from savings or from ad revenue.

Consider The Complications and True Cost of Bank Loans

I am an advocate for small businesses, such as broadcasters and media firms, to establish and build a good relationship with your local bank. Typically that means getting to know a senior officer at the headquarters or local branch, and more importantly, helping them get to know you and the nuances of your particular business. Sometimes this is difficult. Large banks tend to rotate officers. Nonetheless it pays to have a relationship with a local banker for depository accounts such as business checking and savings and for your personal accounts as well. The more they know you, and trust you, the better positioned they are to help you with working capital, operating lines of credit and business acquisition lending.

An important consideration when seeking bank financing for equipment is "what is the real cost" of the borrowing? One advantage that bank loans may have is that they are often "simple interest" loans which means you are only charged interest for the time you have use of the money. This is important if you plan on borrowing but expect to pay-off "early". For instance you might take out a loan with payments based on 36 months, but you expect to pay it off in the first year. A bank Simple Interest loan may be an attractive solution. However, it is important to keep in mind that bank loans often charge loan administration costs that inflate the actual financing rate. A typical bank loan might offer an interest rate of Prime + 1% or 2% or 3% (currently 8.5%, 9.5% or 10.5%) for an average small to medium sized business. Remember that if these rates are "floating" you bear an interest rate risk if the expectation is that market rates will rise over the term of your loan. Banks often charge an annual fee to administer the loan every year that the loan is active. This fee may be 1% or 2% or 3% of the loan. Don't forget to factor that in to your interest rate. It could change your "Prime+0%" loan into a Prime+3% very quickly. Banks also want you to keep money in your account and they probably are not going to pay you the maximum return you could earn elsewhere. These required deposits are called "compensating balances". The bank probably won't ask you to pledge an amount equal to the loan but remember that if you fall delinquent on your loan the bank could attach your deposits. Another factor that banks use to control or mitigate their lending risk is to write loan "covenants" into the language of your loan documents. Loan covenants are usually restrictive and written to the benefit of the bank and often create limitations on future borrowing, such as you cannot borrow from anyone unless you obtain the bank's approval. They also often include "milestones" whereby if your business doesn't achieve certain levels of financial performance the bank can "call" the loan (meaning you must repay it immediately. I recommend that when considering a bank loan for equipment, technology or systems integration projects you consider the cost and the impact on your business of the bank loan, then compare and weigh a non bank financing. You may be surprised to find that often you can achieve lower financing rates with an bank owned financing or leasing company that specializes in equipment finance but without the restrictions, limitations or involvement with your business.

A Cash Purchase is Self Financing

We often think of "financing" or "leasing" as something the bank, equipment finance company, or leasing company provides. A cash purchase somehow does not feel like "financing" and yet that is exactly what it is. I refer to cash buying as "self financing" because one must borrow from oneself and in the process trade the utility or earning potential of the cash in favor of an investment in equipment (which may bear its own return). When most people think of taking money from their own bank account to make a purchase of some capital goods or equipment they view the loss of investment opportunity (on the capital) as equal to the savings or investment rate that they would have received had they kept their capital in the bank. Yet the true opportunity-cost of one's own money is not the loss of the investment return you receive on the static use of money in the bank but rather the loss of the return that you would average on your capital when reinvested in a business. The Return On Capital for many broadcasters and media related companies typicially is targeted to return from 12% to 20%. In many cases if business has the opportunity to borrow with financing at rates in the 7% or 8% range it may be a better alternative to use outside funding and use ones own capital to re-invest in business growth, people, acquisitions or operations.

Radio Station Technology -Enhancing Your Station's Value by Investing In The Future Of Your Station

Whether your decision is to replace analog transmitters with new analog transmitters or whether you are ready for the move to new digital broadcast technology the important point is that investing in broadcast technology for your station is an investment in, not only the station engineering infrastructure, but also in your staff, your listeners, your advertisers, your community and yourself. A unique dynamic happens when a radio station owner chooses to invest in new gear. Everyone is energized. This is because the acquisition of new technology at the station is an affirmation and a confirmation to everyone from the Chief Engineer to your oldest advertiser that you and your station are "in the game", and fully committed to deliver the best quality production and signal possible.

The broadcast technology companies who are leading the new technology evolution in Radio, such as Harris at www.broadcast.harris.com/radio, Google Radio Automation at, www.google.com/radioautomation and Ibiquity, at www.ibiquity.com are all helping broadcasters position their stations for maximum success. Their leading edge technologies help broadcasters create new, efficient and profitable operations, attract new advertisers and expand the "reach" and listener base of the station.

When radio stations explore the new technologies and realize that "spread the cost" solutions are available that make the cost of new equipment and systems easily affordable the decision to invest in technology is cost justified. For instance a combination of new transmitter, Google Automation and Ibiquity license may total $100,000 (or less) but the monthly cost to own such an enhanced system may be less than $1800 a month. Broken down further that results in a daily cost of $60 a day or the equivalent of one advertising spot. Broadcasters reflecting on the promise of digital technology recognize the value of upgrading broadcast technology that is both cost and cash flow justified and which enhances the stations overall value.

Why Financing for IPTV Systems Integration

IPTV (Internet Protocol Television) systems integration projects are evolving at rural telephone companies who seek to offer a proprietary broadcast experience to local subscribers who currently have limited access to traditional broadcasting. IPTV systems integration financing may involve financing all equipment, "head end" technology, set top boxes, middle ware, transceiver and transmitter technology, signal distribution, electronic test, delivery, installation, set up, warranty and services. In essense this type of financing encompasses all technology and soft costs related to the delivery of IPTV programing.

The reason tht IPTV Systems Integration financing makes sense for many telco's is that it offers a means to spread the cost of technology with a monthly expense (payment) that aligns with the gradual growth of subscribers and the corresponding revenues that follow the subscriber base. Essentially financing allows the telco to "grow into" his revenue model.

Spread the cost of digital transmitters

Spreading the cost of new digital transmitters allows the small to mid market station owner an opportunity to align an expensive cost of critical equipment to the timing of income as it occurs naturally, ad by ad, day by day, week by week. Consider a 5KW Transmitter with a cost of $10,000 to $12,000. By spreading the costs via a low rate, fixed term, financing arrangement the monthly expense averages about $250. Broken down on a daily basis that less than $95 a day. From a cost justification standpoint the revenue from a single ad spot a day would offset the cost for this important upgrade to the station's capability.

Another benefit, to the small market station is that by spreading the costs of digital technology the station owner gains a cash flow benefit that allows him to grow the station into the promise that digital technology brings. Not everyone expects digital broadcast to immediately create new revenue streams yet by spreading the costs the station "buys time" that allows the technology to "earn its keep".

I have been told that the utility and "useful life" of transmitters continue to range from 10 to 20 years. By spreading the cost of the equipment the broadcaster matches the costs to the useful life. This also acts as a "hedge against inflation" as the broadcasters pays for today's use with today's income and tomorrow's use with tomorrows revenues.

An Operating Budget Solution to a Capital Budget Problem

Broadcast & media technology financing offers an operating budget solution to a capital budget problem. The capital budgeting process is often completed during the fall and in preparation for the coming year. Typically budgets are recycled "old news" and managers are squeezed to hold or reduce their department's new annual budget by some nominal percentage. The process breeds competition for the allocation of the capital budget "pie" and not all needs are perceived as equal. There may be a different interpretation over what is "critical" by different departments such as sales, marketing, engineering, production or finance. As a consequence of these conflicts rarely does anyone come away "happy" with the outcome of next years budgets. It forever seems that budgets under-capitalize some of the most reasonable or worthy projects in the name of "corporate treasury".

Enter the Operating Budget. The operating budget is designed to flow from the income statement, from the cash flow of the company and from the fluid nature of income, the way it occurs naturally in the broadcasters market with ad revenue occuring day to day, week to week, month to month. The Operating budget then allows a broadcaster to "spread the cost of technology to match the timing of revenues". And this is where financing comes in. Technology financing for broadcasters or anyone requiring broadcast, media, audio visual, digital production, display or sound technology is a means for the broadcast to match actual costs to revenues on a timed basis. It also creates a "hedge against inflation" because it allows for the payment of current costs with current revenues and future costs with future revenues.

Why is "equipment leasing" the stepchild of "equipment financing"

What do you think of when you hear the words "equipment leasing"? If you are like many people you think of "renting" or "non-ownership". Some people immediately think of a never ending payment obligation or an end of term (surprise) balloon payment. Others think of leasing as an "expensive" type of financing, probably not as attractive as a bank loan. Still others think of equipment leasing as a form of financing used primarily by companies who may not qualify for a traditional loan or bank financing. Would it surprise you to know that the Equipment Leasing Association reports year end and year out that over 85% of major companies lease some or all of their equipment. Its a common practice that every year involves tens of thousands of companies and billions of dollars in equipment "leased". In many cases leasing may actually be the lowest financing alternative of all options. Yet it has this element of the "step child" or maybe the cousin that not everyone in the family wants you to meet or know about.

I think part of the reason that leasing has a "mixed" reputation is that it is not very well understood. In my experience I have met many highly educated, professionally astute, business executives, chief financial officers and financial decision makers who were very comfortable with the idea of borrowing on a simple interest bank loan basis but who had absolutely no idea what a "Capital Lease" was. When it comes to True Leases, Fair Market Value Leases, or Operating Leases the understanding level shinks from nil to nada. I some respects the leasing industry itself may be to blame. Many of the terms used by lessors are archaic and create a mystic that fosters a "if I don't understand it, I won't use it" resolve. In addition, some lessors, especially in the past, have used less than scrupulous tactics to squeeze out end of term profit windfalls and additional "upside" opportunities. Many CFO's will go into a bank loan with floating rates, restrictive covenants, compensating balance requirements, large annual fees and think that because it was ordained by their bank it must be entirely better than an equipment lease from the Leasing company proposal. And yet,many times, when all the costs are factored in the Lease may be a better option. It is like the answer to the question "What is your Rate"? (It all depends).

The next time someone asks you about leasing suggest that they learn about the wide range of options that lessors offer today.....and do an absolute comparison..........factoring in all costs.

What is "technology Systems Integration Financing"

Media Technology systems integration ( SI ) projects involved the assimilation and/or convergence of a number of different components to create a unified or inter-relationship technology system. Most projects combine equipment, technology, systems, wiring or cabling, software, labor, installation, training, shipping, delivery, set up, warranty, and sometimes ongoing services or support by a service provider. SI technology projects are common to television studios, corporate media centers, business conference rooms or training rooms, school classrooms, churches, hospitals, cable television networks, telephone companies, sports stadiums and arenas, live theater and concert halls, convention centers and other venues where media technology, sound reinforcement, digital display, communications gear and integrated. Usually a contractor or systems integrator is hired to coordinate and manage the installation of equipment from a number of different manufacturers. The SI is skilled at such installation projects and is often an authorized dealer for a number of different manufacturers. A systems integrator may specialize in just one area such as sound, or lighting, or digital media display or he may facilitate a project encompassing all aspects of these technologies.

The financing of media systems integraton projects differs from traditional equipment finance in two distinct ways. One is that the lender is financing a much higher percentage of soft costs or non recoverable costs such as labor, installation or warranty. Another difference is that lenders financing systems integration projects usually must provide "interim" financing during the installation period. In some cases, a TV studio, church project, school project etc the installation may take several months or longer. The lender needs to be able to provide interim financing for the term of the installation period. Over the installation period the lender usually advances funds to the systems integrator on a 30-30-40 structure with 30% of the project funded upon the order, 30% funded upon delivery of the equipment and systems and 40% up the completionof the project.

Financial Decision Makers

Like any industry budgets and spending in the television broadcast, radio, cable, telecom, IPTV, Sports broadcast, systems integration, technology finance, and so on, are managed and controlled or heavily influenced by financial decision makers. These folks have the title of Chief Financial Officer, Vice President of Finance, Controller, or Treasurer. The President, CEO, Chairman or director often makes the financial decision. Somes financial decision authority is delegated to a plant manager, general manager, operations manger, Chief Operations officer, CIO, or CTO. The point being that the broadcast and media technology decision process is often a two part decision process involving 1) what to buy or acquire?, and 2) how to pay for it?

It is critical for for anyone selling, presenting to or consulting to an individual charged with making an equipment or systems integration decision that he/she understand the decision dynamics within his respective clients organization. As much as an engineer may love a certain new broadcast technology or believe that it is the next critical unit to be installed......it may be a moot point until the financial decison maker is "on board" in terms of how to pay for the new widget or great technology.

Financial decision makers perceive the problem of technology acquisition from a different perspective than the engineering department or operations department. Often the financial decision maker engages a completely different set of rules and his/her motivations and inspirations may be completely counter to the expectations of his or her counterparts in the same organization.

For all of these reasons it is important that from the very earliest discussions that the financial decision maker be brought in to the discussion, made to feel a part of the information and presentation and that he or she be afforded the tact that comes with knowing the decison may ultimately be theirs.