$13 million sale of D.C. station raises fears in public radio

Based on articles originally published in Current, June 23 and July 7, 1997

By Jacqueline Conciatore

Quickly and quietly, a desperate city university in Washington, D.C., decided to sell small jazz station WDCU June 17 [1997] to the highest bidder--a religious broadcasting chain--for $13 million.

The Washington, D.C., financial control board, which oversees the city budget, appeared unmoved by a June 23 appeal by NPR President Delano Lewis to save WDCU. Lewis wrote to the chair of the congressionally appointed control board, arguing that the station sale will weaken the public radio system and sacrifice the public's interest.

[The Corporation for Public Broadcasting also opposed the sale, sending the city control board a letter July 2 demanding reimbursement of about $1 million in CPB grants given to the station since 1991, according to the Washington Post. A similar CPB tactic did not stop the New York City municipal government's sale of WNYC-TV several years ago.]

The unprecedented price for a reserved noncommercial station may signal new heights in the potential market value of public stations generally. The sale raises concerns that religious broadcasters will approach university licensees--who are often cash-strapped and ambivalent about being in the public radio business--with offers more tempting than they've seen before.

"This is a genuine change in our situation," says Craig Curtis, program director of WETA, Washington. "And it can happen anywhere, to any kind of licensee.... The same scenario can be played out in television."

If WDCU is worth more than $10 million, he asks, what's nearby WAMU worth? What's joint licensee WETA worth?

While a reserved frequency can't be sold for commercial purposes, it can go to a religious broadcaster who can turn a profit by selling an unreserved station and transferring its donation-based operation to the noncommercial station.

When the University of the District of Columbia (UDC) said in late 1996 that it might sell WDCU, city and university officials were talking prices between $1 million and $5 million. By June 17, [1997], when the UDC board of trustees voted 9-1 to sell, the asking price was $10 million.

The winning bid, $13 million, came from Community Resource Educational Association, Inc., a nonprofit with ties to the country's largest religious broadcaster, the for-profit Salem Communications, which already owns WAVA-FM in the Washington area. The nonprofit "has some common directors with Salem Communications," said James Blackburn, the university's station broker. Salem, based in California, owns about 40 stations, most of them commercial. It also has a production and distribution arm that handles Oliver North's talk show, a network news operation based in D.C., and music programming.

Salem and its WAVA-FM did not return Current's phone calls.

The application for ownership transfer is already at the FCC, Blackburn said. But it may be a week before the FCC reviews and formally accepts it. The commission tries to rule within 40 days of an application's acceptance, according to an FCC official. That span includes a 30-day public comment period.

After Blackburn put out invitations to bid, NPR, WAMU and WETA discussed the possibility of bidding together, but could not bid enough to be competitive, according to NPR President Del Lewis.

WETA put in a bid anyway, for an undisclosed amount much below $10 million. After the first round, Blackburn put out a second call for bids, this time in the $10 million range. "Frankly that's not either a game we could be in or the game we wanted to be in," said Linwood Lloyd, executive v.p. of WETA. But WETA wanted to preserve the public channel, he says, so bid again, offering to assume WDCU's operation and expenses for an undefined period. WETA had promised to maintain the jazz service as well.

C-SPAN, the nonprofit programming service that provides congressional feeds to the cable TV industry, also bid, thinking a radio network "would be a natural extension of our product," said spokesman Rich Fahle.

WAMU's licensee, American University, decided even a collaborative bid would put too much strain on resources, according to a spokesperson.

Anticipating a greater interest in reserved frequencies in the wake of radio ownership consolidation, the Station Resource Group (SRG), a prominent public radio station cooperative, has been working to identify vulnerable stations and to devise ways to respond to future buyout attempts. That work is part of SRG's larger effort to expand the system's delivery capacity.

SRG was already at work when the WDCU situation arose. "But it was ahead of our state of preparedness to jump on it with both feet," says SRG consultant Tom Thomas. SRG tried to put together a consortium but its attempts faltered because the bidding deadline was too short for stations to deal with their licensees. Though several stations were interested, Thomas said, they lacked the time to develop a plan and deal with institutional or community licensees.

One of the key lessons of the UDC matter had to do with timing, says consultant Mark Hand, who is leading SRG's effort to build system delivery capacity. Licensees often decide to sell quickly and set a short deadline for transactions to be complete. Public radio folks aren't accustomed to that, he says.

Del Lewis, a prominent local businessman before joining NPR several years ago, made the last chance appeal to the city's financial control board. But a source at the board who asked not to be identified suggested the board was not interested in Lewis's arguments. The board will review the sale only to ensure it jibes with the city's financial goals, the source said. "The board's statutory authority is limited in looking at the sale. It's limited to whether the sale is consistent with the financial plan and budget. And it clearly is. It allows the university to close its budget deficit." The control board "can't consider the impact on National Public Radio," the source said.

In his letter to control board chair Andrew Brimmer, Lewis offered to present "other options" to help the city find revenue, while still preserving the WDCU service. Asked if that meant assembling a consortium of public radio stations to purchase the license, as consultants with the Station Resource Group had tried to do in the spring, Scott said "we're wide open."

NPR has not ruled out challenging the license transfer, says NPR spokesperson Kathy Scott.

An appealing option for the city university

Earlier this year, UDC trustees said selling the WDCU--the city's only full-time mainstream jazz outlet--should be a last resort, and told the university to first divest some of its real estate. But at the June 17 meeting, UDC Board Chair Michele Hagans said the real estate was not "easily disposed of." Blackburn said the real estate transactions could take two years, and UDC needs cash quickly.

Hagans said UDC's situation is dire. The city university's deficit is estimated at $10.9 million, she said. "We continue to struggle to keep the doors of this university open," she said. "If there were something else to be done, I don't think there's a trustee sitting on the board who wouldn't have done it."

Earlier this year, UDC's deficit was $80 million, inducing the open-enrollment school to lay off hundreds of employees, close its early childhood learning center, reduce retirement benefits, and raise tuition.

In light of that, a windfall of more than $10 million would be seriously tempting. Even a local jazz artist and teacher who opposes the WDCU sale--he showed up 90 minutes early for the June 17 meeting--seemed somewhat convinced by cash. Davey Yarborough, chair of instrumental music at the city's Duke Ellington High School, came away from a chat with Hagans noting the bids were twice original estimates, and could close the deficit. "It becomes difficult to say no to that," he said.

But Murphy, the lone dissenter on the board, said trustees were short-sightedly selling UDC's most valuable asset, and should have tried harder to sell the real estate. "Once [WDCU] goes, there is not a face to this university," she said. "This was a rush job. . . .the easy way to go," she told Current.

Another opponent of the sale argued that UDC doesn't understand WDCU's value. "It's so ignorant," said Ed Wiley, head of jazz label Swing Records. "Would you sell your library? WDCU is a major educational tool and a major piece of outreach." For "30 pieces of silver" the board sold "the soul of the university," he said.

But the trustees clearly see the station as peripheral to UDC's mission. "The university is far more important than the radio station," Hagans said. "The education of 5,000 students is far more important than the radio station."

The alternative to WDCU

Some have speculated that Salem may want to sell its commercial holding in D.C., talk station WAVA. But Salem has dual holdings in several major markets, and historically has not been "a seller," says Blackburn. Reports that Salem could get $80 million for WAVA are misleading, he complains. "They make make it sound like [Salem] is buying something on public airwaves on the cheap, to make a profit. That's not necessarily what will happen."

Blackburn has said he doesn't know why the buyer wanted to pay $13 million--original estimates put the station's worth at $2 million to $5 million.

Other commercial radio sources speculate that Salem may be interested in protecting its D.C. franchise, buying up the available outlet before another Christian broadcaster did. Salem may also want another major-market outlet for some of its programming.

Blackburn would not say what format the new station will have. Other stations that Community Resources owns "could be described as ethnic as much as they might be [described as] religion," he said.

One reason for Christian radio's significant growth in recent years is the industry's move away from eclectic formats to focused ones such as news/talk or contemporary Christian music, says the National Religious Broadcasters Association.

Religious broadcasters operate 1,648 stations, according to the association. That amounts to 13 percent of all radio stations, compared with 10 percent in 1990 and 8 percent in 1981.

According to Broadcasting & Cable's roster of 1996 radio and TV deals, Salem Communications bought at least six commercial stations, all AM, in deals totalling $25.5 million. According to the Dallas Morning News, it offered $40 million in 1996 for KDFX-AM. Salem owns about 40 radio stations nationwide, including stations in Los Angeles, New York and Chicago.

Blackburn dismisses fears that religious broadcasters will induce institutional licensees to cash in on their public radio stations. "There is no business plan for something like this that justifies a big investment unless you're in Washington, D.C., or maybe New York."

But Blackburn & Co. approached Johns Hopkins University about selling its deficit-ridden station, WJHU, according to WJHU General Manager Ray Dilley. [Blackburn says he did not, but someone from his company "probably" did.] The university got Blackburn's invitation to sell about a month ago, says Dilley. "The answer was most definitely not," he says. "[University officials] see a good public radio station as a good reflection of the university."

The number of public radio stations that seem to be vulnerable to buyout attempts ebbs and flows, said SRG's Thomas. "At any given time there could easily be a dozen or two dozen stations where, if the right offer was made at the right time to the right person, it would be seriously entertained by folks who hold the license." But a station's vulnerability can change depending on such factors as a university's financial situation, the relationship between university managers and station managers, and station community support.

Though the public radio system wasn't adequately prepared to prevent the loss of a signal in the nation's capital, Thomas is confident it can prevent future losses and even expand delivery capacity. Stations could acquire new stations, formulate local management arrangements such as the one WETA suggested to UDC, and move into non-broadcast technologies.

Hand says there are two ways to finance the expansion: amassing new revenue through traditional means such as capital campaigns and foundation solicitation; and tapping the debt and bond sources that typically finance deals by commercial stations. SRG has been working to educate banks about the value of spectrum, Hand says. One result of WDCU's sale is that banks will feel more confident issuing loans, he said.

A "handful" of SRG member stations are working actively to acquire new stations or station operations, he said.

That the WDCU deal has alarmed many in the system is understandable, Thomas said before the UDC board had voted to sell. "Should people be paying attention to this? Absolutely. It's a fairly profound thing ... [that] changes the dialogue and perception about our assets. It heightens the awareness of a vulnerability public radio stations have when they are part of institutions whose fundamental mission is something else. And a majority of our stations are in that circumstance."

But events that highlight the vulnerability of public radio's ownership structure are not necessarily a bad thing, he says. "I'm confident we can come up with strategies that will assure continued governance focused on a public service mission [and] financing strategies that can preserve spectrum dedicated to public service."


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