Spanish Broadcasting System, Inc.

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Spanish Broadcasting System, Inc.

2601 South Bayshore Drive
Coconut Grove, Florida 33133
U.S.A.
Telephone: (305) 441-6901
Fax: (305)446-5148
Web site: http://www.spanishbroadcasting.com

Public Company
Incorporated: 1983
Employees: 568
Sales: $122.7 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: SBSA
NAIC: 513112 Radio Stations

The Florida-based Spanish Broadcasting System, Inc. (SBS) is the nation’s second largest Spanish-language broadcasting company, behind Hispanic Broadcasting, and the largest one principally owned by Hispanic Americans. The company operates 19 Spanish-language radio stations serving the New York, Puerto Rico, Miami, Chicago, Dallas, San Antonio, and Los Angeles area markets through its numerous wholly-owned subsidiaries. Among its best-known stations are KLAX-FM in Los Angeles, WSKQ-FM and WXLA-AM in New York, and WXDJ-FM in Miami. The company’s New York WSKQ-FM station is the number one station in its target demographic group (Hispanic adults between 18 and 49). Altogether, SBS’s stations reach over 61 percent of the country’s Hispanic population and offer a wide variety of formats: Spanish Tropical, Regional Mexican, Tejano, Spanish Adult Contemporary, American Contemporary Hits, American 80’s Hits, Spanish Adult Top 40, Spanish Oldies, and Dance. JuJu Media, 80 percent of which SBS owns, operates LaMusica.com, a bilingual Spanish-English Web site dedicated to Latin music, news, and other forms of Latin American entertainment and culture. Raul Alarcon, Jr., son of SBS founder Pablo Raul Alarcon, Sr., owns 41 percent of the company’s shares and is the current chairman, CEO, and president.

1983–89: From Radio Station to Broadcast System

Pablo Raul Alarcon, Sr., a native of Camaguey Province, Cuba, immigrated to the United States when Fidel Castro was leading his insurgent forces to power. Before that, in the early 1950s, Alarcon had begun his career in radio as an announcer and soon established a three-station chain in Camaguey. He moved to New York as a political refugee in 1960 and took a job as a deejay at a Spanish-language station in Manhattan. Alarcon was eventually promoted to station programming director. He eventually purchased and operated a recording studio and an advertising agency and by 1983 was in a sound enough financial position to purchase his first radio station, WSKQ-AM, the initial station in what would become the Spanish Broadcasting System. He was joined in the business by his son, Raul Alarcon, Jr., who took on the job of sales manager.

By 1989, Alarcon had built SBS into the largest Hispanic radio company in the United States. The company’s revenues by the end of 1988 had reached $21.1 million, and its network consisted of six stations. Alarcon was not timid about paying high prices for SBS’s acquisitions. In the fall of 1988, the company paid $55.5 million for a New York City FM station, and, in a 1989 column in Fortune, Alarcon defended the purchase: “Some people call me a crazy Cuban. … But if you don’t take calculated risks, you can’t make huge gains.” Indeed, any skepticism from analysts failed to slow Alarcon and his company down; he noted that the seminal Spanish-language AM station in New York and AM and FM stations purchased in Los Angeles and Miami were “extremely profitable.”

1990–93: Recession Forces Adjustments but Does Not Halt Expansion

The broadcasting industry hit some hard times during the recession of the early 1990s. Like other companies, SBS had to make some changes just to survive. Hispanic network operators made adjustments in programming and marketing techniques, and they also made a united effort to sell the radio medium in the face of tough competition from television and print media. Along with mainstream broadcast companies, the Spanish-language radio operators had to trim their costs in order to maintain a healthy cash flow. Still, through the worst of it, SBS continued to expand into new sectors. For example, in 1991 it negotiated a deal with Telemundo Group, a Florida-based television broadcaster, under which SBS leased transponder space from Tele-mundo for satellite broadcasts of news, primarily originating in Miami, to the company’s stations and other affiliates.

Fortunately for SBS and other Hispanic networks, their audience base continued to expand at a solid pace and their Spanish-language radio audience tended to be heavier users of the medium than was the population at large. Because television was so completely dominated by English-language programming, native Spanish-speaking citizens and émigrés also had far fewer media entertainment choices.

As a group, that audience was rapidly becoming an important consumer group. In Los Angeles, in Arbitron’s fall 1992 fall survey, SBS’s KLAX-FM was named the top-ranked radio station in the area. That fact surprised many, especially since the station had changed its call letters and switched its format to Mexican ranchera, a blend of folk and banda dance-style music. With the changes the station made, spearheaded by Alfredo Rodriguez, KLAX-FM’s general manager, in just three months the station vaulted into the top spot from a distant 23rd ranking. As a result, because it was able to command much greater rates for advertising time, the station became very profitable, almost overnight. In 1992, it billed around $2.2 million for air time; in 1993 the figure approached $15 million.

By 1993, SBS’s stations numbered seven: KLAX-FM and KXED-AM in Los Angeles; WSKQ-AM and WSKQ-FM in New York; and WCMQ-AM, WCMQ-FM, and WZMQ-FM in the Miami-Florida Keys area. These were, of course, principal Spanish-language broadcasting markets. Essentially, among the solid and growing Hispanic markets, this left only the markets in Texas to penetrate, something SBS would eventually do. First, though, the company would continue to expand in its three areas in New York, California, and Florida.

1994–96: Going Public Under a New Generation of Leadership

In 1994, on the eve of some important changes for the company, Pablo Raul Alarcon, Sr., turned over operational control of SBS to his son, Raul Alarcon, Jr. The economic recovery, in full swing, prompted the company to undertake further growth, as did the financial condition of the company. In fiscal 1995, SBS’s revenues reached $55 million, giving the company some investment clout and furthering its investment plans.

To help those plans, SBS also went public in 1996, hoping to raise $50 million from its 7.5 million share offering to finance its purchase of WPAT-AM, a New York area (Patterson, New Jersey), English-language station. At the time, SBS already operated WSKQ-FM (Mexican oriented) and WXLA-AM (salsa music) in the same market. The company also undertook further expansion in Miami in 1996, when, from New Age Communications, it purchased WRMA-FM (Romance 106.7) and WXDJ-FM (El Zol 95), respectively, the first and third ranked Spanish-language stations in South Florida. The $110 million deal also installed New Age’s president Russ Oasis on SBS’s executive team as executive vice-president and chief operating officer. Oasis, who owned 50 percent of New Age, had acquired El Zol in 1987 for $8.1 million and Romance in 1994 for about $21.3 million, then managed both into very profitable and popular enterprises.

The company’s national expansion plans were helped with the 1996 federal deregulation of rules that prohibited a single company from owning more than two AM and FM stations in a single market or commanding more than a 25 percent audience share. SBS also benefitted from the fact that by 1995 Hispanic purchasing power had climbed to $220.3 billion, encouraging a rapid rise in media advertising to that population segment. Analysts estimated that of the $1 billion spent on ads targeted to that segment, about $321 million was spent on radio advertising.

1997–2001: New Radio Markets and the Internet

SBS’s 1996 expansion in the Florida market led to the 1997 relocation of its headquarters to Miami, a move that put it at the heart of another one of the principal Hispanic-American population centers in the United States. The move also positioned the company somewhat closer to its other developing markets in Puerto Rico and Texas.

In September 1999, SBS entered a definitive agreement with AMFM, Inc. to purchase eight FM radio stations in Puerto Rico. The $90 million acquisition included WIOA-FM, WIOB-FM, WIOC-FM, WCOM-FM, WZMT-FM, WZNT-FM, WOYE-FM, and WCTA-FM. AMFM had purchased the stations the year before, from Primedia Broadcast Group, for $75 million. Collectively, in 1998 these stations ranked first in audience and sales in the Puerto Rico market. The arrangement with AMFM, Inc. also included a time-brokerage agreement that would allow SBS to sell advertising time on the stations following the expiration of the waiting period mandated by the Hart-Scott-Rodino Act.

Company Perspectives:

Our strategy is to maximize the profitability of our radio station portfolio and to expand in our existing markets and into additional markets that have a significant Hispanic population. We believe that the favorable demographics of the U.S. Hispanic population and the rapid increase in advertising targeting Hispanics provide us with significant opportunities for growth. We also believe that we have competitive advantages in the radio industry due to our focus on formats targeting U.S. Hispanic audiences and our skill in programming and marketing to these audiences.

Also in 1999, in part to help finance its expansion efforts, SBS undertook recapitalization. Management planned to achieve its goal through a $200 million secured credit facility arranged by Lehman Brothers, $235 million raised in the high-yield bond market, and another $280 million generated from a new public offering of stock. Besides providing the capital for the Puerto Rico acquisitions, proceeds from the offering and the debt issues were slated to be used for restructuring the company’s whole capitalization, both refinancing existing unsecured debts and redeeming preferred stock. The stock offering, made in November, exceeded expectations, selling 21.8 million shares of stock at $20 per share for a total of $435.8 million.

In the same year, SBS also diversified by tapping into the nation’s newest craze—the Internet. SBS jumped onto the electronic superhighway when it purchased 80 percent of the issued and outstanding capital stock of JuJu Media, Inc., owner of LaMusica.com, a bilingual Spanish-English Internet Web site focused on the U.S. Hispanic market. The New York-based LaMusica.com, created in 1995, offered a wide variety of content, including concert listings, an international club directory, articles on popular Latin personalities, reviews of CDS, and record charts. It also afforded visitors the opportunity to view new music videos, hear CD-quality audio, and purchase CDS. With monthly site hits of over three million, LaMusica.com was the most frequently visited Latino-music Internet site in the United States. Its appeal for SBS was the rapidly growing number of people listening to radio on the Internet. By 1999, the estimated purchasing power of the 26 million people in the Hispanic media market had reached $279 billion, and Ray Alarcon, Jr., and his managing team were certain that LaMusica.com would provide advertisers a new and efficient means of reaching those people plus a way of providing SBS’s own listeners with a premier Internet service.

Radio was still the company’s bread and butter business, however, and its expansion included the acquisition of more stations in both old and new markets. Early in 2000, for $75 million, SBS purchased KACE-FM, one of the last two radio stations in Los Angeles with African American-oriented programming. SBS acquired KACE from Cox Radio, Inc., which had five years earlier bought the station from former professional football standout, Willie Davis.

SBS next acquired six stations from Rodriguez Communications, Inc (RCI) and its affiliate, New World Broadcasting. SBS bought all of RCFs outstanding capital stock and the assets of New World, paying $165.2 million, which consisted of $121.7 million in cash and $43.5 million in SBS’s class A common stock. The deal opened two new markets for SBS—Dallas and San Francisco—and expanded its operations in Los Angeles and San Antonio. Format flips turned Korean programming stations KFOX-FM and KREA-FM in Los Angeles into Spanish-language stations, while the two Dallas stations, KTCY-FM and KXEB-AM, were already designated Spanish-language formats. These were placed under the management of RCFs president and COO, who went onboard SBS as western regional vice-president. In Spanish, too, was KSAH-AM in San Antonio; its Regional Mexican programming complemented SBS’s FM station, KLEY, in that same city. The station in San Francisco, KXJO-FM, was among a string of California rock simulcast stations and was also to be reformatted.

In August 2000, SBS also teamed up with America Online in a strategic promotional alliance. Under the terms of the agreement, SBS’s LaMusica.com became an anchor tenant on AOL and began providing music and other entertainment programming across selected AOL brands. In exchange for its coverage on AOL, SBS began promoting AOL in radio spots.

Early in 2001, SBS announced its agreement with the International Church of the Foursquare Gospel (ICFG) to purchase ICFG’s Los Angeles radio station, KFSG-FM. In what was seen as SBS’s calculated effort to replace Hispanic Broadcasting as the nation’s number one Spanish-language radio network, SBS agreed to pay a hefty $250 million to the nonprofit religious group. This would be the highest price ever paid for a Los Angeles radio station and would require a total overhaul in programming. The acquisition would, in brief, be a risky venture, one that would involve deficit operating until at least 2003, but one that SBS believed would also greatly enhance the company’s competitive presence in the number one Hispanic radio market in the United States.

Principal Subsidiaries

SBS of Greater New York, Inc.; Spanish Broadcasting System of Florida, Inc.; Spanish Broadcasting System of California, Inc.; Spanish Broadcasting System of Greater Miami, Inc.; Spanish Broadcasting System of San Antonio, Inc.; Spanish Broadcasting System of Illinois, Inc.; Spanish Broadcasting System of Puerto Rico, Inc. (incorporated in Puerto Rico); Spanish Broadcasting System, Inc. of New Jersey; Spanish Broadcasting System of Puerto Rico, Inc. (incorporated in Delaware); SBS Funding, Inc., JuJu Media, Inc.; Alarcon Holdings, Inc.; Spanish Broadcasting System Network, Inc.; SBS Promotions, Inc.

Principal Competitors

Clear Channel Communications, Inc.; Grupo Radio Centro, S.A. de C.V.; Hispanic Broadcasting Corporation; Infinity Broadcasting Corporation; Radio Unica Communications Corporation.

Key Dates:

1983:: Pablo Raul Alarcon, Sr., purchases WSKQ-AM in New York and founds Spanish Broadcasting.
1994:: Spanish Broadcasting System Inc. is incorporated in Delaware; Raul Alarcon, Jr., succeeds his father as president and CEO.
1996:: Company goes public; it acquires WRMA-FM and WXDJ-FM from New Age Communications.
1997:: SBS moves headquarters from New York to Miami.
1999:: Raul Alarcon, Jr., succeeds his father as SBS’s chairman; company buys 80 percent of New York-based LaMusica.com and recapitalizes.
2000:: SBS continues its expansion with the acquisition of several stations.