How is a media business valued? Analysts may cynically reply that you must allow 80 per cent for the actual value of the business and 20 per cent for vanity.
The idea of owning a radio station, television company or newspaper still exerts a powerful influence over wealthy people. Take any example you want, from anywhere you want.
Investment guru Warren Buffett is the second richest man in the world behind Microsoft founder Bill Gates. Yet, according to reports, he is desperately keen to get his hands on the Telegraph newspaper group.
You might think Harrods owner Mr Mohamed Al Fayed would be content running one of the world's largest department stores and one of London's most promising football clubs, Fulham FC.
But no, he is also reported to be prepared to spend millions on the Telegraph titles.
Even seasoned media moguls such as Rupert Murdoch can become obsessive about securing a particular media property.
Witness Mr Murdoch's three-year battle for DirectTV, America's largest satellite television provider. While most experts give Mr Murdoch little chance of defeating the all-powerful US cable industry, he was still ready to spend out $6.6 billion (€5.24 billion) for DirecTV.
To be fair though, the same firm was worth $30 billion before the slump in international capital markets eroded its value. So obviously Rupert knows a thing or two about getting a good deal at the right time.
Jaw-dropping price tags in the giant US media landscape are one thing, but in Ireland valuations are expected to be more conservative.
The proposed sale of FM 104 to Scottish Radio Holdings (SRH) for €26 million (plus debt of €4 million) raised eyebrows across the media industry. The Competition Authority has still not cleared the sale but, if it goes ahead, most observers agree the purchase price is hefty.
FM 104 owner Capital Radio Productions posted pre-tax profit of €379,097 for the year to June 30th, 2002. It had net assets of €2.4 million.
While sources suggest the firm's underlying profitability is far higher, the €26 million purchase price took some by surprise. FM 104's licence runs out in about 10 years and as many as four new licences may be introduced to the Dublin market during that time.
But SRH boss Richard Findlay defends the purchase and believes having a foothold in the expanding Dublin market makes sense, particularly when SRH already has a national franchise in Today FM.
Based on the price tag FM 104 will have to produce an annual profit of €3 million for the next decade for SRH's investment to pay off. Can SRH squeeze any more profit out of the business than the local management team? Only time will tell.
Other deals last year indicate media valuations: Lite FM was sold to UTV for €14 million; the Meath Chronicle group was sold to Dunfermline Press for about €30.5 million, while before Christmas unionist politican John Taylor (now known as Lord Kilclooney) snapped up four titles owned by the Midland Tribune group for €14.5 million.
Why are buyers prepared to pay such high prices for Irish media assets? Some of it may be psychological.
The sums involved are small by international standards, particularly by British standards. So, on the surface, getting a radio station based in a capital city for €26 million (plus debt of € 4 million) would appear to be cheap.
Getting a large newspaper group and printing operation based in a commuter area like Meath probably seems a steal at €30.5 million.
But the crucial factor - which nobody ever likes to mention - is that many large British media firms believe they can squeeze greater profits from the businesses they are acquiring.
They must believe this otherwise there would be no logic to buying.
But drawing greater profits from a local paper or radio station may prove difficult.
In relation to radio, wages in the industry are already low (with the exception of a few so-called "stars"), advertising is sold at a massive discount to print/television and most stations are producing modest profits even with these low overheads. Even Mr Denis O'Brien reported a pre-tax loss last year at his Communicorp Group.
The industry also has to face the painful reality that radio listenership in Ireland is sliding dramatically as the public find other ways to distract themselves.
With the Minister for Communications, Mr Ahern, trying to get his hands on 50 per cent of the profits when stations are sold, future radio ventures begin to look rather unattractive.
Mr Ahern's smash-and-grab raid will presumably not affect those already licensed, but that does not mean Government interference or actions by the Broadcasting Commission of Ireland (BCI) can't spoil the party for the big media players.
The BCI's plans to license up to four new stations for Dublin is bound to put the market share of existing stations under great strain.
While these stations will be mainly niche players, if they manage to steal even 1 or 2 per cent from the likes of NewsTalk, Spin or Dublin's Country, the results could be serious.
In the local newspaper market things are more stable and returns are steady. But is there really much scope for massively increasing the profits of these businesses?
Strangely enough, companies in the television sector have found it easier to enter the Irish market and extract large profits. Mr Murdoch's Sky, with a relatively small staff in Dublin, has managed to extract significant profits from Ireland without facing regulation here or having to shell out a single euro for an existing media group.
The appeal of the Sky Sports and Sky News has helped, but so has the company's aggressive selling of its Sky digital package. Some 300,000 Irish consumers have signed up. Imagine how much it would cost (never mind how long) for a newspaper or radio group to acquire that scale of circulation or listenership?
eoliver@irish-times.ie
