Tuesday, November 20, 2007

Radio: That was then, this is now!

One year ago today!

The lucky sperm club Mays brothers snookered private equity firms to buyout Clear Channel. Providence Equity picked up the TV stations while BainCapital and Thomas H. Lee took radio.

That was then, this is now!

Private equity firms made a staggering number of bad deals over the past year. Among them – you guessed it - Clear Channel.

They used to call private equity “smart money.” Not now.

Clear Channel and BainCapital/Tommy Lee are stuck in a place they can’t get out of. The deals they thought they had in place to unload unprofitable properties disintegrated to dust.

Wouldn’t you love to be a fly on the wall at those crisis meetings at BainCapital and Tommy Lee?

And how much is Clear Channel stock worth now?

I won’t hold you to a number since it’s still dropping.

Hate to say I told you so, but I did.

Is it against the law to yell “fire” in an office building in San Antonio? How about "fire sale?"

Seven years ago today!

Radio stocks were still red hot. Clear Channel stock was doing $90-something, Emmis was $60-plus and it was right around that time when I said if you’re holding radio stock - sell.

I’m no Wall Street expert. Not even close. But I do know radio and it was clear to me and others closest to it that reality was setting in and, clearly, the party was over.

Five words to live by: Never believe your own hype. The radio industry did.

In essence, they bought their own hype about radio having a “captive audience” in cars and being a “forced destination.”

Few decisions in the radio business were made that cautiously thought out beyond the present moment.

When it was becoming apparent that the multiples were truly off the wall and debt would be a major problem to service, radio adopted a new rule: Don’t confuse us with the facts.

If I were doing the soundtrack to what was going on in the radio industry at that time, I’d lead with Frank Sinatra’s “Forget Domaini.”

When it was apparent that the stock slide wasn’t a fluke, the Mays family trotted out every cheap cliché in their playbook.

Don’t you hate when that happens?

Now, Clear Channel’s failures and misfortunes are thisclose to devaluing all radio.

Let it happen. The grim reaper’s already set up shop. There’s not much left to artificially prop up.

The faster it happens, the sooner we can deal with the how to’s for its recovery.

And the end result could be good for most in radio. At least for the creative types.

Real broadcasters will benefit from the fire sales and buy smartly and hire wisely. The spectators will be cleared from the field.

In fact, real broadcasters may buy back some of the stations they sold to Clear Channel and others for the same price they were worth before the Telecom Bill land grab falsely inflated their value.

So what have we learned from all of this?

It’s as easy as one, two, three.

One, there’s only so many radio stations you can own and manage efficiently.

Two, private equity firms and the radio industry don’t mix.

Three, Radio’s free and still relatively more accessible than any other medium, which means any success is driven by the product.

Better days could be ahead.

Meanwhile, back on the ranch.

I hear that the Mays family members and their former friends in private equity will be dining on cold shoulder and hot tongue this Thanksgiving.


Anonymous said...

I sold my stock just in time. I am still in the radio bizz. Ive been here long enough for a decent package. The kids today are hired for minimum wage and worked 25 30 hours a week. No benefits No sicktime. As long as the radio crash doesnt effect my package Im all for it.

Anonymous said...

there are some talented people at clear channel and the other chains who are not allowed to be creative. what you should say is that the upper management should be whacked and new management should allow us to stretch our wings.

i hope you are right, mr. g-man.

Anonymous said...

I feel bad for those Infinity radio employees whose compensation included company stock when it was at its all time high. Worthless.

Anonymous said...

"I won’t hold you to a number since it’s still dropping."

I hate to point this out, but actually it's been very stable for a long time.

Sure it's not $90 any more. But XM isn't at $37 any more either. And how much is AOL worth? How about Yahoo?

Let's focus on reality.

"I feel bad for those Infinity radio employees."

My Infinity radio stock was converted to CBS, which split with Viacom, and it's worth more now than when I got it. What drugs are you on? Long term, it was a good move. Better than the other radio companies.