Friday, December 7, 2007

Radio: Fish stink from the head

Understand this and you’ll understand it all.

We’ve been in a cycle of fiscal uncertainty long before the dot com bomb.

Whatever the case, you must recognize that Wall Street is no longer a factual economic indicator. It operates under its own convoluted set of rules - and because of that – it’s incapable of comprehending the gravity of our financial problems until well after they occur.

The Center on Budget and Policy Priorities reported that the top one percent control 19 percent of the nation’s income. The Dow’s ups have everything to do with how the wealthiest investors are faring. The Dow’s downs happen when reality catches up.

Wall Street will always buy into a company that claims it can operate with fewer employees. On paper, that means greater profit.

The reality is that long term, it can turn into a catastrophe.

Remember “Chainsaw” Albert Dunlap and Sunbeam? He slashed thousands of jobs, streamlined operations and took its stock from $12 to $55. In reality, Dunlap padded revenues by manufacturing larger quantities of merchandise and selling them at heavy discounts. Not long after, warehouses were flooded with unsold inventory and Sunbeam dropped to $11/share.

Almost sounds like Clear Channel, doesn’t it?

Let’s start with one fact: Private equity firms and radio don’t mix.

For the past week we’ve been hearing about Clear Channel’s annual holiday tradition.


Clear Channel never ceases to amaze me with their Orwellian rationalizations.

Meet Earl Jones, Clear Channel’s Chicago market manager and self-proclaimed station sultan. Here’s his elucidation for the latest round of downsizing at his stations: “We are re-expressing our assets to achieve greater results.”

How about the announcement that Clear Channel regional VP of programming Jim Richards will now also add the midday shift on its classic rocker, KGB in San Diego, to his list of daily duties.

Credit Clear Channel for coming up with the modern-day version of the medieval stretching rack.

You’re wrong if you don’t believe I’m tired of picking on Clear Channel. It’s not the people that work for the company. I have empathy for them. It’s the people running the joint that perturb me.

To be fair, let’s pay a visit to another broadcast company. Seen Citadel’s stock since it acquired ABC radio from Disney? I just checked a few minutes ago. It’s down around a buck ninety-eight. Five years ago, when Wall Street was still buying the radio investment hype, Citadel was trading for around twenty dollars-plus. So much for their Don Imus boost. You think Hannity’s going to save them?

My nomination for best-run media company today goes to Disney. The same week they sold the ABC radio division to Citadel, they struck a $7.5 billion deal to merge with Pixar.

That’s called selling an unprofitable past for a profitable future.

After reading this you may ask why boy FCC Chairman Kevin Martin is so gung-ho for further deregulation? If approved, it would allow a single company to own up to a dozen radio stations in a single market. That includes New York, Los Angeles, Chicago, Philadelphia, and other major markets.

And why is Clear Channel, a company that’s fruitlessly trying to pawn - er - sell off its smaller market properties strong-arm campaigning to increase its holdings?

Let’s ask Clear Channel Executive Vice President Andy Levin.

Lev-zo claims that “changes to the radio ownership rule are once again necessary.” Here’s his logic: before the ’96 Telecommunications Bill became law, six out of ten stations were losing money. Now, he says that “radio companies are again facing major operating challenges.”

In other words, it didn’t work so we’re doing it again. It’s sooooo Clear Channel!

What’s the real reason why six out of ten stations were losing money? Try too many of them. There were – and still are - more radio stations than the market will bear. The reason there are more radio stations is from the time when FCC junked up the FM frequency in the eighties by adding all those 5,000 watt class A stations, licensed adjacent to larger, rated markets. The FCC alleged they were added to offer local broadcasters and minorities an opportunity to acquire their own radio station licenses – and they did. There was, of course, the routine loophole. If you met all the requirements (there were many) and awarded a license, you could re-sell it immediately.

Is it even worth trying to guess how many of those stations are still owned by the original license holder?

The Clear Channel crusade for additional deregulation is merely their up-front pimping for the private equity firms BainCapital and Thomas H. Lee, whose plans to take Clear Channel private have been delayed until 2008. Poor bastards.

Private equity firms exist to acquire often-troubled companies. They sell off their less profitable divisions – in this case, smaller markets that generate less revenue – and take their major market holdings and – hoping the greater fool theory is alive and well - chop them up into several companies with the hopes of creating new IPOs.

Do the math. More major market stations, more companies, more "value" to peddle.

You’ve probably heard that boy FCC Chairman Kevin Martin bought time through his latest deceitful stunt - using the Tribune waiver as an opening to toss out the cross-ownership rules in all markets.

It’s doubtful that Martin will be around after the first of 2009 when his buddies will be forced to vacate the White House. Until then, though, Martin will take advantage of time remaining to further foul FCC rules and regs.

Whispers heard in and around a certain Washington D.C. building at 12th street, S.W., claim Martin is preparing to press on for foreign ownership of American media. That’s for all those Saudi princes that’ll buy anything American. How’s that for a bail out scheme? The greater fool theory is alive, well, and thriving.

And fish will continue to stink from the head.


Johnbfree said...

Unfortunately, American business in general has been trading long term stability for short term gain, for about 25 years now. Radio is an extreme case of this. The FCC has simply become a puppet to the big money folks and are failing to perform their main function- regulating the airwaves to provide a diverse voice and community service. Maybe this explains all of the narrow-casting we have today as opoosed to the broadcsting we used to have. Narrow minds produce narrow results. There is life beyond the end of the fiscal quarter.

Anonymous said...

Kevin Martin is basically a tumor in a suit and tie.

Anonymous said...

Wall street has gotten wise to radio and Citadel and Clear Channel are only the beginning. I love the pro-radio trades that keep beating the dead horse. If Clear Channel goes up a few cents they are on a comeback. You are right to say that Wall Street has little to do with reality. Wait until the real correction hits. Then we will see who has a merry christmas.

Pitts said...

I would rather read this in the Wall Street Journal and media trades than the drivel they feed about radio still being a strong and influential medium.
I remember when all of those class A stations went on the air. There was one in Sharon PA that was supposed to edge Youngstown. I believe it went dark in less than a year. What were they thinking when they approved a class A in a depressed market like Youngstown during its lowest ebb?

Sea En Bee Sea said...

I play the stock market and wisely bought in and got out of radio at the right times. Like you,being in the business allowed me to see how radio trading had become reckless and that there was no way they could ever make those multiples work successfully. I feel bad for those who are on the front lines (jocks, sales). They are the ones getting screwed. Sumner Redstone, Dan Mason, the Mays family, John Hogan and the rest of them are still making their money and know they will have their positions until they don't need them anymore.

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"Max" said...

I am not the least bit surprised that the FCC would push for foreign ownership again. I remember they briefly floated that boat under Powell. The claim was that US companies own foreign media. In reality it is exactly what you said. Just like the Japanese and US real estate in the seventies we will see troubled media outlets put on the block for those rich Saudis to buy. I am sure we will have some "control" of programming. We worry about Iran and Israel? How about our own government?

Anonymous said...

I believe that Wall Street is wise to radio's smoke and mirrors. HD radio was the last straw. I doubt the radio industry can pull the wool over Wall Street's eyes. They have gotten badly burned and will not forget it. I look forward to Clear Channel being in the single digits.

Splicer said...

I've worked in radio for 18 years now and have seen all sorts of tricks of the handwaving variety all geared towards increasing the bottom line; downsizing is only one of them. The atmosphere of a modern radio station seems to consist of management telling their employees daily that:

1. They are worthless.
2. Their jobs are hanging by a thread.
3. No one gets an increase because there's apparently no money.

You mean they're in the red? Hard to fathom how these same managers are able to finagle that end of year bonus - Where's that money coming from?

The downsized are the lucky ones because they can go drive for an airport car service and make more money.

Anonymous said...

"Private equity firms and radio don’t mix."

They've been mixing successfully for 35 years.

The fact is that radio needs an infusion of new money for some capital improvements. Companies like Microsoft and Google won't be buying radio stations.

The only alternative is a government buy-out of radio, like Amtrak. Yes I know the feds are prohibited from owning US radio stations. But an act of Congress could change that.

Which do you prefer? That's pretty much the only choice.

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