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.

Downsizing.

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.