Radio: Lost in Translation

Destination: San Antonio. We’ve turned back the clock to this past Friday, the 25th. Clear Channel Radio CEO John Hogan is tidying up the loose ends of a memo he’s about to send out to his subordinates – just in time to wreck their weekend.

This one heralds the new rules and regulations – effective immediately –for Clear Channel managers.

No one ever went broke trying to underestimate Clear Channel’s knack to screw up the entire radio industry. The proposed LBO with BainCapital and Thomas H. Lee is just the latest in a series to stop their hemorrhaging.

Though Hogan calls his memo a contingency plan it’s not in response to an unforeseen occurrence. The Mays deal with Bain/Lee was put together over a year ago. Since then the Mays clan ran out of rug to sweep their tribulations under and now Bain/Lee’s realizing how dire the deal is.

Hogan’s memo did zilch for Clear Channel stock, which plunged 7 percent since Friday. Bain/Lee did the LBO deal at $39.20. Last night – after doing over twice the average daily volume - CCU finished at $31.42. Backing out of the deal – even at a cost of $500 million – is the lesser of two evils for Bain/Lee and the banks caught up in this debacle.

Let’s consider the bright side of this unfolding disaster. It’s revealing the true valuation of radio properties. That in turn will hasten opportunities for real broadcasters to get back in the game.

The kith and kin at the Clear Channel offices in San Antonio speak in a weird and obscure dialect. They call it Mays as in maze – since its management and employees feel like rats trapped in one.

That’s the raison d'être for the memo’s translation.

From: Hogan, John
Sent: Friday, January 25, 2008 09:31
To: Radio General Managers - All; Radio Business Managers
Cc: Radio EVP's; Radio SVP's ; Radio SVPP; Radio RVP
Subject: First Quarter Contingency Plan

Good Morning,

As you are undoubtedly aware, we are generating less revenue for Q1 than we budgeted and less than what actually ran last year. At the same time, our budgeted expenses for Q1 are up 4%. While there are a number of factors contributing to our revenue shortfall the fact is we are behind on our revenue plan, up over last year on expenses, and as a result we will be well below our budgeted Q1 bcf. As responsible managers, we need to address the shortfall not only by continuing to find ways to increase our revenue but also by implementing cuts on the expense side until revenue production improves.

Translation: The kids are threatening to cut me a new one. The BainCapital/Thomas H. Lee deal is unraveling. What does that say about us if they’re willing to part with $500 million just to get us off of their books?

No one anticipated how challenging Q1 would be for us and while the plans we put in place last Fall made sense then, clearly we are operating in a different environment and thus need an adjustment to our plan.

You’ve heard the saying “from bad to worse?” That’s us.

The following Q1 expense reductions are to be implemented immediately in your market and correctly reflected to San Antonio by having your Market Controller access the Flash website under Reporting Events and complete the form titled "Q1 Contingency Plan". You will need to provide the expenses reduction amounts on the required form at the market level for the items identified below. This needs to be completed by no later than 7 pm ct today.

Hired rhymes with Fired but the latter comes first in the dictionary and we need to be first in something.

If you should have questions regarding the logistics, please contact Jeff Rice or Katie Gingrich and they will help guide you thru the process. The Q1 expense reductions are as follows:

'Q1 Expense Reductions

-all Research monies after 2/1

What we don’t know won’t hurt us.

-all Advertising and Promotion monies after 2/1

We have nothing worth advertising and promoting.

-all New Sales Hire guarantees not already implemented effective immediately (do NOT hire any additional sales people effective immediately)

We have nothing on-air worth selling.

-any New Hires budgeted but not hired effective immediately (do not hire any additional new employees)

Make do with threatening your current employees. There is no reason for us to train new employees to fear for their jobs.

-any/all discretionary monies (i.e. travel, meals and entertainment, etc) for your market. If you can save it, do so

When you take a client to lunch – have them pick up the tab.

Additionally, you are not to replace any departing personnel without specific approval from your EVPO

We can barely make payroll now - and more significantly - the Mays kids already renewed the leases on their Lear jets and limos and we have all those special interest groups payoffs…correct that… payments to deal with.

I completely understand the challenges associated with implementing the above cuts. It will make your job more difficult and have some long term affect (sic) on your overall performance. It goes without saying that leading through these reductions will be challenging. If there were another better alternative, we would not be requiring these reductions be implemented. Unfortunately, there is not another alternative.

Don’t worry about long term. We don’t.

Please contact your EVPO for any questions you have on implementing the reductions. Please recognize that your team will need strong leadership and support while implementing and operating under these expense reductions. Please help them understand the necessity of implementing these cuts and the importance of figuring out how they can operate as effectively as possible in the reduced Q1 expense scenario.

We've mismanaged this company and your employees are going to pay for it. What is there not to understand?

Again, I realize this is a challenging task but I am asking for your help, leadership, and support to implement and then work with the resulting expense plan to the best of your ability. It should go without saying that at the earliest opportunity, that is when revenues begin to stabilize and increase we can reverse the expense reductions.

Let’s face it. Revenues aren’t going to getting better. You’ll be next.

Thank you in advance for communicating the above to your teams and for your Market Controllers completing the information requests on the accompanying website. Please let me know how I can help.

I have a golden parachute and you don’t. If you try to reach me this weekend and I don’t answer – that means I forgot to take my cell phone with me on the golf cart.

John
John Hogan
Pres. & CEO

I have a job and you won’t.