Wednesday, February 13, 2008

Radio: Daze of Decision?

Isn’t it hard to believe that no one at BainCapital and Thomas H. Lee perceive Clear Channel as a sinking garbage scow?

It’s even harder to believe that Citigroup, the Royal Bank of Scotland, Deutsche Bank, Credit Suisse and Morgan Stanley – the five banks backing this deal of doom - are still passengers on this ship of fools.
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This one’ll get interesting. Usually, in a buyout like this, employees unvoluntarily leave in droves. But what happens when you've already terminated the bulk of your employees?

Clear Channel never learns from their mistakes. They don’t have to. They just pass the blame on to their dwindling work staff. Another mistake at the top equals another round of cuts below.

And please – have some respect. Don’t ask the Mays family to relinquish the leases to their private jets. Yes, plural.

Bear Sterns trotted out analyst Victor Miller to do an optimistic spin on the deal by claiming that with FCC’s rubber stamp approval out of the way, Bain/Lee-Clear Channel will be as good as a done when Department of Justice weighs in – and he expects them to do so this morning.

This is no prognostication. Today is the deadline for DOJ to decide on the matter. It’s not like they have a choice.

Here’s how it works. If the DOJ does nothing, Bain/Lee and Clear Channel clear another regulatory hurdle. A hold-up will occur only if the DOJ files suit to block the buyout.

Miller’s hyperbole gave Clear Channel a momentary inflated taste of what it’s like to be in the low 30’s again – but by day’s end reality reared its ugly head and the stock price was 29.54. That’s only a ten and change higher than what it should really be.

At least we learned how much Miller’s support of Clear Channel is worth on Wall Street. Very little.

As this soap opera unfolds, the remaining hurdle will be whether or not the deal goes down at all.
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Clear Channel’s propaganda claims it’ll be done by mid-March. It could also be un-done by then.

The end result – whether it happens or not – will be the same. Devaluation.

Just like first-time homeowners were seduced by the scam of subprime mortgages and other financing schemes, where fast money was made by flipping houses or signing off on predatory loans, major chains that bought into the "own everything" concept lost sight of pragmatic multiples in their effort to control media.

Clear Channel assumed they could do it through radio - including charging for airplay and dominating the concert business. Outdoor added value. Then they ended up believing their own hype.

Price was not an issue and multiples were ignored as Clear Channel sold shareholders on a future of media control through an interesting combination of reality, rationalization and levity as if the radio business was immune to station prices that had no basis in reality.

The steep rise in radio’s debt service created room for rival media to compete directly with radio. It had neither the budget nor a large enough talent pool to fight back.

Inflation and production costs had nothing to do with it.
*
I had to laugh at the radio industry’s retort to Jim Cramer’s comments about it on CNBC last Friday.

Now let’s stop here for a moment. I’m not defending Cramer. I like his brazen on-air persona. He’s a talented entertainer. But I won’t tell you that following his lead will make you wealthier or that he has all the answers to the mysteries of life.

Back to the show. The most-repeated line by Cramer was, “Radio’s finished – as we know it!” How many times did you read that quote on Monday?

Radio spin doctors were arranging, rearranging, and interpreting Cramer’s comments to mean something completely different.
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One radio exec who’s still sipping the Kool Aid told me that, like Bob Dylan, one really has to study Cramer’s comments. He agreed with Cramer that “Radio’s finished” – but cautioned that “-as we know it” proved that he was talking about radio the way it was – not the way it’s going to be.”

Huh?

Did anyone catch what Cramer said next? “…but it doesn’t seem to matter to people in radio. They have always talked a big game and they’ll continue to talk a big game.”

Even less was more.

Another radio person played the conspiracy theory, claiming Cramer was a shill for XM Satellite Radio, which “just happened to run” a spot in the program.

I deliberately didn’t comment on Cramer. The over-reaction from the radio industry was just too good to top.

Here’s Clear Channel CEO and tarnished golden boy Mark Mays: “We’re not in the radio business. We look at ourselves as being in the cash flow business.”

Cramer: “…when you decide that all that matters is cash flow and the cash flow starts going down – you don’t have anything.”

He’s right. Radio – as we know it – is finished.

Did you hear? Clear Channel and a couple of other operators are taking a few of their unprofitable stations dark.

When everyone’s selling and no one’s buying – and you need whatever it is off your books – you drop the price.

Or as Bob Dylan put it – and you don't have to read between the lines to understand this one - “When you ain’t got nothin’/ you got nothin’ to lose.”

Let the haggling begin.
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Just in case you missed it. Here’s Cramer on radio: http://www.thestreet.com/video/10402694/cramer-its-over-for-radio-stocks.html#10402694

21 comments:

Anonymous said...

john, why didn't bain/lee make it mandatory that the mays family drop the jets & lower their expenses? instead bain/lee is perfectly willing to approve of the mays family style of management. there has to be a piece to this puzzle that is missing. can anyone explain this?

Kingfish Stevens said...

First, to anonymous, it's called the good ol' boys club. Secondly, it sounds to me like Clear Channel is being run by Gomez Addams "Every one's selling, then buy, buy ,buy. Sell all of my Consolidated Lent and Buy Fuzz unlimited. Just Do it Man." I agree with Cramer on this, radio is dead, as we know it. I have been saying that for years. There may always be something being braodcast on AM and FM frequencies, but will it be listenable? Maybe Mays listed to CSN 'Southern Cross' one too many times "We've never failed to fail it was the easiest thing to do."

Anonymous said...

I saw Jim Cramer's Friday interview. I agree with you that he is not the guy to hand your life savings over to invest. I also agree that what he said about radio was absolutely correct. It is a fact radio cannot hide. Just leaf through the past ten years of radio trade papers and magazines and read the interviews and quotes from our so-called industry leaders. They lied and lied and lied to Wall Street so much that they began to believe their own lies. I hope you are right that radio can recover from this decade of decadance and I agree that it will take fresh leadership and mentoring by REAL broadcasters. Thank you for your blog.

Anonymous said...

"Clear Channel never learns from their mistakes. They don’t have to. They just pass the blame on to their dwindling work staff. Another mistake at the top equals another round of cuts below."

The perfect description of how Clear Channel operates.

"And please – have some respect. Don’t ask the Mays family to relinquish the leases to their private jets. Yes, plural."

That is the Mays family way of saying 'let them eat cake.'


"Miller’s hyperbole gave Clear Channel a momentary inflated taste of what it’s like to be in the low 30’s again – but by day’s end reality reared its ugly head and the stock price was 29.54. That’s only a ten and change higher than what it should really be."

Wall Street was taken for a ride by Clear Channel and now it is time for that company to pay the piper. In the teens sounds about right.


"The end result – whether it happens or not – will be the same. Devaluation."

I feel bad for CC employees that may have been compensated with stock (CBS did that) or those who bought the lies and invested in CC and hung on to the stock when told something 'big' was just around the corner.

"Just like first-time homeowners were seduced by the scam of subprime mortgages and other financing schemes, where fast money was made by flipping houses or signing off on predatory loans, major chains that bought into the "own everything" concept lost sight of pragmatic multiples in their effort to control media."

That is the best definition I have read about post-deregulation radio. You nailed it.

"Clear Channel assumed they could do it through radio - including charging for airplay and dominating the concert business. Outdoor added value. Then they ended up believing their own hype."

I remember reading interviews and articles in trade papers on how CC would control the music industry and its talk shows would influence politics.

"Price was not an issue and multiples were ignored as Clear Channel sold shareholders on a future of media control through an interesting combination of reality, rationalization and levity as if the radio business was immune to station prices that had no basis in reality."

The Mays family did not care. They used other people's money to build their paper empire and now that it is crumbling it is left up to others to pick up the pieces. How did Bain and Lee ever buy into this mess?

"The steep rise in radio’s debt service created room for rival media to compete directly with radio. It had neither the budget nor a large enough talent pool to fight back."

Now they have NO talent save for a few morning shows whose contracts haven't run out yet and NO management that can control CC's destiny. CC is made up of empty suits that know nothing of the industry they are in.

"Inflation and production costs had nothing to do with it."

That is true. CC and other radio stocks were going down long before the economy soured.

'"Here’s Clear Channel CEO and tarnished golden boy Mark Mays: “We’re not in the radio business. We look at ourselves as being in the cash flow business.”

Cramer: “…when you decide that all that matters is cash flow and the cash flow starts going down – you don’t have anything.”'

John, you nailed Mays good.

I have been forwarding your blogs on radio to those in the financial sector. The feedback I get is that they agree with you.

Anonymous said...

Radio devaluation will occur and it will not be pretty. I think it will be hard and fast. Everyone is selling and no one is buying. Emmis and Radio 1 can't even sell their Los Angeles stations. I see radio properties coming way, way, way down and losing as much as three-fourths or even moe of their currently perceived value. Radio becomes an investment only to those that know how to operate it.

Anonymous said...

I don't think readers here understand Wall Street as well as they understand Radio.

This deal goes through because there are millions being made on commissions. It's that simple. To the investment banking community, the future of radio and Clear Channel is irrelevant. They are focused on closing this deal.

Some of you guys have undoubtedly sold airtime. You know the drill. Close, close, close is the mantra when a deal reaches this point. And that's for a small ad buy. Imagine you literally had millions in commissions hanging on the deal, for yourself and your bosses.

If you had that kind of skin in the game, you'd be hyping radio, too. Go visit Greenwich Connecticut and you'll see street after street of mansions built on the commissions from exactly this type of stupidity.

And as to why the people putting up the dough don't balk? Well, if you look at history you'll notice that being rich doesn't necessarily mean you're smart. This isn't exactly Warren Buffett putting up the money here.

Seething said...

Clear Channel is sinking like a stone on the Street today. Hooray!

Deadly Earnest said...

By eliminating regulations and rewriting vague laws on who owns and who leases the AM and FM frequencies the radio industry turned into a get rich quick land grab. The problems were immediate. Clear Channel did not know how to be a large operator any more than Mel Karmazin not knowing anything beyond micromanaging. It shows how shallow or how little the radio operators of today know when they make comments about needing a Randy Michaels to put fun back into the business. Maybe it was fun for you watching Randy in his boxers with a water gun at the R&R convention. It was not for me. The radio industry deserves to be devalued. Its devaluation is well overdue which means that when it happens its going to be a quick and long slide down. John, I hope you and others I know who really care for radio will be active in the new radio world and mentor future generations in our business so they can take it to next technological level. Love your blog.

Deadly Earnest said...

By eliminating regulations and rewriting vague laws on who owns and who leases the AM and FM frequencies the radio industry turned into a get rich quick land grab. The problems were immediate. Clear Channel did not know how to be a large operator any more than Mel Karmazin not knowing anything beyond micromanaging. It shows how shallow or how little the radio operators of today know when they make comments about needing a Randy Michaels to put fun back into the business. Maybe it was fun for you watching Randy in his boxers with a water gun at the R&R convention. It was not for me. The radio industry deserves to be devalued. Its devaluation is well overdue which means that when it happens its going to be a quick and long slide down. John, I hope you and others I know who really care for radio will be active in the new radio world and mentor future generations in our business so they can take it to next technological level. Love your blog.

louisr said...

WHAT A DIFFERENCE A WEEK MAKES:

Clear Channel
high - 75.01
2/6 - 29.02
RIGHT NOW 1:00 PM 2/13 – 29.16

Cumulus
high - 28.85
2/6 - 6.24
RIGHT NOW 1:00 PM – 2/13 – 5.87

Citadel
high - $87.96
2/6 - $ 1.43
RIGHT NOW 1:00 PM 2/13 - 1.45 – and dropping

DEEEEEEEEEEEEE-VALUE, BABY, DEEEEEEEEEEEEEEEE-VALUE!

Anonymous said...

John, I read the same quotes and comments you did in the trades about Cramer's comments. I especially liked the COOT's usual answer of asking more questions of broadcasters on how to be more creative. Hah! This guy did more to ruin rock formats than anyone since Abrams on a drunk. He ALWAYS replies with a question. Proof that the COOT doesn't know shinola. My GM is getting wise to his antics and may say something publically in the near future. He is beginning to see through the transparancy of the COOT. Beyond that, Cramer is right and I had to laugh at the guy trying to translate his "as we know it" comment. The radio industry may be down to the bare bones but these guys still find themselves with too much time on their hands to be conjuring up things like that.

judge judy said...

I would love to see any of these guys - Smulyan, Hogan, Mason - all of them - go head to head and toe to toe on CNBC. I don't mean a manipulative soundbite. I mean cold hard questions delivered eye to eye to those custodians of the radio industry. You will have a half dozen to a dozen mouths speaking and all of them saying the same thing with none of it reality based.

Emmis used to be a good company. They took care of their people. Hell, they even took care of people who they didn't have to take care of. Now it's different.
What happened? Greed is good greed?

Company at hand Clear Channel cannot unload its properties. It is so bad that if they sell a couple of market number 350 stations they will do a press release on it.

Things are bad out there and they will only get worse as long as the current custodians of the radio industry continue to run it.

Anonymous said...

The party never ends or so they thought. At the top they feel nothing. No matter what crumbles around them they will be safe. Radio killed itself. Remember when Clear Channel used to joke or maybe it wasnt a joke about their world domination plans. Now they will walk away with millions while thousands lose their jobs.

Anonymous said...

What's wrong? I thought the DOJ was going to let the Clear Channel-DOJ deal go forward. If the DOJ is holding it up something must really be rotten in San Antonio. I checked and the DOJ can extend as they have with XM - Sirius except that this is a buyout not a merger and should not require addition scrutiny. I think the DOJ may be waking up to Clear Channel's many scams.

Anonymous said...

What's wrong? I thought the DOJ was going to let the Clear Channel-DOJ deal go forward. If the DOJ is holding it up something must really be rotten in San Antonio. I checked and the DOJ can extend as they have with XM - Sirius except that this is a buyout not a merger and should not require addition scrutiny. I think the DOJ may be waking up to Clear Channel's many scams.

Anonymous said...

What's wrong? I thought the DOJ was going to let the Clear Channel-DOJ deal go forward. If the DOJ is holding it up something must really be rotten in San Antonio. I checked and the DOJ can extend as they have with XM - Sirius except that this is a buyout not a merger and should not require addition scrutiny. I think the DOJ may be waking up to Clear Channel's many scams.

bored in bahstahn said...

you should have mentioned clear channel in boston and new york where they have one pd handling stations in both cities. how can a pd pay any attention to detail? Then again when much of your day is voice tracked who cares? what they don't realize is that same question is being asked about radio by its former listeners. there are major and medium size markets where clear channel fm stations even ones with well known call letters that have only one or two full-time employees.

Still working (but looking) said...

I don't believe there are many managers left that would fill the "drink the Kool Aid" definition. We have all been beaten down. The business stopped being fun and stopped being competitive. Give me the stress of multiple owners any day. I can compete there. I don't want to sound like John Kerry. I was for the telecom bill and deregulation before I was against it. It was a bill of goods that made a handful of radio folks rich and put thousands out of work. Radio, you reap what you sow.

Thunder said...

I can't help but thinking the radio business was healthier, listeners were better served, and clients got more bang for their buck before the government got out of the regulation business. John, you worked for Malrite. With his 12 AM's and 12 FM's Milt Maltz made millions of dollars, bought a chain of Fox television stations, set up a museum in Washington D.C. and lived happily ever after. Along the way he gave listeners great products like The Buzzard, and brilliant creative characters like yourself and John Chaffee. But damn, he had to fly commercial!

At what point did abject greed swallow the radio industry? At the same RAB where everyone was busy rebuking Jim Cramer, Lew Dickey, Cumulus CEO repeatedly talked about how many more commercial opportunities a new digital platform will afford radio. Never once in his comments did he mention anything about improving or growing the product of radio. Radio is a content provider. The platform affords us the chance to increase our distribution. But if we don't improve our products no one will care, no one will consume, so the increased spot breaks are worthless. Somewhere along the line it was forgotten that cash flow begins with content that someone wants to consume. No content, no consumers, no one to advertise to. What a dilema.

And doesn't the first line of every license read, "you are licensed to serve in the public interest?" Funny, I don't see anything about shareholders in there anywhere. Obviously self-disciplin doesn't work. Maybe its time the FCC enforced its own license regulations and like children who need to keep their hands out of the cookie jar, we'd all be better off with an omnipotent parent.

louisr said...

YOU CLOWN HEADS DESERVE THIS!!!!

Here's the weather forecast....
CLOUDY WITH TEMPS DROPPING.

Clear Channel
high - 75.01
2/6 - 29.02
YESTERDAY 1:00 PM 2/13 – 29.16
RIGHT NOW - 3:00 PM - 29.06. SMOKIN', BABY, SMOKIN'!!!!

Cumulus
high - 28.85
2/6 - 6.24
YESTERDAY 1:00 PM– 2/13 – 5.87
RIGHT NOW - 3:00 PM - 5.77
DROP BABY DROP!!!!!

Citadel
high - $87.96
2/6 - $ 1.43
YESTERDAY -1:00 PM 2/13 - 1.45
RIGHT NOW - 3:00 PM - 1.40
GOING DOWWWWWWWWWWWWWWWN?????

DEEEEEEEEEEEEE-VALUE, BABY, DEEEEEEEEEEEEEEEE-VALUE!

CUE UP AWB - PICK UP THE PIECES!!!!

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