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.

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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