Wednesday, February 6, 2008

Radio: Prior Control

It’s Boy Kevin Martin’s FCC so it’s naïve for one to believe that he would abide by existing rules governing prior control.

Correct me if I’m wrong.

Wasn’t it illegal for BainCapital and Thomas H. Lee to seize operational direction at Clear Channel?

A couple of weeks back the FCC rubber stamped the $27.4 billion buyout by Bain/Lee.

But I don’t recollect any FCC-approved lease marketing arrangement covenant allowing the two private equity firms prior control of Clear Channel operations. Do you?

Bain/Lee sent a team from Boston to San Antonio to make some sense of the morass at Clear Channel world headquarters. Their visit would’ve stayed under the radar had it not been for Matthew Karnitschnig’s Wall Street Journal blog leak.

“Waves of panic” were the words Karnitschnig used to describe Bain and Lee’s fear that their Clear Channel deal was dying.

They were dispatched to “to help run the business,” Karnitschnig added.

It’s not uncommon for private equity firms to send it their troops to shore up a company for privatization. Cerberus did with United Rentals in their last-ditch attempt to save that deal.

But the Clear Channel deal is atypical. Bain and Lee hope to take control of federally licensed radio frequencies – and there are laws governing who controls them and when. The I’s have it. Interference is not just inappropriate – it’s illegal.

Is there anyone who believes the Bain/Lee team flew into San Antonio just to help John Hogan write his memo?

Thought so.

I’d have to believe that John Hogan didn’t need Bain/Capital’s expertise to know that the toilets are the only thing Clear Channel hasn’t flushed. That way they can look back on their broadcasting history to see what they accomplished – but I digress.

There are stringent FCC rules regarding “prior control.” I’ve been through this routine dozens of times. One can observe but not participate in operations.

Up to now the FCC’s been mum on the Bain/Lee’s prior control issue, hoping it’ll go away. And that’s the way Boy Kevin likes it. Keep the government out of government.

That aside, even Boy and his FCC 3-2 majority are short of the cosmetics needed to cover the grim fiscal impasse the radio industry faces.

Citadel stock is tanking. Cumulus’ go-private deal with Merrill-Lynch is iffy and it will take more than a whiffle haircut to advance that deal.

The large radio chains want the Clear Channel-Bain/Lee deal done – and without the haircut.

When Clear Channel fell into the lower 30’s, the Wall Street Journal revealed that the five banks Bain and Lee brought into this dubious deal were “eager to escape huge financing commitments.” That $500 million break-up fee could be the lesser of two evils. The banks involved, Citigroup, the Royal Bank of Scotland, Deutsche Bank, Credit Suisse and Morgan Stanley, can’t afford another disaster.

Then there’s fear that if the Clear Channel and Cumulus go-private deals go south – it’ll devalue all radio properties.

I’m on the side of fiscal responsibility in the radio industry.

I know that may not fashionable in some circles but there are those that understand multiples and ready to get back in the game when the price is right.

There’s a suburb not far from where I live. It’s one of the fastest growing cities in the U.S. - trading cattle and corn stalks for a bumper crop of malls and McMansions.

Now it appears that there’s a shift change with supply and demand. Most buying the McMansions now realize they can’t afford them.

We all know people like that. They buy it now and figure out how to pay for it later.

That's been the radio industry’s m.o. for the past decade.


sgt friday said...

if it walks like a duck and talks like a duck...

it sure sounds like "prior control" to me.

the fcc wont do anything even if prodded to. kevin martin is well protected.

Anonymous said...

BainCapital and Thomas H. Lee did more than just observe. Even helping John Hogan rewrite a memo is interference. What Bain and Lee did was illegal. They should have known it, Clear Channel should have known it and the FCC now knows about it. I will be curious to see if the FCC takes action against Bain and Lee and Clear Channel. It is a clear violation.

talex said...

The McMansions analogy is a good one. Radio's slogan for the past ten years has been "Forget Domani".
Now "Domani" is here. Radio was overvalued and like real estate the market is correcting itself. A bad deal is a bad deal. I look forward to radio's real math becoming reality.

Anonymous said...

John, If anyone disagreed with your assessment of the radio business you can tell them:

Clear Channel: 29.76
Cumulus: 6.11
Citadel: 1.49

Defines devaluation to me.

Anonymous said...

Fiscal responsibility and radio industry in the same sentence? That might have been true pre-1997. Not since then.

Roxanne said...

I'm a huge fan of your blog. I worked for a Clear Channel station in Greenville, SC. They fired me for being anti-war, I mediated a settlement but my career is over.
Clear Channel was used up by Lowry Mays and his sons, who bought over 1,000 radio stations, fired tons of people and ruined lives in the process. They of course parachuted out smelling like a rose, leaving company in ruins.
Radio died after the Telecommunications Act of 1996.

Roxanne Walker

Zanizbar said...

I still have Super Tuesday on my mind. Is there any way to find out what broadcast companies and private equity firms have donated to the presidential campaigns of McCain, Clinton, Obama, Romney? That would tell a story of things to come.

Louis R said...

Look at it this way:

Clear Channel
high - $75.01
current - $29.02

high - $28.85
current - $6.24

high - $87.96
current - $ 1.43

I would sav DE-VALUE is here!!!!!

Anonymous said...

Clear Channel will have done to it what it did to its former employees. Can I watch?

Anonymous said...

The FCC could make life miserable for BainCapital and Thomas H. Lee and even do in the deal with Clear Channel but what would that accomplish? I don't think the FCC will do a thing and that is wrong.
The villains here are the Mays family not the shareholders and they will be the ones hit the hardest. Remember if the deal falls apart Clear Channel will get that $500 million unless they can show proof that the company misled them and their lending institutions in the original deal.

perry como said...

Haircut? Mark Mays and his ilk should be beheaded.

Anonymous said...

Clear Channel has lived outside the law for as long as George W. Bush has been president of the United States. Coincidence I think not.

Anonymous said...

I beg to differ. I believe that Bain Capital and Thomas H. Lee reps did fly to San Antonio to help John Hogan write that memo. Have you ever seen his other memos? Hogan writes like a sixth grader. Employees at Clar Channel long for the days when Randy Michaels was there wearing his rubber penis around his neck. That was fun or at least their idea of it.

Just Me said...

John I love your blog, you make me laugh. But really folks, Clear Channel is the worst thing ever to happen to radio. Other operators have followed the Clear Channel business model of strip, pump and dump. Now that they've screwed radio up beyond repair they're jumping ship. Mass media is dead, I think Clear Channel sees the hand writing on the wall and wants out before the walls come down on radio. To BainCapital and Thomas H you've been sold a bill of goods.. My advice is run! open a chain of McDonalds in India, anything but radio. The business is going to change and the days of Mcradio are over. Have a life boat! Have a life boat!

Mr. Smoothie said...

Has anyone noticed how Clear Channel's stock drops in direct proportion to their downsizing. The same appears to hold true for the other major chains...Emmis, Citadel, Cumulus. I read in where CBS is having their downsizing party today. That stock is wrapped around TV and the network but I bet that one will feel the love, too.

Hogans Heroes said...

We were just turned on to your blog and have been reading it this morning. We love it. Thank you. Your insights are shall we say right on the money. What stations do you work with. Whatever they are we want to work there too. I don't think you'll be working with one of our stations though. We're with Clear Bain Lee bankrupt Channel

Anonymous said...


"After conducting a survey of 340 HD2 stations to determine their programming needs, the folks at Clear Channel have dumped a number of their HD 'Format Lab' stations due to a lack of demand."

Anonymous said...

I have not seen, heard or read anything about this issue in any other publication or web site. Sounds like a cover up to me. If the FCC can go after stations for playing something they believe is obscene why not go after the companies when they break federal rules and regulations?

Spy vs. Spy said...

CCU is still in the twenties this morning. Bain and Lee would be wise to toss this sucker and withold the $500 million back out payment since they were not informed of all the internal problems at Clear Channel. If they need proof I will give them proof. I have worked with CC since they took over my stations in the late 1990's. They are a disgrace to the industry. The only reason I have a job is because I know too much.

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Anonymous said...

Hello. And Bye.

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