Tuesday, February 26, 2008

Radio: Running on empty


Another deal is dead at BainCapital.

Bain and Huawei Technologies of China pulled the plug on their pending $2.2 billion buyout of the Marlboro, Mass.-based 3Com Corp. when the deal ran afoul of a U.S. national security panel.

The Committee on Foreign Investment in the United States refused approving the deal since it would provide Huawei probable access to 3Com’s sensitive encryption technology.

Encryption, prescription. We can trust the Chinese. Pet food? Toothpaste? Do you want your Barbie doll leaded or unleaded?

BainCapital. Try not to let the facts get in the way of a shoddy deal. Just ask Clear Channel.

If there is any upside with the BainCapital-Clear Channel deal it’s that the dog and pony show that the radio industry morphed into is drawing to a close. The smoke has dissipated, the mirrors are broken and easy way outs are getting a lot tougher to pull off.

There was the news that came down late last Friday about Entercom. They posted a Q4 loss of just under $10 million, which resulted in a black Friday of firings at many of the company’s radio stations. The immediate down-whacking that followed included a few air established personalities who’d been with their respective stations for over 20 years.

Old and in the way. Seniority and being established in a market is so over-rated.

It seems like only yesterday when radio chains told shareholders that their stations were solvent and recession proof. Are they making money? Sorry, no more questions.

You have major radio chains gutting their morning shows, eliminating sidekicks, writers, producers, characters – the support team that helps make a morning show entertaining and memorable.

A daypart accounting for somewhere between 40 to 60 percent of a station’s total revenue is superfluous?

Some stations have even given up on doing a morning show and opting for non-personality jocks to spin music in the morning with little to no supplementary content.

That’s like being rescued from an alligator attack by a man eating shark.

Then we have Regency Broadcasting stock. Got any change? You can buy it for under a buck. It closed at 95 cents to be exact. Citadel did $1.49. Cumulus, $5.82. Clear Channel closed at an inflated $32.24. All the king’s horses and all the king’s men. You know the rest.

Not all chains are drowning in debt - but none of them have paddles and that stinking creek is rising quickly.

So much of radio’s future depends on what comes down in San Antonio over the next few weeks.

The mess Clear Channel can’t extricate itself from continues to grow more tentacles and now they’re choking the entire industry.

The deal in jeopardy at the moment is Clear Channel’s $1.2 billion sale of its television unit to Providence Equity Partners, a media-focused buyout firm. Providence balked at the originally agreed-upon price, citing deterioration in the business and the economy, which prompted a lawsuit by Clear Channel. But late Friday following a few hours of name calling and finger pointing, the two sides had struck a deal in principle for Clear Channel to drop trou by $100 million.

But that may be too little too late.

Three banks are backing the deal. Two of them, Goldman Sachs and UBS, agreed to finance the revised deal, with Providence borrowing less money at a higher interest rate – but the third, Wachovia, just wants out. They hired the law firm of Robinson, Bradshaw & Hinson to make the split permanent and to find an escape hatch to avoid getting stuck with the $45 million break-up fee.

Clear Channel (and others involved in privatizing schemes) is having problems getting banks to back them. The credit market freeze chilled chances for banks to resell loans – and that’s going to force them to take huge write-downs to keep them on the books at a time when they’re already reeling from subprime mortgage scams.

It’s doubtful the Providence deal will close without Wachovia.

If that deal crashes, it’s almost certain doom for the Bain/Lee-Clear Channel buyout.

And that may be a good thing.

Devaluation will rear its ugly head – and it’ll become a buyer’s market – and loans will be made contingent upon a realistic sales price – with multiples that make sense. Then, the opportunity for real broadcasters to re-enter the business will be one step closer to reality.

You do have to wonder if the non-broadcasters in this business have a final trick up their sleeve.

Can they prop up themselves up for one more glorious year of looting at shareholder expense?

Doubtful.

14 comments:

Splicer said...

Honestly, I don't know how this will all shake out although I have a strange feeling that six months from now I'll be driving for an airport car service rather than working as a Production Director (assuming I can't find a position at an ad agency or one of the regional cable sports outlets). All I can say is that this is what comes of allowing salesmen to rise above the level of their own competence. When a person who only thinks of his own pocket enters the corporate exec class, the future of the company is doomed. Mel Karmazin is a perfect example (as are the Hollander Brothers).

Karmazin stuck with the Ponzi Scheme made famous by equity groups (cut costs, show short term profit) until he was able to palm the whole lie off to Viacom. Lo and behold, he sells his stock and is off with the cash - radio stations be damned. Viacom, of course, gets stuck with the crap stations along with the revenue generators. Unfortunately, along come the Brothers Hollander who think that sales genius translates into programming genius. Anyone remember our old friend Jack?

I hope I'm in this business long enough to see certain people do the perp walk - then I'll be glad to go drive that hack.

Anonymous said...

John, I agree with your assessment of the radio industry. You said it best about the smoke and mirrors this industry used on Wall Street. One element you left out. When real broadcasters return, the pretenders will be forced to leave. It will be a bittersweet ending because those at the top (Karmazin et al) walk away with a ton of cash for bilking the industry dry. But you can always rebuild.

Anonymous said...

Many buyout deals are going belly up and not just Bain and Lee. Selling debt is not the fun business it used to be. Radio is late getting into the buyout deals and there is little chance any of their deals including Clear Channel willbe successful.

Anonymous said...

Remember when some chains were bonusing contracts with stock options? Hope you didn't fall for it.

Anonymous said...

John, I hope you and some of the other posters are right about real broadcasters being able to get back into the game after the rapacious greedheads unload their devalued properties. There's just one big problem: an entire generation of potential listeners has been ignored over the past decade, and the generations that found value in radio are being driven away. Getting the iPod-Napster generation will be the major challenge for those who will try to pick up the pieces.

jan said...

I just read the last comment and had to respond. I heard you speak a few a while back and someone in the audience asked you the same question about radio's chances of getting "new media" users back. I remember your reply. It was "That is the challenge that only real broadcasters can accomplish". You made me (a former radio joc)a believer in radio again.

Ron V said...

If the radio chains didn't do their mass bloodletting every quarter just think,they would not be able to pay their electric bill, "mortgage", rent, existing payroll, etc., etc. Talk about mismanaging money from the get go. Those that got out ten yrs. ago are the smart ones.

Anonymous said...

"When real broadcasters return, the pretenders will be forced to leave."

Like who? Who are the "real broadcasters?" The ones who sold out for billions? They're not coming back. They're on a beach somewhere, enjoying life. If they were real broadcasters, they wouldn't have sold in the first place. They would have said, like Charleton Heston, "From my cold dead hands."

But they didn't. They sold out the minute the carrot was dangled in front of them. These are not the kind of people you want to return to broadcasting.

Anonymous said...

Things with radio might be a little shaky but really folks they're not that bad.

Here’s my Advice. Continue to program stale radio. listeners love radio so much they’ll put up with anything that’s in our best interest. Let's continue to fire great talent, after all who needs them anyway. Just replace god given talent with voice trackers and more music. Don’t worry, the internet, digital music downloads, and Ipod are just fads, like 8-tracks were. Radio will never be replaced especially in the car!

Continue to play 10 commercials back to back. It’s good for our best interest and listeners love radio so much they’ll listen to anything. Don’t worry about getting results for advertisers. If you lose a few paying clients, they’re easy to replace. Besides when those foolish advertisers understand their business is in jeopardy without radio advertising they’ll come running to radio and we’ll charge them twice as much.

Stop paying sales people high commissions. If they complain, follow the Clear Channel model, fire and hire over and over until you find your next superstar seller. Also, let agencies book air time over the internet. With what you’ll save on commissions your station can afford to pass more savings onto agencies. Who needs good sales people anyway? If you must have sellers, don’t bother with training it’s big waste of time. Instead just beat your sellers with a bat. Trust me they’ll learn how to sell.

Continue to push HD radio. God know listeners want more of the same stale radio except in crystal clear HD.

Don’t worry about the future.
Gm, Ford & Chrysler didn’t see the need to change and they’re just fine.

Anonymous said...

How about the top executives of Entercom, CBS, Clear Channel, Citadel, Cumulus, Regent cutting their salaries? Instead, fire your loyal employees for the mistakes that you made. Shame.

Zed Uno said...

John I don't know how you do it. Maybe it goes back to your days in radio when your stations would get exclusives of major artists the competition didn't have. Regardless of that the first I read of most of the twist and turns with the Clear Channel buyout plans and things going on at other companies come from your blog. I will be honest. At first I believed you were embellishing some of your stories. Now I see you were not. You must have your ear to the ground in some interesting places. Either that or you have the best flies on the wall. If what you say is true and the radio industry does come crashing down and survivors who know how to run them pick up the pieces we will owe a lot to you for encouraging us not to give up the fight to return radio to those who best know how to manage the properties and own the licenses.

Anonymous said...

Assuming there is going to be some great rebirth of radio after the chains finally give up and sell at firesale prices (an assumption I disagree with), where do you think the talent will come from to revive the industry? From on-air to production to programming to sales and marketing . . . there is no pipeline left producing competent people to fill these roles. With each round of cuts, more and more experienced people are driven from the business, either laid off or running to safer industries.

It would be nice if radio was placed in the hands of independent owners and reborn, but the chances of that happening are almost nil, IMO. More likely, they’ll go the way of newspapers, which went through exactly this type of consolidation and streamlining for years. And when the chains finally sell off a newspaper that has had all the profit sucked out of it, there is almost never a rebirth of that paper. It generally shows a flash or two of life and then slips out of business because there is no one with enough know-how to take on the important challenges of keeping the operation running. The same will be true of radio. As the chains extract every last dollar possible from the stations they own and then sell them off to whatever suckers they can find, their post-chain life will be short and not to sweet.

For those of you who love radio just too much to quit, my advice is to get yourself online. That will be the future. The vast majority of us on the board will outlive the broadcast business model.

Anonymous said...

oops. Left out engineering from the long list of positions that will be impossible to fill in the post-chain future. Know any radio engineers under 50? I didn't think so.

Anonymous said...

"It would be nice if radio was placed in the hands of independent owners and reborn"

Take a look at the stations still owned by independent owners. They're doing the exact same thing as the big guys.

You guys are all living in a dream world. There are tons of AM stations in big cities that are now dark, available for anyone willing to do the paperwork and revive them. It wouldn't take any money at all for you to do it. But it would mean you'd have to actually take responsibility and do some work. That's not going to happen. Maybe someone else will do it, so you can attack them. That's better.