Monday, June 30, 2008

Radio: Heroes are hard to find

We know of one Clear Channel exec that won’t be shuttling to Chicago to enter the Gates of Zell any time soon.

It’s been officially confirmed that John Hogan will be on board with the newly privatized Clear Channel as President and CEO of its radio division.

He signed up for five years. Bet on two.

Give him credit for managing to hang on to the position he’s held since the sudden departure of private plane enthusiast Randy Michaels back in August, 2002.

Sulk Hogan’s been working without a contract as Clear Channel's fixture tyrant since January 31, 2006.

Sure, there were rumors of BainCapital and Thomas H. Lee being less-not-more than thrilled with Hogan’s performance – but apparently they like the way he lets them rewrite his memos so he’s good to go.

That – and who else would’ve taken the thankless job anyway?

So now he’s in the position of knowing that the more employees Sam and Randy hire away from Clear Channel, the more enemies he'll get.

When Hogan was interviewed in the trade Radio Ink in 2003 he said, “Over the past few years, it became very fashionable to take a shot at Clear Channel. We became a target for a lot of people who think that big is bad. We became the target of a number of special-interest groups who were opposed to deregulation, not just of Radio but of media in general, and we were painted with a very broad brush by some of those groups. The momentum of the negative spin surprised us, and we have worked very hard to get caught up and replace inaccurate gossip with real information.”

Some things never change.

Last year Hogan made $2,166,308. His base is $775,000. The rest came from performance bonuses and stock and options.

How does it feel to be a Clear Channel parvenu?

Privileged number one son and Clear Channel CEO Mark Mays said in memo, “This management team will be on point to compete successfully against newspapers, cable, television, and all of our other competitors.

Did he really utter the word “newspapers?”

As in Tribune’s Sam Zell? As in Randy Michaels?

See? Clear Channel hasn’t changed. They still need a villain to blame their mistakes on.

Remember a couple of weeks back when number two son and CFO Randall said Clear Channel would go back to its “normal procedures” once it closed the deal with Bain and Lee?

He didn’t lie.

"Normal" at Clear Channel is Russian roulette.

Hogan’s first order of business will be to unveil a new management structure – and, as Hogie likes to say, “Less is more.”

Expect more of the same. They’ll keep floating their ludicrous trial balloons, only to shoot them down later.

Insiders claim the top 30 radio markets will report to one EVP and RVPs will be pay-cut wide and deep and busted down to market managers and paid appropriately.

Like I said. Some things never change.

Question: What’s Hogan’s job description? Answer: Disfiguring radio properties.

Barring contingencies, Bain and Lee will take over Clear Channel on July 30.

Let me toss one in. Is it true that BainCapital and Thomas H. Lee are kicking the dishes at XM? Does that mean the Sirius merge is about to purge? Just asking.

It’s amazing what you read that’s texted from the private cells inside Clear Channel’s San Antonio Kremlin.

There’s probably a lesson here somewhere, but I don’t even want to think about what it might be.


Anonymous said...

Roger Daltry and Pete Townshend have to be proud of their "meet the new boss/same as the old boss" lyric. It happens again. Clear Channel will get leaner, Hogan will get meaner and revenue will get teenier. We should be glad Hogan got re-upped. Could you imagine if he was a free agent?
Perish that thought.

Anonymous said...

"They still need a villain to blame their mistakes on."


Doesn't everybody?

Isn't that what this blog is all about?

inquiring mind said...

John kind of mentioned it..but I'd like to know other opinions...

Is the NAB/Clear Channel/Bain Lee consortium trying to torpedo the satellite radio merger so they can essentiall steal one of the licenses if they can eventually force one of them into receivership?

Your thoughts?

tim wallick said...


bain and lee kicking the dishes..

I would not be shocked by the thought or them acting along thoses lines.

I am shocked by martins willing-ness to allow the merger to even be voted on.

after xm and sirius both said in quite frank and clear terms. no merger no interoperable/dual device period.

clear enforcement action should have been taken then, based on the required mandate for the device.

as many of the benefits gained via a merger could have been gained by the dual device along with sharing the rlated burdens.

many think this deal is already done.I would suspect it gets launched into the court system upon the fccs ok.

I think consumers and shareholders were mis-lead or lied to.

yes sir it looks like somebody is setting the stage to take this deal apart and i honestly think the claims being made need to be investigated prior to a vote at the fcc..

let the chips fall where they may.

Anonymous said...

Gorman, all I can tell you is that you have some good sources. It is true that here inside Sirius there has been a hush on the merger going through. It has us worried because they will have to make cuts. It was assumed that the merger cuts would be mostly on the XM side. If the merger does not happen as planned there will most likely be a major downsizing here.

Anonymous said...

Here is my question for you. Why didn't Clear Channel sign up Sulk Hogan to a twelve year deal? It would have been marketing genius. That way Hogan could be the poster child for RADIO 2020 and lead us into that glorious year when radio will be reborn courtesy of the NAB.
They missed a golden opportunity here, folks. In reality I give him two years, too. It is bad enough when Hogan had to answer to the snot nosed Ivy League show off Mays kids. Now he has to show off to both the Ivy League show off Mays kids and their Ivy Legaue private equity company too. Hogan will feel like a dish washer at Hayes Bickford by the time this is over.

Anonymous said...

It is just more of the same under Bain Capital and Thomas H. Lee. More downsizing, more voice tracking, more salespeople on the street selling less. What a mess. I hope Bain Capital and Thomas H. Lee start parcelling off properties soon. Even when the economy finally recovers, the worth of radio will not. Sell it while there are still a few suckers out there.

Anonymous said...

Interesting chain of events. Karmazin vs. Clear Channel all over again? The rich get richer and everyone else gets screwed.

Anonymous said...

John, I read your comments about John Hogan as well as Jerry Del Colliano's. I feel you two have the best instincts in radio today. Though the two of you differ in your opinions of Hogan's rehiring, you are not far off. John, you feel the answer lies in the stations Bain and Lee spin off. Jerry believes Michaels and Zell will buy up some of the CC properties which would have the reverse effect. I side with your optimism to a degree although I also feel the change toward improvement may take longer than you predict due to the economy. I would be curious to see how others weigh in on this.

Anonymous said...

Terrestrial radio is frightened of the many advantages satellite radio offers as their competition. Yes, they're duplicitous in saying that satrad is not competition.

One thing they're especially frightened of is the countless channels of programming compared to their 20 - 30 HD radio side channels offerred in the most populous radio markets.

An easy way to snuff out this compeition of theirs is to force the satellite operators to give up a lot of these channels by a smokescreen of providing channels for minorities. It's pretty easy to see into this one.

Anonymous said...

"Terrestrial radio is frightened of the many advantages satellite radio offers as their competition."

Oh come on now! If satellite radio has so many advantages, why have subscriptions ground to a complete halt, and why are the two competitors merging?

The main advantage of satellite radio is the ability to do national programming rather than local programming. Imagine if CC could program all of its stations from one studio.

The fact is that cable TV is required to give a lot of their channels to minorities and community service. The same should be expected of satellite radio. If there are so many advantages to satellite radio, a little public service shouldn't cause them any inconvenience.

Anonymous said...

I have a subscription to XM. My car is in the shop for the day so I was given a loaner to drive. I spend 4-5 hours a day driving to client locations. Within a half hour I was going to withdrawel. The car had an AM - FM. I could not find ANYTHING to listen to - AM or FM. Music or talk. I am not in love with XM but I will take their variety and GLADLY PAY FOR IT rather than listen to the crap on terrestrial radio. I was hoping to find one station - even a college station on terrestrial I could listen to. No such luck. If satellite radio subscriptions have slowed down it is for good reasons. No one knows the outcome of the XM-Sirius merger and who will be driving the bus (I hope it is not Sirius)and Gorman's thing about BainCapital and Lee is a scary scenario. Until consumers know what is going to shake down with the XM-Sirius merger or not I can understand why sales or slow. The economy doesn't help either.

Anonymous said...

Bain-Lee buying XM makes sense for Clear Channel. Leverage. Content. If this happens I will bet that Mel Karmazin concocts a deal with a radio chain. Maybe Citadel? It makes more sense than the XM-Sirius merger.

Anonymous said...

Hogan is easy to boss around. Bain and Lee give the orders and he executes them, often in more ways than one. He almost enjoys the art of downsizing. They could not have asked for a better candidate.

They will reconsider when they see revenues dropping faster than the economy is falling.

The other radio conglomorates are happy too. Their downsizing can be cloaked to Clear Channel.

If XM becomes part of Bain and Lee synergy between them and CC is a possibility. Franchising.

Anonymous said...

XM stock is in far worse shape than CC's, and everyone here gripes about CC's stock.

Bain just went into hock for $20 billion for CC. They're not about to add another $5 billion of debt for XM. Especially when XM's value is even worse than CC's.

At some point, they need to find a way to make money, and buying an already-antiquated technology like satellite radio isn't going to make things better for anyone.

Anonymous said...

>> The main advantage of satellite radio is the ability to do national programming rather than local programming. <<

You're absolutely correct! You've hit upon yet ANOTHER advantage I hadn't even thought of. Here are some others among the many advantages of satellite radio that people pay for (and you get what you pay for):

1.) Over 100 brand-name channels, including CNN, Fox, NFL Football, NBA Basketball, major league baseball, NASCAR, NHL Hockey, Howard Stern, and on and on.....;

2.) Escape from annoying commercials on music channels;

3.) Seamless, reliable and predictable programming coast-to-coast, even in the most remote rural area. In fact, I believe that satellite radio is the ONLY means of reaching the entire nation from a unified point, even when the receiver is in motion. This characteristic may have defense industry implications.

Thank you for being so helpful!

Anonymous said...

The reason you were so helpful, I forgot to add, is that I was showing my neighbor my XM and was telling him of ways why it's a great product...he was very impressed by the demonstration.

Anonymous said...

And yet with all the advantages, subscriptions have ground to a halt, and the two companies need to merge in order to stay in business.

Don't you think that's a bit strange?

Could it be that the advantages aren't valuable enough to most consumers? And even with all the cost savings of national programming, XM & Sirius need to save way more money, fire way more people, and close down more facilities.

Do you think that may have an impact on quality of service?

Anonymous said...

Prediction: Regardless of whether Sirius-XM merge or XM goes with BainCapital/Thomas H. Lee, Mel Karmazin will be out the door just around the same time Howard Stern decides not to renew his contract. Stern is getting old and not attracting new listeners. He had a great run, made a boatload of money and like Mel and Don Buchwald will never have to worry about money.

Anonymous said...

Prediction: Regardless of whether Sirius-XM merge or XM goes with BainCapital/Thomas H. Lee, Mel Karmazin will be out the door just around the same time Howard Stern decides not to renew his contract. Stern is getting old and not attracting new listeners. He had a great run, made a boatload of money and like Mel and Don Buchwald will never have to worry about money.

mag reader said...


NEW YORK (Fortune) -- Howard Stern hit the jackpot when he moved satellite radio more than three years ago. He's pocketing $80 million a year and has received Sirius Satellite Radio stock worth roughly $200 million for meeting subscriber growth targets spelled out in his five-year contract.

But the shock jock may be in for a shock of his own when his deal expires in 2010. Heavy spending by Sirius (SIRI) and XM Satellite Radio (XMSR), its chief rival and potential merger partner, on stars like Stern have come at a hefty price: While millions of radio enthusiasts have signed up in recent years, both Sirius and XM are deeply in debt, cash-strapped and suffering an ominous sales slowdown.

Once Sirius and XM merge, as early as this week, they'll need to take drastic steps to bolster their balance sheet, including cutting costs and refinancing XM's massive debt. It won't be easy, but the prospect of financial collapse will have its advantages - namely, negotiating power with stars like Stern. After all, Sirius-XM will be the only satellite radio game in town.

Sirius said Monday that it expects to squeeze about $400 million in costs out of the combined company next year, and reach positive free cash flow, excluding spending on satellites, in 2009.

Talent wars
The $500 million deal that Sirius struck with Stern in 2004 is a good example of the bidding war that eventually forced Sirius and XM in each other's arms.

Stern was already in talks to go to XM when Sirius swept in with its ridiculously large bid. Sirius - the smaller of the two satellite broadcasters with less than a million subscribers - saw Stern as the marquee name that would more than double its audience, and lure advertisers. XM, with 2 million subscribers, had reached the same conclusion, which is why Sirius had to pay big to land Stern.

Similar battles played about for other top draws. Sirius, for instance, is paying the National Football League $220 million for an exclusive seven-year deal and Nascar $107.5 million for a five-year contract. XM is shelling out $650 million for its exclusive 11-year Major League Baseball pact.

In all, total programming costs, the biggest single expense for the two companies, came to $475.4 million last year, or 23% of total revenue.

Combined, Sirius and XM will have close to 20 million customers. Only a fraction of those users are Stern fans, so it's likely that Sirius will seek a new contract with Stern that's more reflective of his overall contribution to the business, predicts Cowen analyst Tom Watts.

The new math
Sirius-XM will have to move fast to cut costs.

Satellite radio subscriber growth is flat, the likely victim of a slowing U.S. economy and waning interest in the once-novel medium. Meanwhile cash is running dry. Last month, citing heavy debt costs, a tightening credit market and sluggish car sales, Goldman Sachs analyst Mark Wienkes slashed his stock price targets for the two companies, raising the prospects that there may be a financial black hole ahead for the combined company.

If so, analysts expect Sirius-XM to take a hard look at programming costs, either by waiting until existing contracts expire or using the onset of a financial crisis to force everyone to the bargaining table sooner. The combined company's market dominance, analysts say, will give it the necessary leverage to cut programming costs by as much as 30%.

One obvious target: Howard Stern's $500 million package, which doesn't include the roughly $200 million in Sirius stock he's received for meeting subscriber targets. Depending on the health of the combined company, Stern and his agents may be in for a tough negotiation.

"The question is, is there anyone out there who would pay him $701 million," asks Scott Cleland, a Washington-based analysts with Precursor. "Good luck."

Stern could go back to AM-FM radio, but even then it's unlikely he'd pocket anywhere near his Sirius pay. Stern and his team took in an estimated $30 million a year when he was at Infinity Broadcasting, now known as CBS Radio (CBS, Fortune 500).

To be sure, programming costs have already come down as a percentage of revenue as sales have doubled in recent years. Last year, for example Sirius' programming and content costs were about 20% of total revenue, down from 36% in 2006. Still, the overall number continues to rise. Sirius is expected to have $231 million in programming costs this year, up from $226 million in 2007, according to Watts, the Cowen analyst.

Sirius declined to comment. An XM spokesman did not respond to requests for comment. People familiar with the company and the programming deals say each contract is different in terms of renegotiation options in the event of a merger.

Watts, for one, thinks Sirius will wait until Stern's contract - it's most expensive - expires before seeking new terms. Watts says the more pressing issue is refinancing XM's $1.46 billion debt, a move he says could happen soon after the merger.

But expect programming to be next on the belt-tightening list. So while Howard Stern is still huge, his new contract could be less so.

Anonymous said...

No way does Bain/Lee buy XM. They're all about established cash flow, which clear channel has and XM doesn't. Even with the advertising recession, you can still forecast what revenues will be. With XM, who knows? New media isn't a gamble funds like Bain and Lee will be interested in. At least not at the price required to break up the deal. Whoever is floating that is trying to mess with the stock price or mess with the deal. One or the other.

As for NAB, their goal is simply to make the XM/Sirius merger as expensive and difficult to accomplish as possible (if they can't prevent it). That's what you have an association for, to try to kneecap your enemies.

Meanwhile, interesting column on Howard, but the fact is he will be free to pop back to radio should he decide that he needs even more money when his Sirius deal runs out. Look at the $400 M deal Rush just landed, and you know there's plenty of money to bring Howard back, should he be willing to play in the radio swamp again.

Anonymous said...

“It is the economy stupid”. Subscriber numbers are flat because discretionary income for a majority of car owners and potential subscribers is far worse off now than even a few years ago. If is boils down to paying rent, keeping a cell phone or paying for satellite radio, guess what looses?

Don’t believe me? Look at the performance of Starbucks. People are asking themselves, $4 for a gallon of gas or $4 for a cup of coffee? That is an easy answer for most. Ask someone who performs cosmetic surgery how business is this year. Doctors that perform “elective” surgeries are getting crushed. Household budgets, like corporate budgets, are being squeezed and at the end of the day, most people are going to choose food over Howard.

I love the comment that satellite radio provides, “seamless, reliable and predictable programming coast-to-coast, even in the most remote rural area”. Thank you for bringing that up. Rush, Hannity, B&T and Paul Harvey, just to name a few, only reach 97% or so of the potential terrestrial radio audience. In most large to mid-sized markets they can be received on multiple stations and sometimes at different times allowing the “local” listener options for listening. The “transient” listener simply has to adjust.

My take is this, allow XM & Sirius to merge, but withdraw one of the two spectrums for a future, potential competitor, just as the FCC issued the licenses in the first place.

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