Monday, June 16, 2008

Radio: Merge and Purge


It was getting pretty torpid around here.

We were delimited by the stagnant cesspools of two distressed broadcasting deals is stasis.

It took a fleet of Roto-Rooters to snake through the sullage ….but now these deals are on their way to fruition.


This one’s been up and down, back and forth, on and off for over a year and a half. Now, it’s almost certain that it’ll be wrapped in less than seven weeks, well ahead of the previously scheduled end-of-September date.

This time, we’re assured, it’s really, really, really going to happen. Really.

Barring contingencies, it should be relatively effortless to keep the stock close to its magical $36/share price.
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Read between the lines here. Unless you’re among the ill-fated majority of employees not holding on to stock certificates, this deal is perfecto.

Expect a mass exodus of key players once the deal is done.
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Reservations for seats on the Chicago shuttle are filling rapidly.
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And Bain and Lee will begin parceling out their write off Clear Channel properties at fire sale prices.

There are those who are confident that Sam Zell’s Tribune Corp. will bite off a chunk of Clear Channel stations to call their own and reunite fixture tyrant Randy Michaels and his sidekicks with some of the stations they used to run.

Others aren’t so sure since their fingerprints are all over the failure of Clear Channel’s futile world domination when talent and creativity were purged.
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Then there’s FCC Chairman Boy Kevin Martin showing his hand on the proposed XM-Sirius merger. His endorsement is based on concessions the satcasters agreed to, including the turnover of twenty-four channels for noncommercial and minority programming, along with a three-year price freeze, and a la carte pricing options.
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Do you suspect this is more of a political move than a practical one? Just asking.

XM and Sirius also agreed to an open radio standard to create competition among manufacturers of satellite radios.

The Department of Justice approved the merger in March.

FCC approval requires a yes vote from at least two other commissioners.
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XM has an estimated 9 million subscribers; Sirius has a little over 8.million.
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If you’re keeping score, it’s Mel Karmazin 2 David “Fumbles” Rehr o.
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I’ve asked it before and I’ll ask it again. Fumbles, how does it feel to be known as the guy who always pulls defeat out of the jaws of victory?
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This time he got caught funding a questionable advocacy group, the Consumer Coalition for Competition in Satellite Radio. Tsk! Tsk!

Fumbles, it’s a good time to cut your losses, Resign and take a job with John McCain’s presidential campaign. And when that fails, you can segue into his wife Cindy’s Budweiser distribution business. You’re used to dealing with bland brews from your prior life as a beer industry shill and lobbyist.

Don't expect the XM-Sirius merger to be a smooth one.
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For one, the technology to serve stations a la carte hasn’t been perfected.

XM also brings tremendous debt to the table, starting with their troubled deal with Major League Baseball. A recent regulatory filing shows that XM is fraught by a required $120 million escrow account for the benefit of MLB.
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But why the sudden flurry of activity to get these deals wrapped, you ask?

Try Obama.
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Now does it make sense?
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25 comments:

Anonymous said...

I think one thing most people miss is there's not a whole lot the President can do in the areas that the Broadcasting interview deals with. Obama has more power in the Senate over media consolidation, anti-trust, and broadcasting rules than he'll have as President. The only thing he gets is the ability to name the Chairman of the FCC. And as we've seen, even having that (in the case of Powell) doesn't mean your agenda will be carried out.

This is not to say that McCain would be any different than Obama in the area of broadcasting. He voted against the 96 Act, one of a very small number of Senators who did. He is not a big business Republican. but once again, the President doesn't have a whole lot to say here.

Oversight of the FCC and broadcasting in general is the domain of Congress. If someone wants to make changes in broadcasting, they should run for Congress, not President.

Anonymous said...

A president can influence other democrats in Congress. Powell was a bumbling idiot and did not live up to Bush's expectations whereas Kevin Martin was a perfect solider. We can't forget that Clinton and Gore dropped the ball on the Telecom bill. We can only hope the next president gets it when it comes to media consolodation.

Anonymous said...

"A president can influence other democrats in Congress."

Really? Tell that to Bill Clinton.

Once either candidate leaves the Congress, they'll be treated the way Gerry Ford and Al Gore were treated, which was total disrespect.

"Powell was a bumbling idiot and did not live up to Bush's expectations"

Bush had no expectations. You see how he treated Powell's father.

"We can't forget that Clinton and Gore dropped the ball on the Telecom bill."

The 96 Telecom was the last bill where there was almost unanimous support between Dems and Republicans. It was the end of an era. Congress hasn't had that much unity on an issue since. No one dropped the ball. The bill they wanted was the bill they got.

Anonymous said...

"I’ve asked it before and I’ll ask it again. Fumbles, how does it feel to be known as the guy who always pulls defeat out of the jaws of victory?"

I've said it before, and I'll say it again: The NAB will use the XM-Sirius decision as a justification for further deregulation and consolidation in broadcasting. This is really what they wanted all along, and their opposition to the merger was merely a joke.

If one company can own all of satellite radio, why can't one company own all of terrestrial radio?

Certainly, the government can't justify any kind of forced ownership restrictions when you've just OK'd a monopoly. Read what the Justice Department said, and you can easily see more consolidation in radio in the next few years.

Anonymous said...

I beg to differ with those that say a president has no control over media regulation. We owe former President Bill Clinton the distinction of selling radio down the river. He agreed to support lifting most caps on radio station ownership in trade for keeping the TV-newspaper ownership restricted. That was the deal Clinton made with the Republican Congress in 1996. We hear a lot about Sen. Bob Dole and Newt Gingrich playing crucial roles for Karmazin, Smulyan and Mays but the final blame has to be given to our two-faced former Democratic President Bill Clinton. Thankfully we wont have Hillary to deal with.

Anonymous said...

The bone boy Kevin Martin will throw terrestrial for approving the XM-Sirius merger is to allow the 10x increase in power for HD radio.

I think Kevin is smart enough to know that he has to move quickly and take care of business before his power wanes and the possibility of a Democratic president taking office.

While he has the Republican majority on the FCC he will take full advantage of it.

Anonymous said...

"If one company can own all of satellite radio, why can't one company own all of terrestrial radio?"

Similarly, if terrestrial radio can put on a national show like Ryan Seacrest, why can't satellite radio broadcast locally?

Anonymous said...

In response to "anonymous" number five there is more.

It was Bill Clinton that appointed Michael Powell as an FCC Commissioner in 11/97 on the request of Vernon Jordan who made a mint when AMFM/Chancellor sold their properties to Clear Channel. When Bush became President he appointed Powell as the FCC Chairman on the request of Senator John McCain even though he had no prior media experience whatsoever. Funny how these same names keep popping up in the same places.

Anonymous said...

"He agreed to support lifting most caps on radio station ownership in trade for keeping the TV-newspaper ownership restricted."

Ultimately it was the Congress that voted the bill into law. If they disagreed with any part of the law, they could have voted no.

"Similarly, if terrestrial radio can put on a national show like Ryan Seacrest, why can't satellite radio broadcast locally?"

They can't afford to.

There have been national radio shows since 1926. No big news here.

Satellite companies are in such huge debt they need to become a monopoly in order to stay afloat. You think they can afford to hire thousands of local employees?

Take a visit to the Sirius studios in NYC and watch all the computers running voice-tracked music channels.

All you Powell haters obviously didn't read his June 2nd rules. They were far milder than what Martin did last December.

I believe that no matter who the President is next year, we'll see more radio deregulation and more consolidation. The government has to keep free radio competitive against pay outlets like satellite and non-regulated media like the internet. The only way to do it is give them what they want.

Anonymous said...

"They can't afford to."

So why is the NAB coaition making such a big deal about it?

Anonymous said...

Interesting points, John. I think Obama's anti-consolidation attitude is probably just a sideshow. Big money, with few exceptions, isn't chasing radio (or TV or print) any more, so limiting consolidation won't raise a ripple with the bankers and Wall Street. What's it going to do? Drive down valuations? It's hard to go down from the basement.

The real battle for control of media will be net neutrality. Watch that one very closely, because there are a lot of companies that understand it and they'll be looking to slip money to Obama and everyone else who will listen to their plans to give some internet traffic preferential treatment. If there's one last stand that broadcasters will make, it will be on this issue. I expect the broadcasters are already trying to throw out their old anti-regulation arguments and fashion some bullshit story about broadcasters' public service mission justifying giving them priority on the Internet. I wouldn't even make a guess about how much money the politicians will raise off this one. It's a great one, though. Cable, Telecoms, all Media, Tech companies all furiously throwing money at any politician willing to take it. Back up the trucks.

As to the Clear Channel situation, I think you'll have to wait about five years for that to go south. Bain Lee are pretty famous for long-term strategizing. Once they prune off the non-core markets, they will hold on in expectation that the properties will actually perform once the economy turns around. It's always interesting to watch these companies progress from believing their own bullshit to tweaking their "strategy" to outright admission of failure. It takes quite a while to make that transition. Watch the financial press closely, because my prediction is that before they bail there will be some attempt to refinance from one fund to another so that Bain Lee can move their prime clients out of the investment and rope in some patsies to take the hit when they finally dump whatever's left of Clear Channel years from now.

Anonymous said...

"So why is the NAB coaition making such a big deal about it?"

They make a big deal out of anything.

I wouldn't pay attention to it. It's simply not going to happen. The satellite companies simply don't have the money to do local radio. Especially outside the Top 10.

Anonymous said...

"When Bush became President he appointed Powell as the FCC Chairman on the request of Senator John McCain even though he had no prior media experience whatsoever."

Remind me: When has media experience ever been a qualification for the FCC?

Anonymous said...

I did not think this way before but I am coming around to believing that many owning radio right now do want to cut their losses and get out. The credit crunch is not going to go away anytime soon. Only savvy radio operators and that includes new media mavens will know how to link the mediums for maximum opportunity. Bain and Lee may hold on to the major markets. I think they will pair off the medium size markets and down. Credit is tight and those wanting to get in the game will have to prove themselves worthy operators just like the fifties and sixites when lenders scrutinized those wanting to enter the broadcast business.

Anonymous said...

"Credit is tight and those wanting to get in the game will have to prove themselves worthy operators just like the fifties and sixites when lenders scrutinized those wanting to enter the broadcast business."

Credit wasn't tight in the 50s and 60s. It was a period of incredible growth. Lots of easy money at low interest rates.

And lenders have never scrutinized those wanting to enter broadcasting for anything except their ability to pay them back. Lenders are the last people you want making ownership decisions in broadcasting.

old timer said...

I am one of your old timers here. I bought a major market daytime AM in 1966 and credit was not that easy to come by for a radio station.

My bank wanted specifics on payroll, utilities, rent, leasing arrangements and projected growth. I was not in any way a risk and had been brokering time on radio stations and before that a top 40 DJ.

bobyoung said...

"Try Obama.*
Read the interview in today’s Broadcasting and Cable Magazine. *
Now does it make sense?"

Yes it certainly does, get away with what you can get away with boys, there's going to be a new boss in town, the party's over soon. I knew I liked that guy, now I have even more reason. I can't wait for the day the boy's fired and hopefully media is diversified again.

Bob Young
Millbury, MA
KB1OKL

Anonymous said...

"there's going to be a new boss in town, the party's over soon."

Meet the new boss...same as the old boss...

---"We Won't Get Fooled Again" by The Who 1971

Anonymous said...

Though I don't in any way believe in the Black Caucus opportunists and troublemakers they can and will make Karmazin's life miserable. Mel could have met his match with this one. Kevin Martin will deliver what Mel wants him to but at what cost? More importantly, we know Mel will check out of Sirius-XM within a couple of years. Will satellite radio even exist two years beyond that? No. Sooner or later you have to know when the fat lady is going to sing, Mel. If I were you I would get into real estate.

Anonymous said...

The XM debt problem is pretty serious. What do you do other than issue more stock? You could be right. Karmazin will have to cash in and get out. Satellite radio though marketable cannot sustain itself. A poor business plan.

Anonymous said...

Watch Mel play the crybaby and how he wil have to silence Sirius and XM will have to go silent as well. The Black Caucus is no different than the Rainbow Coalition with their hands out to get a piece of every transaction that takes place. I don't feel for them either. What is the big deal about the merger anyway? One, two, three competitors what does it matter. In some FREE terrestrial markets Clear Channel owns all the stations. That is okay, Mr. Fumbles?

Anonymous said...

"In some FREE terrestrial markets Clear Channel owns all the stations."

Name one.

Anonymous said...

Mid-Ohio: Ashland/Mansfield/Mount Vernon for starters. Mansfield is half way between Cleveland and Columbus. 70 miles either direction. Neither market covers the region well.

Anonymous said...

"Mid-Ohio: Ashland/Mansfield/Mount Vernon for starters."

That may be a place where they own the popular stations, but not all of the radio stations.

Clear Channel owns a total of 8 stations in the market. Lots more than 8 in that area. I see several construction permits are there as well.

I suspect all 8 CC stations are on the market right now.

Anonymous said...

There are several stations in the Mansfield Ashland area not owned by CC.

WVNO
WVMC
WNZR
WMVO
and
107.7 and 93.7