Tuesday, June 3, 2008

Radio: Of schadenfreude and obsolescence


And so it comes to pass.

The radio industry as we’ve known it for the past decade is a bloated mess. Wall Street doesn’t want it. No one wants it – at least in its current state.

The word is schadenfreude. It’s the art of taking pleasure in the downfall of others, especially when they’re sanctimonious carpetbaggers who have it coming to them.

Is it my imagination or is there a marked increase in schadenfreude ostensibly directed at the radio industry these days?

By the way, did I mention that I’m reading Alec Foege’s book on Clear Channel, Right of the Dial. I recommend it.

There was a good piece in Sunday’s New York Times Business section on Disney and Pixar and how well that merger is playing out.

In the same time frame that Disney CEO Robert Iger acquired Pixar, he also unloaded its ABC Radio chain to Citadel. Disney successfully rid itself of the old at the same time he was bringing in the new.
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Pixar is Steve Jobs. Farid Suleman is Citadel. Whose wagon would you prefer being hitched up to?

It’s safe to say that Citadel’s acquisition of ABC Radio is, at least for the foreseeable future, radio’s last bad, bad, incredibly bad deal.

Disney, under Iger, couldn’t hide his disgust at the mess ABC Radio had become.
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A country club disguised as a radio chain.

We hear a lot about supply and demand.

There’s a glut of radio stations on the block – but who’s buying?

If everyone’s selling and no one’s buying, prices drop.

The Clear Channel owned Inside Radio referred to the radio business on Monday as being on a “death spiral.”

And some of you were upset with me for using the words fire sale?

And some of you were upset with me for putting the word devalue in print?

Believe me. Lenders are already bundling and reselling their radio debt at Filene’s Basement closeout prices. 50% off.
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And that’s before the automatic markdowns come into play.

As more owners default on their loans, more stations will go on the block and as more stations go on the block…you know the drill.

Clear Channel’s latest 8-K form filing to the SEC mentions that 173 of their stations are “no longer being marketed for sale.” Crisis over? Hardly.

Now, for their next trick. Dig deeper and you learn of another 275 “non-core stations” (a fancy way of saying “we don’t want them anymore”) that they’re trying to dump. When Clear Channel didn’t go private as planned, it was forced to reclassify dozens of stations as “continuing operations” instead of “discontinued operations.” (I don’t make this stuff up) Translation: those formerly put-up-for-adoption stations are now back in the family fold – for now.

Eventually, some of their stations will fall into the ownership of those that actually know how to run a radio station in the twenty-first century.

Remember when Clear Channel was one big happy family?

That is, if you were part of the family. The Mays family.

Now, that family’s as dysfunctional as their stations.

The father, the sons, and their holy roast.
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20 comments:

Anonymous said...

"Eventually, some of their stations will fall into the ownership of those that actually know how to run a radio station in the twenty-first century."

Read my lips: Make my day.

I really hope you get one of those licenses so I can watch you toast under the heatlamps of the blogosphere. We'll see how those who you say "know how to run" an industry that you admit is bloated.

You're damned right it's bloated. Too many people getting paid too much money!

We need to return radio to the way it used to be, when Wolfman Jack made $30,000 a year. And did his own sales and production. I wonder if the overpaid people who call themselves talent could do that.

Anonymous said...

I didn't know where else to post this so maybe it can go here, but this relates to your article:

I heard 2 ads in one hour on my favorite local music station, one with commercials, urging me to switch to an internet station that they promised was commercial free. What if all the listeners to my favorite station did that?

Anonymous said...

I say Gorman is right. We are in a different economic climate. What the FCC used to oversee will now be done by lending institutions. They will require potential buyers to prove they have money in escrow to run a station effectively for at least one year. The credit crunch will eliminate the buy it on Monday, sell it on Tuesday mentality which eventually lead to deregulation. I also agree with Gorman that station values will drop to realistic levels resulting in new opportunities for those who wanted to get in or get back into the business but couldn't because they were priced out of the market. Read between the lines on what Gorman is proposing here. He is making more sense than some of you may think. As someone who has spent 30 plus years in the business I can tell you he knows what he is talking about.

Anonymous said...

Steve Jobs is a visionary. Farid Suleman is a Mel Karmazin wanna be.

Anonymous said...

Hey Gorman,
I don't say you're wrong. Investors are definitely turning their noses up at radio, but that doesn't spell good news for the long-term future of radio. The guys who are either buying stations or own them now are buying to squeeze the last drops of juice out of the orange. And you know what an orange looks like when the juice is out of it? Well, putting that back together would be easier than rebuilding radio when these guys get finished with it. Businesses that go into this type of cycle don't get revived. They die.

Anonymous said...

John, There are plenty of radio people, current and former and temporarily out of the business who share your schadenfreude of the radio industry. Their unplanned obsolescence is a result of their own ego, greed and gross miscalculations. I look forward to the change you envision.

Anonymous said...

To anoymous #5,

I agree with you in part. What is left of radio does look like a squeezed out orange. You can't rejuice it or rejuvinate it. You can grow more oranges in a cost effective enviornment and that it what radio has to do. Radio did not need reinvention. It was reinvented anyway by everyone from Randy Michaels to Mel Karmazin. They squeezed the industry dry, got out just in time. The suckers are the ones that stayed in the game. The game as we knew it is over. If radio stations can be purchased at a reasonable multiple and logical budgets and goals can be attached to product along with a successful marriage to new media we will see radio renewed.

Anonymous said...

"station values will drop to realistic levels resulting in new opportunities for those who wanted to get in."

What you and Gorman don't understand is that it's not the purchase price of radio stations that keeps everyone out. That's just the price of admission.

The REAL reason no one, including former owners, want to buy radio is the long term cost of operations. I got a license for free once, and was shocked at how quickly I got into debt because of lawyers, insurance, engineering, and vaious costs of doing business (paying off the mob so your building didn't get broken into).

That's REAL money. So station values can drop to zero. It's not going to change the fact that radio stations are regulatory nightmares, even with a do-nothing FCC. Then you have employees who create all kinds of problems and costs. Then you have the physical plant and all that goes into that.

When you look at the big picture, and declining ad rates, you're much better off putting your money in certificates of deposit.

Anonymous said...

>>The REAL reason no one, including former owners, want to buy radio is the long term cost of operations. I got a license for free once, and was shocked at how quickly I got into debt because of lawyers, insurance, engineering, and vaious costs of doing business (paying off the mob so your building didn't get broken into).<<

Not every deal is a good deal and when something is free there is usually good reason.

>>It's not going to change the fact that radio stations are regulatory nightmares, even with a do-nothing FCC.<<

That is why it takes a radio person to run a radio station. There are those who thrive on such challenges.

>>Then you have employees who create all kinds of problems and costs. Then you have the physical plant and all that goes into that.<<

Once again it takes a committed, dedicated radio person. I am not saying you are not one. It sounds like you had unusual circumstances with your deal. Perhaps it was an 80/90 or a station which had been dark?

>>When you look at the big picture, and declining ad rates, you're much better off putting your money in certificates of deposit.<<

It depends on the station. What we do know is that there are too many radio stations. Some will have to go dark. Many of those 80/90 stations were mistakes. One 80/90 was granted to Sharon PA. adjacent to the Youngstown OH market. It went on the air when Y-town was at its lowest ebb and the Y-town stations were barely making money. A 3,000 watter that barely covered the Y-Town metro didn't stand a chance. It ended up going dark. It also picked the wrong format, I might add.

Anonymous said...

>>The REAL reason no one, including former owners, want to buy radio is the long term cost of operations. I got a license for free once, and was shocked at how quickly I got into debt because of lawyers, insurance, engineering, and vaious costs of doing business (paying off the mob so your building didn't get broken into).<<

Not every deal is a good deal and when something is free there is usually good reason.

>>It's not going to change the fact that radio stations are regulatory nightmares, even with a do-nothing FCC.<<

That is why it takes a radio person to run a radio station. There are those who thrive on such challenges.

>>Then you have employees who create all kinds of problems and costs. Then you have the physical plant and all that goes into that.<<

Once again it takes a committed, dedicated radio person. I am not saying you are not one. It sounds like you had unusual circumstances with your deal. Perhaps it was an 80/90 or a station which had been dark?

>>When you look at the big picture, and declining ad rates, you're much better off putting your money in certificates of deposit.<<

It depends on the station. What we do know is that there are too many radio stations. Some will have to go dark. Many of those 80/90 stations were mistakes. One 80/90 was granted to Sharon PA. adjacent to the Youngstown OH market. It went on the air when Y-town was at its lowest ebb and the Y-town stations were barely making money. A 3,000 watter that barely covered the Y-Town metro didn't stand a chance. It ended up going dark. It also picked the wrong format, I might add.

Anonymous said...

"Once again it takes a committed, dedicated radio person. I am not saying you are not one. It sounds like you had unusual circumstances with your deal. Perhaps it was an 80/90 or a station which had been dark?"

No...it was just an unqualified licensee. We challenged and won. We got the license for free, but had to buy the physical plant, which was out-dated and needed to be replaced. And then the city government wanted a piece. That's a whole different story.

The problems facing radio stations today are not strictly radio problems. There are a lot of idealists out there who think you just put on great programming, and all your problems go away. That's wrong.

Unless you're a committed dedicated radio person with access to a big sugar daddy, you're not going to get anywhere. Commitment and dedication is only worth so much. Then the bills come in, and you're in debt. No one can anticipate the kinds of costs that will face a station owner. And then something unexpected happens.

As I said, the sale price for stations can go down to zero, and all it will attract are bottom feeders and people with agendas like religious zealots and infomercial nuts. I know a lot of them, and they can't wait to buy their own station so they can put the Home Shopping Network on the radio. That's what we have to look forward to. As you say, if a license is cheap, there's probably a good reason, and cheap licenses are not going to attract quality owners. They will attract the same kinds of people who are buying penny stocks and foreclosure sales, and they are not the kind of people who are interested in programming or the public interest. Take it from me: It can and will get way worse.

Anonymous said...

i think that is what gorman is talking about. a well-financed, committed dedicated radio person. well financed is a must. if a committed radio person or company can afford to buy a station or stations and also have the money to operate and develop it i think you have a fighting chance to succeed with a good quality radio station. even in the early days of deregulation when you could own more than 12-12-12 you had companies like joe dorton's sky broadcasting and metropolitian that bought properties that they could barely afford to run. when massive deregulation occured in 1996 the buyers overpaid for stations and were undercapitialized to run them. that is where the trouble began. radio people should own and operate radio stations not private equity firms that don't know a radio station from a bowling ball.

Anonymous said...

"if a committed radio person or company can afford to buy a station or stations and also have the money to operate and develop it i think you have a fighting chance to succeed with a good quality radio station."

Then why are none of them doing it now?

There have been some great stations come available in the last few years at very good prices, and no one has stepped up. No one is going to throw away a prime property. They don't have to. If you;re waiting for someone to go bankrupt, it's not going to happen.

"when massive deregulation occured in 1996 the buyers overpaid for stations"

Nobody overpaid for radio stations. That's an absolute lie. The previous owners made a good profit, don't get me wrong. But most had owned those stations for dozens of years. Plus keep in mind that interest rates were at historic lows at the time, so companies got financing at very good rates.

"radio people should own and operate radio stations not private equity firms that don't know a radio station from a bowling ball.

Look, the Mays family have been running CC for 35 years, and they were highly respected for a very long time before the bottom fell out. The Dickeys have been running radio stations for two generations, and everyone hates them.

It's been my experience that "radio people" have way too much heart and passion to make the hard business decisions required to run radio stations. Most can't even run non-commercial stations, and I have seen many fail there too.

Radio stations were owned for years by insurance companies and electronics manufacturers who knew nothing about running radio stations. They'd put their top salesman in charge of the radio station. So radio has a long history of being run by people who don't know a thing about radio. Some might say you're better off when the owner doesn't know anything.

I read a lot of re-writing of history in these blogs, and there is no white knight about there who is going to save radio. Because even if one made the mistake of buying a station at a good price, they would realize just how much the environment has changed in the last 12 years, and they'd discover they're not as smart, or the current owners are not as dumb, as all the bloggers think.

Anonymous said...

There have always been scumbags in radio as well as top notch owners and managers. I don't think anyone will disagree that radio has had a history of some pretty strange and dishonest individuals being part of its industry. That being said I don't think anyone believes there is an opportunity for a utopian radio industry. The problem with the last decade was that everyone except the biggest chains were squeezed out by the majors who were undercapitalized when they bought up dozens to hundreds of stations at a clip. I am sure we will have as many shitty operators as good ones if not more but compared to today that will be a huge improvement.

Anonymous said...

"I am sure we will have as many shitty operators as good ones if not more but compared to today that will be a huge improvement."

If you think the current crop was undercapitalized, then you really don't know what you're talking about.

Cash is far harder to come by now and has many more strings attached.

Anonymous said...

I would like to know what Steve Jobs would do with terrestrial radio. Screw Farid. He is toast. A baby Karmazin without the crass.

waiting in the wings said...

>>If you think the current crop was undercapitalized, then you really don't know what you're talking about.

Cash is far harder to come by now and has many more strings attached.<<

That is the good news, my friends. It will be far more difficult to secure credit to buy radio than ever before. It will be a climiate where not everyone who wants to own a radio station will be able to buy one even at discounted, death spiral, fire sale prices. Only those who have experience or a real understanding of radio's potential will be able to secure a loan. That means more paperwork, proving to be a legitimate operator and having enough money in escrow for contingencies. Not everyone wanting to own radio will be able to play in that game. Hurrah.

Anonymous said...

"Only those who have experience or a real understanding of radio's potential will be able to secure a loan."

Huh? Have you ever in your life applied for a loan?

Obviously not.

No one at any bank or lending operation asks about your "understanding of radio." That is NOT a qualification.

All the banks care about is if you can pay them back. Which means they really want to know if you have the balls to fire people and cut costs to the bone in order to meet your monthly payment.

Your comment is exactly why the people who supposedly know how to run radio stations won't be buying them.

More paperwork means more money for lawyers. It means more red tape that a typical radio fan won't have the patience for. You can cheer all you want. You can't pick and choose who will buy these radio stations. The enemy you know is always better than the enemy you don't know.

Anonymous said...

I can't speak for anyone else here but I have and I had to qualify exactly what money would go where as well as multiple contingency plans and this was not for a radio station. It is even worse if you are running a franchise operation. It is a different world out there. I have to believe the same holds true for radio.

Anonymous said...

The kids can't hold a candle to Lowry and even Lowry would not know how to navigate today's world. Steve Jobs makes it because he encourages creativity and drive and pays well for it. Doing the opposite has the opposite results and that is what Mark Mays and Farid Suleman operate their businesses.