Tuesday, September 8, 2009

Radio: Stay of execution?

Pick your own analogy.

Stay of execution?

Persistent vegetative state?

Does it really make a difference?

Some of the best-known radio chains in the U.S. are the equivalent of the 1987 Mobro incident.

Remember the Mobro? It was the name of that renowned New York garbage scow that was turned away by every state along the eastern seaboard and three other countries. No one wanted their trash.

We have radio chains defaulting – or close to it –but the banks don’t want to take possession.

Since there’s no credit to be found there are no buyers to be had – even at fire sale prices – both sides are still stuck in deals they can’t get out of.

Take Citadel.

Disney sold their ABC Radio group to them the same week

they bought Pixar from Steve Jobs in an unrelated pair of deals, which could be best described as out with the old and in with the new.

ABC Radio was the country club of radio chains. At ABC, you didn’t have to work hard. You hardly worked.

History will record it as one of the worst radio deals ever concocted.

You can find the gory details here. Put another way – this one was about Disney selling their real “Mickey Mouse operation.”

Citadel renegotiated its deal with creditors twice this past year and landed a waiver for its leverage requirements through the end of this year. On August 15th, Citadel missed a $2 million interest payment on its subordinated debt. It had previously renegotiated its deal with creditors twice over the past year.

Its next payment is due next Tuesday, September 15. The company has $27.8 million in cash and south of $2 billion in debt. Can you spell default? Remember this date: January 10, 2010. You know how time flies when you’re on the run. Tick, tick, tick.

The economy only adds to radio’s problems, which stem from overpaying for properties back in the immediate post-radio deregulation days when the battle cry was “buy ‘em now and figure out what to do with ‘em later.”

That U.S. media ad budgets fell by $10 billion-plus in the first six months of 2009 just added to radio’s misery. The Financial Times breaks it out here and they didn’t even bother to mention radio.

I spend a fair amount of time with ad people. Radio clients – past and present – noted a decrease in effectiveness over the past decade – some of it attributed to too many spots in a cluster while others feel radio listening is in a steady decline; therefore, less effective. Eventually, the ad market will bounce bank. When it does will radio be part of their plan?

I carry the curse of being a magnet for opinions and discussion about radio. It’s nearly a given that when I’m introduced to others in a social setting, the conversation will tilt toward radio as in “what ever happened to…”

That leaves me to explain why something that’s free and so readily accessible is used by so few.

Then there are always a couple of people in the crowd that are proud to say that their subscriptions to satellite radio are worth it. And, these days, at least one or two people will whip out their smart phones to turn me on to their favorite on-line Internet radio stations (which I thoroughly enjoy). It's the new "what's on your iPod?"

Clear Channel corporate complain that they’re the lightning rod for everything that went wrong with radio, post-deregulations. But they deserve every bolt thrown their way. What Lowry and his silver spooned children didn’t realize was that deregulation would lead them into a death march, forcing everyone to lower rates, lower revenue, lower payroll, have fewer employees do more and find themselves in a downward spiral where the

only solution to death is to keep downsizing.

Last week the Wall Street Journal did another throwaway piece on the state of the radio industry. Did you see the headline? Radio Firms Beg Lenders for Mercy.

Is that the same kind of mercy Cumulus shows its staff? Earlier this year, in the court of the Crimson King, CEO Lew Dickey informed his managers that they’d be penalized with a 5 percent salary cut if they failed to reach their goal. One manager in a particularly difficult market hit 99.59 percent of his second quarter revenue goal – but because he fell short by 0.41 percent, he got the

5 percent slash.

Since Lew (how many times did he tell you he went to Harvard?) claimed on more than one

occasion that he subscribes to the ethic of reciprocity (that’s the Golden Rule for those of you not worthy of his “smartest man in the room” title), don't you feel that Cumulus should be treated with the same respect the next time their troubled finances come up for review with their lenders? Do unto others, as you wold have them do unto you. Right?

America’s stuck in neutral and will continue to be until credit begins flowing again – albeit cautiously. Whatever the case, radio chains are ready to unload properties at fire sale prices but no one - including those who have the wherewithal to reinvent the medium, are liquid enough to go on a buying spree.

Until then, we’ll have to put up with borrowers and lenders acting like a last-place baseball team with the pitchers blaming the hitters and the hitters blaming the pitchers.

You know that game some morning drive shows play – Dead or Alive? Contestants are told the name of a celebrity and they have to guess whether they’re living or dead.

I think they’ll be a new version of that game dealing with radio groups.

Citadel…dead or alive? What about Cumulus? Emmis? CBS?


How the Rock Hall was won


Anonymous said...

radio has become garbage in, garbage out. no matter what the medium may be -terrestrial, hd or streaming, your success begins with programming & right now all i hear is the same old tired unimaginative voice tracked formats on. hd is even worse. half the time the stations are not even on the air & when they are they are pumping out the same programming. at least update your prerecordings.

Anonymous said...

John, you are the king of great analogies. Love the garbage scow comparison. Any stations that sell more than 4, 5 times cash flow are overpriced. We need to get values back on track so we can afford to rebuild the radio industry. Clearly it has been a dismal operational failure for the past decade. No different than the family that overpaid for a house, could not afford furniture and now cannot even make the mortgage payment. Sounds like Cidael and Cumulus to me.

Anonymous said...

I think we are getting close to the end of this chapter. Once credit is available it will remain highly restricted meaning that only real broadcasters will have an understanding and a true business plan on how to turn the radio industry around. It will take plans that incorporate other media and creativity will definitely play a major role. I for one will be glad to see the trust fund sons of Dickeys and Mays and the poor businessmen like Suleman and Mason out of the industry. We need an industry that has the guidance from those who were successful in the past mentoring the future generations to run with it and take it to the next chapter. John I look forward to your blogs.

Anonymous said...

Dead or alive? LOL. Love today's blog. Think of those sorry banks that got dragged into the privatization deal for Clear Channel. That along with the Citadel deal really put the damper on the radio industry's relationship with lenders and rightfully so.

Anonymous said...

With few exceptions line extensions hurt the core brand. History will show that radio's infatuation with HD radio was one of the most costly errors committed by the industry. It did nothing to hold current listeners or draw younger demographics. The HD radios were also expensive, hard to find and above all the programming was terrible. In many cases the HD channel made an attempt to complement the main terrestrial station with deeper tracks, oldier oldies or harder rock rock. That alone was a marketing blunder. Add that to the inaccessibility of HD radio and the amount of wasted time and money to promote it and you have one of the radio business's greatest all time follies. I hope when station trading returns that real radio broadcasters return to the fold.

Anonymous said...

Hey Gorman Don't let Judy Ellis off the hook. Farid may rhyme with greed. Judy Ellis is the real problem. She is an indimidator, a liar and it is impossible to know where you stand with her. She is the real slave driver of Citadel. Farid is looking for a ledge to jump off of. Judy wants to make everyone around her's life miserable. This has to be the most messed up company I have ever worked for. You are pretty close to the truth when you say ABC Radio was a lazy place. Mitch Dolan was the laziest white man alive. His big decision was where and when to play a round of golf.

Anonymous said...

Not all sons and daughters of successful business owners ruin the business. Some actually enjoy better growth than their parents. It appears that the entertainment industry which radio, music and films fall under suffer from that problem the most. Sumner Redstone's kids, Lowry Mays's kids, Dickey's kids are good examples. Family businesses may have had their place once upon a time but definitely not in the entertainment field.

Anonymous said...

i think radio has already past the point of no return. they have already missed an entire generation or two. who under 30 listens other than talk, sports. every one i know is on line or ipod listening. radio offers nothing in the way of music most want to hear. i don't have to be held captive by radio anywhere, anyplace and at any time. regarding an emergency radio would be the last place i would go for information. the next time severe weather hits your neighborhood turn on your radio and hear if you can find a station that is addressing it.

Anonymous said...

u know somehting gorman f--- u. id like to see program radio stations again. i bet u dont no shit about whats going on in music sports or news today. u know nothing other than to make fun of the same people. f---u and your antiradio bulllshit.

Anonymous said...

What you're seeing is simply the effect of accounting rules translated to real life. Remember back in April when the accounting standards changed and mark to market went out the window? Maybe not. What the rule change meant was that when banks or other debt holders decided that a market was too illiquid to produce a value for a property, they could assign whatever value to the asset they thought was fair for purposes of their balance sheets.

So, in cases of radio station debt that was non-performing, prior to April it probably had a value of 15 cents on the dollar, if that. Today, the banks can carry it on their books for whatever value they want. Say 100 percent of face value, if that's needed to make the books look good.

Say you're holding $100 million in debt on a radio station chain that isn't performing. Let's look at your options:

1. You can call the loan and sell the assets and net out perhaps $10 to $50 million. Shareholders and investors will scream for your head. If you were using that $100 million as part of your capitalization requirements (which you probably were, you big ol' Wall Street stud you), then you now need to find $50 to $90 million to satisfy those requirements, which may be to the government or other lenders. Uh oh! No more paycheck. Trophy wife and girlfriend close up their legs. Danger Danger Danger. What's option 2???

2. You can ignore reality and leave debt on the books at $100 million, with some sort of bogus loan adjustment while the business continues in its death throes trying to settle obligations that it will never meet. Minimal shareholder and investor outrage. No threat to your capitalization requirements. Money still comes. Girlfriend still happy. Sigh. That's the ticket.

There simply is no way to exert pressure on these owners that will make it worth their while to sell these assets, at least not for years. Loose credit will not help unless new buyers are stupid enough to pay enough that the owners can escape with their hides intact. Otherwise, they can just leave the debt on the books.

But of course there is also no way the investors are going to put more money into these properties, short of forestalling bankruptcy.

If you're awaiting fire sales, my guess is you have a loooong wait. What will probably need to happen is for inflation to rev up to the point where the prices paid in the last five years seems reasonable and new buyers can be found at the outrageous prices needed to clear these shabby assets off the books at a nominal profit or loss. How long before that happens? Assuming steady inflation at 4 to 5% (which would be aggressive for the Fed, but really it's a question of how much China will allow), then you're 10 years out, is my guess. What will radio stations that have been starved of cash, talent, energy and content be worth in 10 years? Well, you decide. You're the buyer.

The Sha-Sha-Sha-Shadow knows said...

To anonymous 9:35 am.....there is 1 thing worse than a family business...its one where someone puts their family in someone else's business....yes, yes, yes.....you should read the posts/comments about cbs radio here.....cbs radio in cleveland is run by chris maduri...he pads the payroll with family & relatives.....g-a-l-o-r-e.....he has some "in" @ cbs in ny & gets away w//it.....this is not a cluster its a clusterf---k. billing is bad....bookkeeping is multiple if ya knowz what I mean....
who loves ya pretty baby (nother hint for ya, baby face chrissie boy

Anonymous said...


I look forward to meeting you at the PRPDS Conference in Cleveland next week and attending your panel on the new media ecosystem on Friday. I enjoy your blog and often share your opinions on the state of media in America.

Anonymous said...

Lew Dickey is a scummy little man. He may have a Harvard education but it did not teach him a thing about class. He has none. Shame on him.

Anonymous said...

To Anonymous 10:12 - I really enjoyed reading your opinions. We need more like you participating in this blog. There are too many peanut gallery types here.

My question is would radio fall into supply and demand pricing? That is if there is not that much demand and credit is difficult to come by would that bring the prices down to those fire sale levels Gorman mentions. He makes some valid points and you do, too.

The fact remains is that to efficiently run a radio station you need to attract a greater caliber of people than those managing it today. You also need more promotion, marketing, improved programming and a sales team that understands the media they are selling. So many radio AEs I talk to are first time sales people.

There is also the question of how many radio stations in a market and overall can one radio group run? Clearly what most of the major groups have on their plate is far too many.

Correct me if I am wrong. I would have to believe that lenders will demand much from those wanting to buy radio stations and will they not have to show the lenders the management teams they have in mind? I think the days of hiring your family and friends to run stations are over.

Anonymous said...

I second the Judy Ellis comment. Impossible to work for. I stuck it out for as long as I could. She loves to insult and belittle in a subtle way. She turns my stomach. Little Farid just needs a French army hat and his hand in his vest and he will look just like his complex.

Anonymous said...

Perhaps before the fire sales begin, someone could organize an effort to change the parts of the Telecomm Act that have put radio on its "death spiral".

Maybe its only me, but it seems like having 3-4 radio oligarchies (damn...I slipped into Lew Dickey words...and I only went to a public university) in every city just wasn't very good for competition or higher advertising revenues. You're always looking to undercut the other group. And if that means cluttering up all the stations in your group with freebie spots for "added value", so be it.

I have no idea why these groups pay for ratings service anymore, because the practical application of that data just ain't happening.
At my last job in the industry, we had the #1 talk station in town & the #1 music station in town (6 stations total in the group). Even with those two blowtorches providing value to clients, the GM & sales departments would still try to undercut groups that in no way could compete with our audience listening levels. I still don't understand it (except for the fact that they were spineless and afraid to let clients walk for 6 months before coming back).

What was the end result? Every fiscal year, thanks to undercutting ourselves AND the huge debt racked up by corporate buying money pits across the country, we managers would get the same speech--"We didn't hit our projections so we'll have to slash promotions & marketing and learn how to do more with less people."

To paraphrase Jack Nicholson in Batman..."This [industry] needs an enema!"

Stormy said...

I believe Lew Dickey has an edict that all Cumulus employees must be discouraged from venturing beyond the narrow bounds of ordinary language.
Use of such words is considered a withering mockery of Lew Dickey. Any attempt to use sophisticated phrases in what Cumulus defines as 'free speech' will be considered pretentious and deliberate insubordination. Only Lew Dickey is excluded. Just like Cumulus's orders that no one is to attend the NAB - except Lew.

Anonymous said...

Gorman, only you would find a photo of a Mickey Mouse radio and a radio bank. I bet Farid has neither. I love your blog but I also love the photos and cartoons you find to frame your editorials.

Anonymous said...

"u know somehting gorman f--- u. id like to see program radio stations again. i bet u dont no shit about whats going on in music sports or news today. u know nothing other than to make fun of the same people. f---u and your antiradio bulllshit."

Good God - No wonder this business has gone to hell in a handbasket! How many bastard kids does Dickey have? He shouldn't let them near a computer!

Anonymous said...

The biggest problem with radio right now is the lack of leadership. I am not trying to sound like Radio Ink. They used to praise the very people that ruined the industry. What ever happens better happen soon because each day radio remains stagnant takes it that much further away from the mainstream. I never hear a radio on in a store, a shop like the old days. Usually it's someone's iPod connected to the store system. Some stores now pipe in their own music. I even heard one store, a women's cutting edge fashion store playing either a live French CHR dance station or an aircheck of it.
I never hear a local station. Subtract that from time spent listening to terrestrial radio. No wonder radio is scared stiff of the PPM.

Anonymous said...

Dead or alive for radio chains? IFLI! IFLI! Perfect. Do they count if they still exist but are for all practical purposes brain dead?

Bonus points for still running the wrong call letters (CBS, Clear Channel, Citadel).

Bonus points for being off the air and not informing the FCC (Citadel, Clear Channel)

Bonus points for having your HD Radio transmitter silent for more than a week (CBS, Cumulus, Citadel,Clear Channel)

Anonymous said...

John, If you could tell me, I would like to know who that market manager is that you talked about. I want to hire that manager now. If if it is the market I am thinking of I will put him up against Cumulus and bury that market for them. I think it is that manager should have been given a bonus not a 5% pay cut. It is people like Dickey that are driving good people out of the business. I am a small independent that has a history of knowing how steal revenue from his type. I will send you an e-mail with my information. Thank you.

Anonymous said...

I look forward to the day that Dave Jockers programs WNCX

radio mgr said...

John, I am a station manager for one of those major groups you talk about. I agree with your statement:

"why something that’s free and so readily accessible is used by so few."

That should be the theme of this year's NAB convention.

Let's take a hard look in the mirror this year. We don't like what we see. As an industry we are atrophied.

Some of the proposals you have made on your blog are worthy of discussion and try-out.

I hope we are not faced with the 'same old, same old' rhetoric from the NAB and RAB.

I'm 57 years old. I have been in this business most of my life and I have watched it transform from an exciting medium to one of denial, abuse and mismanagement.

I applaud your blog and hope others realize that you are not as the person I report to refers you as 'a voice crying in the wilderness'.

As you have said it is not dead, it is dormant and with a proper marriage to new media and a renewed unified logistical fight against Sound Exchange and the RIAA can be the catalyst for its rebirth.

Joe said...

We would like to thank Dave Jockers for visiting this blog again.

The Hunter said...

This was in RBR this morning. I believe he is wrong but you like to see all sides so here it is:

Deconsolidation Right Around the Corner - Don't Believe It!

Coming into 2009, a great many media pros including brokers, attorneys and many of us who cashed out of radio a decade or more ago predicted a tsunami of bankruptcies due to the massive hangover of LBO debt (like the Bain/TH Lee Clear Channel deal). That belief coupled with a deteriorating economy and greatly reduced ad expenditures is fueling the theory that a massive sell-off of traditional media assets (like radio stations) is about to commence. Don’t believe it!

True bankruptcies among PE backed companies are up over last year (on pace to double, in fact), but the figure is nowhere close to “tsunami” proportions. And while there have been a few notable deals announced (including the reemergence of radio’s “Alpha” operator, former Citadel chief Larry Wilson), the market for senior financing has all but atrophied.

Traditionally when a PE or venture backed company hit the skids financially, there were three pragmatic exit options:

1. Refinance existing debt
2. Go public
3. Find a buyer willing to pay more than you did.

Well, it’s like old Monte Hall from “Let’s Make a Deal” closed up shop and padlocked all three doors.

But in the process of analyzing viable options, radio operators who face the prospect of default should consider this. Your interests as an entrepreneur may actually be more closely aligned with your senior lender than you might imagine.

At this point in your fiscal year (September), you should have a realistic estimate of whether you are going to hit your number or not. Let’s say the odds suggest you’ll be tripping up against some covenants once you report your full year results. The time to start positioning yourself to make a good deal with your senior lender is now.

Chances are your bank is facing some liquidity issues of its own. Commercial loan delinquencies are up across the board. A non-performing loan is a drag on your bank’s balance sheet. It is in your senior lender’s best interest to explore every means possible to keep your note classified as performing.

That’s where the “Amend and Extend” work-out approach can become a collaborative affair.

Resist the temptation to contact a media broker or a bankruptcy attorney – at least for awhile. Brokers, attorneys and bankruptcy court judges have only one job: To sell assets and pay off your creditors. You basically lose control of the process, but it doesn’t have to “work-out” that way.

Priority number one should be to get your 2010 operating budget together. Determine how much free cash flow your company will generate and you will know how much you can afford to service debt going forward.

Next review the terms of your loan agreement with an advisor who thinks like a senior lender. Once you know your options, you will be positioned to approach your senior lender with an “Amend and Extend” proposal on your terms. You earn a living as a problem solver for advertisers – use those same skills to negotiate new financing terms designed to address both the needs of your business and your banker.

--Paul W Robinson, Palatine Portfolio Advisors, Baltimore, MD

Phil Rist said...

Great article. Right on the money.

P.S. Grew up with WMMS in Mayfield Hts.

Anonymous said...

Now that I can hear internet radio on my car radio I can forget about listening to the garbage on terrestrial radio. I have so many more choices and the foreign commercial stations are far more liberal in their playlists than the U.S. stations.

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