Radio's Rubes

Rube Goldberg is the patron saint of the old radio industry.

Don't know Rube? He was a popular early 20th century cartoonist who sketched comics depicting multifarious devices for performing simple tasks in unusual and often convoluted ways.

By the early thirties, the Merriam-Webster dictionary turned his name into an adjective, defining it as "accomplishing something simple through complex means."

The same definition could be applied to the old radio industry, accompanied by banking, insurance, and a select - but large - number of public companies that cloak their cooked booked financial statements in indecipherable jargon and figures.

But eventually even the most complex, convoluted financial schemes crash and burn.

Take the ethically dubious Farid Suleman, CEO of the crumbling Citadel radio group, which, at any moment, will file for Chapter 11 protection.

Poor Farid. Tired of toiling under Mel Karmazin as his official bean counter, he wanted to prove he could be a number one.

Instead, he proved to be a lifeguard who couldn’t swim. Mini-Mel he will never be.

But failure is rewarded in the radio industry many times over.

Despite his destruction of the third largest radio chain in America, one notion being bandied about would have him falling uphill by staying on as CEO of Citadel to help bring the chain out of bankruptcy.

When Suleman gobbled up the ABC Radio chain - he got the networks, too. Losing Sean Hannity to Clear Channel and Paul Harvey to his life cycle erased $8 million in revenue off the books compared to a year ago. Overall, network revenue was down 31.5 percent, which translates to a $13.5 million loss.

Let’s stop here for a moment. Paul Harvey was 92. How many more years and how many more breaths did Farid foresee squeezing out of him? Did he expect Harvey to give him five years advance notice before he passed away?

I’m stunned that Suleman didn’t come up with some Rube Goldberg apparatus that would record every word Harvey ever said so he could assign some poor minimum wage schlub to continue his broadcast by rearranging words from prior newscasts and commentary.

When Farid bought the nets, Hannity made it apparent that he had no intention of sticking around and cozying up to the draconian management of Citadel once his existing deal expired.

Granted, Citadel-ABC was the last bad big deal in radio broadcasting - but it’s painfully evident no lender bothered to skim through Farid’s faulty Rube Goldberg-style business plan. Was it assumed that being Mel’s beanyman was reason enough to fund his folly?

Disney wanted ABC Radio off their books. They were cutting a deal with Steve Jobs to acquire Pixar and weren’t interested in holding on to yesterday, especially when the radio division was likened to a country club.

Last Tuesday, just after Suleman signed off on still another massive staff bloodbath and the elimination of whatever localism remained on his distressed properties, he joined eight other radio group heads, to pitch the FCC on myths and legends. Specifically, they were asking the commission to make FM receivers mandatory in cell phones. That way, in case of an emergency - FM stations would be available to provide detailed information on where to go, what to do, and why.

Insert laugh track here.

Excluding public radio, give me twenty FM stations in this great country of ours you could listen to for immediate emergency information. Okay, I’ll settle for ten. No, final game scores on sports-talk FMs don’t count as emergencies.

Actually, I’ll tell you what FMs do provide that coverage. Small, independent market FMs. I’ll give you one - WATD in Boston’s South Shore, which on many occasions has provided my family and friends who live in its signal range with pertinent and vital information related to regional news, weather, and traffic.

Does the station make money? Yes.

Did these radio CEOs understand that the FCC has no jurisdiction to force manufacturers to add FM to cell phones?

Do these radio CEOs really believe the FCC is not aware of how these chains ruined the radio industry post-deregulation?

Then we have Lew Dickey, the CEO of the Cumulus chain who also made the trek to the FCC.

The smartest man in any room was shrewd enough to kick ahead its inevitable insolvency for one more year with his Rube Goldberg accounting so he could continue screw his shareholders, investors, vendors and anyone else who’s reluctantly hitched up to his wagon.

Lew doesn’t know how to make money but credit him for knowing how to filch it. He is challenging Clear Channel CEO John Hogan and the aforementioned Farid Suleman for the title of career derailment king.

Instead of stepping aside when his company spiraled downward in revenue and ratings under his direction, Dickey’s slanted family and friends’ board anointed him to save it.

Dickey’s in serious need of a spine transfusion before he even considers a financial one for his company.

You’ve probably heard the joke. How do you identify an old radio chain? Look for the makeshift morgue.

I define radio to those who ask as a business where luck is running out for those who are presently controlling it - but it’s like passengers in an airplane where the pilot dies and there’s no way to land the plane without crashing.

The only good news is that by keeping Suleman, Dickey and the other usual suspects in place will speed-up the impending fire sales.

I saved the best Rube Goldberg for last. By now, you’ve heard of iBiquity’s latest scheme to jumpstart their D.O.A. HD Radio.

Here’s a seriously flawed technology that has zero consumer interest despite millions of dollars of donated radio time to promote it.

At iBiquity, there’s nothing more rewarding than to spend other people’s money on preposterous promotion, marketing, and gadgetry.

So what do you make of the HD Radio iPhone app?

Yes, the app is free - but there’s a catch. It’s iBiquity. There’s always a catch!

To receive HD Radio on your iPhone, you must go to a participating Radio Shack, er, the Shack store and plunk down $79.95 plus tax for a bulky add-on HD Radio tuner, which you have to attach to your iPhone.

Yes, you are now carrying around two devices. One, which is sleek and stylish, the other - pure Rube Goldberg.

There’s another catch. You cannot use the device through your iPod-docking car stereo system because the 30-pint port of an iPhone connects to only one device at a time.

It is said that iBiquity CEO Bob “Booble” Struble hasn’t even uttered the word “Zune” since his iPod Rube, er, app, was released.

Wonder if Freddie sold him the app? Together we con!

Rube Goldberg and radio. Life imitates art.

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Carl Hirsch & Gil Rosenwald interviews from 1979

Radio: Drawn and Third Quartered

All hail the genius that believes he’s the smartest man in any room, Cumulus CEO Lew Dickey.

He’s one of a few broadcast CEOs that were spinning their companies’ third quarter results this past week.

Yes, it’s time again for another swirl of misinformation and panic.

So many disasters, so little space. I’ll do my best.

Lew Dickey believes that every time he speaks, he learns something new.

The smartest man believes that every time he reads one of his quotes in a trade, he gains even more insight into his own mind, which he’ll let you know is such a fine mind.

He'll also remind you at least once during conversation that it’s also a Harvard University educated mind.

He has an insatiable obsession to brag of his intellect with the masses, and the smartest man in any room actually looks forward to delivering his spin to his quarterly conference call to analysts.

It gives him a break from seeding future fiascos.

So what is the eminent brainiac of broadcasting ready to impart to us mere mortals?

How about wrong is the new right and smoke and mirrors are the new transparency.

Let’s listen in on how Lew weasels his way in and out of Cumulus’ third quarter.

It’s almost apocryphal. And Lew doesn’t even have to look that word up.

“Larger markets appear to be gaining revenue traction,” sayeth the Lewdick. He reached that conclusion since revenue at the Cumulus Media Partner markets, which include Dallas, Houston, Atlanta and San Francisco, was down an average -15.9% for Q3. His small and medium markets, which Lew used to call the “bread-and-butter” cities of Cumulus Media took an -18.5 percent plunk.

“We have to do a better job of selling our industry, selling the true value of it.”

Here’s one problem with Lew. He assumes we’re almost as smart as he is so he never gets around to explaining exactly what that true value is.

Some of Dickey’s new-speak reads like it was lifted right out of a late nineties dot.com bomb business plan.

For example, he said Cumulus believes in “sustainable operations” in 2010 and beyond by “employing state-of-the-art technology to run the enterprise and drive productivity.”

Maybe Lew was talking up the spy videophones he had installed at most of his stations to keep an eye and ear on his salespeople?

At least that’s what I think he was pontificating about since he followed that line by a claim that Cumulus hired fifty - count ‘em - fifty new sales people in just the last six weeks alone.

He also plans to hire another fifty by the end of the year - though he neglected to mention that the next fifty will be replacing the fifty he just hired over the last six weeks when they don’t work out.

Okay, Lew. Let’s do the numbers. What say you?

“Our industry revenues peaked in 2006 at $21.5 billion. So, in 2006 radio was a $21.5 billion industry – and this year revenues are forecast to finish around $15.5 billion, a decline of $6 billion. We believe it could be – from peak to trough back to peak again – it could be 10 years, maybe 2016 before we reach $21.5 billion again.”

What’s it going to, Lew? 2016 or 2019? Or will 2012 be your apocalypse?

Back to Lew.

'We definitely believe the industry is going to come out of this cycle and continue to grow, but it’s going to be quite some time before we reach the 2006 level. So, more than ever before we believe efficiency is becoming the greatest source of competitive advantage in our business today.”

That all well and good, Lew. But what about all the people you’ve already fired? How do you run a business when you’ve lost or fired most of your best executives and you’re stuck inside a downtrend with a skeleton crew?

“It’s not about cutting bodies, but rather it’s about resource allocation, systems and customer-focused solutions.”

Okay, Lew, enough of the b.s. Let’s do your numbers now.

I’ll spare you his well-placed gobbledygook and get down to business.

Lew successfully sidestepped providing analysts and investors on the conference call with specific dollar figures for its fourth quarter guidance - but insisted that he was budgeting for positive revenue growth in 2010.

Let’s stop here for a moment.

Could you imagine what Lew would’ve done to any sales manager that failed to provide specific sales figures for the next quarter within a nano-second of being asked?

Here’s how Dickey did it. He “expected” to improve on both revenue and the EBITDA performance posted for third quarter, which he released a few hours before the call.

He called it “improvement.” The third quarter revenues were down from a year ago - but they weren’t as bad as the second quarter. Put another way. Q2 was -21.1 percent down. Q3 was only a “mere” -18.5 percent down. And that was directly due to his elimination of human stink at his facilities over the last few months. Need proof? Dickey’s operating expenses dropped 20.9 percent.

Cumulus Media also landed an income tax benefit of $27.2 million in the third quarter. A year ago, it had an income tax expense of $7.3 million.

He added that, “Further consolidation is going to be essential to improving the overall fundamentals of the industry."

Only the smartest man in any room would want to acquire even more radio stations when he can’t even preserve what he already has.

Excuses, excuses. When it comes to answering a question, Lew, despite his Harvard education, is a man of few words - repeated over and over and over again.

You’re Lew Dickey, you’ve been there, done that, and really, what will it all amount to in the end?

Now, let’s quickly move to CBS, where the news was not too bad being the new incredible. Revenue dropped a mere one percent.

Good news first. TV’s doing well - both network and syndication - to show a 9 percent increase. Radio? Well, would you believe a -19 percent drop? That translates to a fall from $392.5 million to $318.9 mil.

CBS Radio operating income was $41.1 million, which included an impairment charge of $31.7 million for station divestures; in particular, the Portland, Oregon stations sold to Larry Wilson.

Though CBS CEO Les Moonves alleged that he planned to keep radio as part of CBS’s portfolio, he was barely believable. Would you be if you had Dan Mason running your stations and running out of excuses?

They don’t make radio CEOs like Dan Mason anymore. Then again, the world he occupied simply doesn’t exist anymore.

Now, let’s touch upon the “not really a radio company” radio company, Sirius XM. Their revenue was up $630 million - a 3 percent increase over a year ago. Its subscriber base was down 2 percent from a year ago, but up by 102,295 subscribers. Mel Karmazin didn’t say why - but I will. Three words: Cash for clunkers.

Mel’s creative financing also made their “material” payments due disappear until 2011. How does Mel do it?

“We expect the company’s cash flow growth momentum to continue into 2010,” sayeth the King of Karma. “And we project full-year adjusted income from operations to increase approximately 20 percent next year.”

Mel also told the Street he expects revenue growth in the “mid to high single digits” and free cash flow growth.

And how about that? Mel’s the only radio guy being taken seriously by Wall Street.

In keeping with bad is the new good; Salem’s 11 percent tumble in Q3 was nothing short of a Godsend, so to speak.

True, it would've been a lot worse had the saints at Salem not bartered most of their stations up the tokus with religious programming.

Salem. I feel for you. Seems like only yesterday that you could conjure up even a C-list of right wing zealots for a talk show network and make it work. Alas, their audience is getting long in the tooth, and harder to sell; especially when so many of them have turned into survivalists. You know that survivalists don’t listen to the radio because they’re convinced they’re all implanted with microchips and they're listening to them.

Then you have Christian Hot AC. The Fish format programmers are just figuring out that when all of your music sounds the same, the entire format fries.

Their Fish and Foul talkers revenue fell from $47.4 million to $42 mil.

Sale hoped to find some divine revenue intervention with new media - like TownHall.org - but that site has been renamed Defendmyvote.com, an inactive site, which is being maintained in the interim by GoDaddy, where you can watch their host’s “Too Hot for TV” spots. OMG! Still, some of the other sites are still on-line but their revenue slipped from $7.1 million to $6.9 mil.

Salem also took a $14.1 impairment charge on the value of radio licenses in Dallas, Atlanta, Detroit, and Portland Oregon, and its still playing the waiting game on selling WRFD, a AM in Columbus, Ohio to another conservative group, Christian Voice of Central Ohio for a whopping $4 mil. Will it ever close? God only knows.

Come on, now. Admit it. If you’re in radio - either in sales or programming - do you really believe you could get away with offering the same lame excuses your CEOs offered to Wall Street last week?

I’m calling it radio noir. There are those unable to change with the times. So the changing times roll over them.

The past decade of unrestrained consolidation led to an arduous crusade of cost reductions, as well as departures of key long-time creative executives. Sure, Dickey, Mays, Mason, and the usual suspects can aver new hires - but it’s obvious that the loss of institutional knowledge has crippled the industry.

In the go-go buy-sell days of the late nineties, few mega-chains even considered a plan B. Now, it faces an uphill battle to define to both listeners and clients what radio is - and will be - in the 21^st century.

Instead of being mired in its own mediocrity, radio needs to concentrate its efforts on where it can win and contain its losses.

There are so many radio CEOs that are chasing something they couldn’t hold on to even if they caught it. Some part of them realizes the vainness of this chase even as another part clings to the need for it.

For the next quarterly report, I suggest that Lew Dickey allow other radio CEOs to share his videophone - and instead of another mumbo jumbo of words and figures, show a Road Runner cartoon. Fast forward to the end where Wile E. Coyote takes a flying leap of a cliff, followed by a rising cloud of dust.

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A 1981 investigative report into radio station exclusives

Radio's annual Halloween Party

The annual radio industry haunted house party is being held at Clear Channel’s headquarters in San Antonio this year.

The joint actually feels haunted. For years, it was the center of the universe for all decisions made for its radio stations. Now it’s a disembodied mess and run by spirits from a distant city.

I’m sorry to report that Randall Mays, the soon-to-be-former CFO of Clear Channel, is boycotting this year’s party after being told by Bain Capital and Thomas H. Lee that he would have to get their approval before he could wear his Little Lord Fauntleroy costume.

Brother Mark will be coming as Pol Pot, the former Cambodian leader. Pol Pot eliminated hundreds villages in Cambodia and killed tens of thousands. Mark and his family eliminated hundreds of radio stations and altered the lives of tens of thousands.

The managing directors of Bain Capital and Thomas H. Lee need no costumes. Their very presence is scary enough. Just ask the banks that invested in the Clear Channel privatization debacle.

The unimaginative John Hogan wears the same costume year after year and this is no exception. He’ll be coming as the abandoned puppy dog, unsure of whom his next master will be.

Lew Dickey is bring two costumes. First, there's his customary Smartest Grim Reaper in the Room.

Unlike Clear Channel, Citadel, CBS Radio and other companies that set up their kills in a manner that you know that they’re coming but not quite sure who the victims will be, Lew just shows up unannounced and says, “Boo! You’re fired!”

His second costume is an Invasion of the Body Snatcher pod. After he fires you, he’ll take over your job and since he's always the Smartest Grim Reaper in the Room, he'll do it better than you.

Did you happen to read Lew Dickey’s interview in Portfolio? Click here if you missed it.

Here are a couple of highlights.

To cut health care costs at Cumulus, Dickey dumped Human Resources from the task and seized total control of the project.

“It’s handled at human resources. I think that’s a big mistake,” he said. “I could immerse myself in office supplies, and in 15 minutes I could have a knowledge about that.”

Frightening.

The unimaginative Peter Smyth is going to wear horse blinders and rose-tinted sunglasses. That way he won’t be spooked by the realities of increased unemployment, lack of consumer confidence, sucker rallies on Wall Street, and unsold inventory.

Farid Suleman is coming as Dracula. He bought ABC Radio, sucked the life out of it, and somehow, he’s still standing.

Dan Mason will arrive as Mandrake the Magician. With a wave of his magic wand, he’ll turn one of his stations into a contemporary hits format whether the market needs it or not.

Though he wasn’t invited and has no plans to show, Sirius XM CEO Mel Karmazin will be the most visible person in the room. Like it or not, Wall Street considers Sirius XM a “radio company” and of the top five, his is the only one showing a increase in revenue (+18.6 percent).

By comparison, number one chain, Clear Channel had a -7.4 percent loss; number three, CBS was down -12.2 percent; number four, Citadel was down -9.4 percent, and Cumulus, a -6.9 percent drop.

Now, that’s scary.

Almost forgot. At this party, "Trick or treat" has been replaced by "pay for play."

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The Dr. Destructo story

Forgotten anniversary

Shame, shame, shame on me. One of the most important dates in recent history and I missed it.

I’m going to stop short of taking full blame here. There were no reminders. No hints. No nothing.

You’d think with Google and Wikipedia someone would’ve flagged this date.

I didn't even see a single Tweet about it.

Eight years ago last Friday, October 23, the iPod was introduced.

I was in my Apple store last week. I’ve gotten to know most of the people there.

You’d think someone would’ve invited me to stop by and have cake and ice cream last Friday.

But no. Not a word.

Do you remember the first iPod?

Radio ignored it.

The labels mumbled something about intellectual property and copyrights.

Though it was a significant technological advance over the Diamond RIO MP3 player, the iPod was compatible only with Macs, which excluded 90 percent of the computer market.

And only geeks and Goths and art students owned Macs.

It was weird looking and clunky; the size of a deck of cards. It didn’t look or operate like a radio or a Walkman.

Just a year earlier Diamond REO released its second and third MP3 players with 32 MB and 64 MB of internal memory respectably which were compatible with PCs.

They weighed roughly 2.5 ounces and ranged in price from $200 to $250.

The downside was their fragility. They were prone to cracks and breakage.

The iPod, by comparison, weighed 6.5 ounces and had a whopping maximum 5 GB of storage.

Initially, the only way you could add music to it was by ripping songs from CDs.

And it was pricey. $400.

2001 - the year that Apple introduced the iPod, it made $5.4 billion - nearly all of it from sales of Macs to geeks, Goths, and art students. It posted a loss of $25 million.

Let’s fast forward to last year’s figures. Apple made $36.5 billion - good for $6 billion in profits - from the sale of iPods, iPhones, Macs, and digital content.

220 million iPods users can’t be wrong.

While I’m thinking of it. We missed another important date earlier this year.

January 5.

The eighth anniversary of the sale of the first HD Radio.

That’s when Cedar Rapids, Iowa resident Nathan Franzen bought a Kenwood KTC-HR 100 HD Radio tuner to install in his 2001 Pontiac Gran Prix.

The less said about HD Radio the better.

220 HD Radio users can’t be right.

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Seger & Sweet in Cleveland