Clear Channel and Cumulus

[davideduardo]

When the 1996 Telecom Act passed, I think the model was acquire a lot of stations and program them, to a large extent, remotely.

I don't think so. First, the technology and connectivity needed to do that in 1996 was not in place. Satellite distribution was very costly, and only practical with large scale projects with complete simulcasts.

Clear Channel may have been the first to acknowledge that these economies of scale could exist, and they demonstrated that knowledge by advancing the Prophet technology that had been bought by Capstar in 1997 and came to CC via the Capstar / Chancellor set of mergers. It was through design enhancements in the NextGen and, now, the Zetta systems that allowed much of the content sharing to take place.

But it occurred well into the the first decade of the 2000's.

Revenue played along for awhile and costs did drop. While the trend toward digital music was well known in 1996, who could've foreseen the impact the iPod and internet music delivery would have on radio distribution?

Radio distribution does not follow the iTunes / iPad system. It is basically a glorified FTP system that makes resources available at any station across a company, whether those resources are programs, workparts, songs, commercial production or traffic reports.

CC did what it did with WOR to ensure clearance of its top syndicated shows in New York. Cumulus was making threats but ended up keeping Rush in most markets.

Clear had no AMs in New York, and got a big one for a low price. Yes, they could clear a couple of shows but clearance with no listening does not per se create revenue.

I would argue that CC has better leveraged it's product through iHeart. While the whole will likely never be worth what it was acquired for and there will be a restructuring of debt at some point, they have leveraged their many properties and programs into a solid digital product.

But if you look at the revenue, it is still 85% on the AM and FM platforms, not digital. iHeart is a way to transition to new media, but like Pandora, it has no profitable business model until such time as equitable royalty issues for digital distribution are arranged.

 

[jmtillery]

Plus, I doubt the PE firms that bought Clear Channel believed they'd hold onto it this long. They're usually short-term investors who attempt to sell their investments for top dollar a few years later.

I think you may be confusing Private Equity with Venture Capital firms. It is VC firms that has an exit strategy ranging usually no more than five years with the intent of said companies venture capital in invested in going public at the end of five years with the VC firm selling its stock at the time of the IPO giving the VC firm a profit on its initial investment.

Private Equity, on the other hand, is in it for the long term. Unlike VC firms that invest in growing or start-up companies, Private Equity firms invest in companies that are already profitable with the intent of holding its investment for the ROI benefits. PE firms like the monthly or quarterly checks coming into the firm for the long haul. When Bain Capital invested in Clear Channel Communications, CC was profitable. However, no one had a metaphoric crystal ball that would foresee the future showing CC and radio in general losing ROI in an unforeseen down economy. As was previously pointed out, there was much optimism in radio and companies such as Clear Channel continuing to make a profit and returning an impressive, or at least serviceable, debt service when the PE investment was made in Clear Channel Communications (now Clear Channel Media & Entertainment).

 

[TheBigA]

As was previously pointed out, there was much optimism in radio and companies such as Clear Channel continuing to make a profit and returning an impressive, or at least serviceable, debt service when the PE investment was made in Clear Channel Communications (now Clear Channel Media & Entertainment).

And certainly the cash flow is still pretty impressive, which makes it a good long term investment. No rush for an IPO, although one will come perhaps in 2016.

 

[jmtillery]

Clear Channel is producing a positive cash flow; however, said positive cash flow isn't huge in comparison to operating expenses; hence the reason for all of the budgets cuts and staff layoffs. CC's positive cash flow is derived more from budget cuts than it is from increased sales although dollar volume sales for CC is high. it should be noted that CC overpaid for virtually every radio station in its portfolio which definitely cuts into the bottom line ROI.

 

[umfan]

I'm skeptical that CC is cash flowing considering the level of their debt service. Perhaps you have inside information. Since they don't report their financials publicly, however, I have no way of verifying or disputing this.

David, I'm aware that radio doesn't use internet music delivery, my point was that this pulled listeners away from radio thus having a major impact on the economics of the business. You keep repeating the point that clearance doesn't equal listeners. This is quite pedantic as it's so obvious, however, if a national show doesn't have clearance in the largest markets, it's a bit difficult to have listeners. I stand by my analysis that the WOR deal was made to ensure clearance of CC's top syndicated programming in the NYC market.

I don't see an IPO for CC. Eventually, I see a possible breakup, but more likely much of the equity is given to bondholders to possibly avoid bankruptcy. Perhaps after that, there could be an IPO.

 

[TheBigA]

. it should be noted that CC overpaid for virtually every radio station in its portfolio which definitely cuts into the bottom line ROI.

They only "overpaid" in the context of what stations are selling for now. They paid the market price at the time. But they're stuck in the same situation millions of homebuyers found themselves in in 2008 when their home values dropped. And they're not the only radio company that found themselves in that situation.

But that is why they're diverting so much of their resources from declining radio stations to online media like IHeartRadio. In the context of companies like Pandora or Beats, that's adding to ROI.

However, while their debt situation is much smaller, Cumulus is not investing in new media or areas for growth. They're putting all of their money in capital equipment for OTA radio stations. I wonder if that's wise given the declining value of radio stations.

 

[davideduardo]

You keep repeating the point that clearance doesn't equal listeners. This is quite pedantic as it's so obvious, however, if a national show doesn't have clearance in the largest markets, it's a bit difficult to have listeners. I stand by my analysis that the WOR deal was made to ensure clearance of CC's top syndicated programming in the NYC market.

I point this out repeatedly as there are many and recurring posts that indicate that a mere clearance represents income. My intent is to differentiate network radio sales from a Gucci handbag. The radio seller has to show delivery, while the Gucci bag sells on pure fluff and image.

Still, with NYC FMs capped, Clear still could add an AM or three and work to improve the delivery, just like they have improved it at KOGO and KFYI and even KFI on the West Coast (sarcasm intentional).

 

[TheBigA]

I point this out repeatedly as there are many and recurring posts that indicate that a mere clearance represents income.

It actually represents a loss. Clearing a Premiere show on a CC station takes away local inventory and replaces it with national inventory. It basically means less money being made by the station for the GM and the regional team. Sure, all the money goes in the same pocket at the end of the day. But taking away that local inventory is a net loss for the station and the market.

 

[Small Market Guy]

It actually represents a loss. Clearing a Premiere show on a CC station takes away local inventory and replaces it with national inventory. It basically means less money being made by the station for the GM and the regional team. Sure, all the money goes in the same pocket at the end of the day. But taking away that local inventory is a net loss for the station and the market.

The shows all have local avails. What if those avails bring in more money than a local host would? There's also the consideration of overhead. Running Coast to Coast is likely much cheaper than hiring an overnight jock.

 

[TheBigA]

The shows all have local avails. What if those avails bring in more money than a local host would? There's also the consideration of overhead. Running Coast to Coast is likely much cheaper than hiring an overnight jock.

For overnight, you're right. For afternoon drive, maybe not. Rush & Hannity are drawing smaller numbers on WOR than they did on WABC, but it's an improvement for WOR. So it's all relative. WOR is struggling to find a solid local morning show. How can that be?

 

[jmtillery]

They only "overpaid" in the context of what stations are selling for now. They paid the market price at the time. But they're stuck in the same situation millions of homebuyers found themselves in in 2008 when their home values dropped. And they're not the only radio company that found themselves in that situation.

But that is why they're diverting so much of their resources from declining radio stations to online media like IHeartRadio. In the context of companies like Pandora or Beats, that's adding to ROI.

However, while their debt situation is much smaller, Cumulus is not investing in new media or areas for growth. They're putting all of their money in capital equipment for OTA radio stations. I wonder if that's wise given the declining value of radio stations.

While I agree that anything is worth as much as anyone is willing to pay for it, Clear Channel was paying as much as 18X cash flow setting an all time record for cash flow multiples which set the pace for other stations' fair market value. Prior to CC beginning its shopping spree, stations were trading at around 8Xs cash flow. CC raised the multiple bar deliberately in order to assure CC got the stations it wanted in the markets it wanted, giving the previous owners a high incentive to want to cash out that otherwise these same owners probably would have held on to their stations had CC not made an offer "... they can't refuse...".

Had the economy not crashed in 2008, CC would have been fine with its cash flow and servicing its debt; however, generally speaking, if a company is no longer able to service its debt, then it's a safe bet to say said organization overpaid for its properties. And, when that happens, the company will either infuse additional investor capital, sell assets or go into bankruptcy.

 

[TheBigA]

While I agree that anything is worth as much as anyone is willing to pay for it, Clear Channel was paying as much as 18X cash flow setting an all time record for cash flow multiples which set the pace for other stations' fair market value.

Some of those stations were worth it. The problem often came with bundles they were forced into buying. Buying a whole group means you get some rotten apples along with great ones. They got a load of rotten apples. Same with Citadel. They're both stuck with a lot of rotten apples. They've donated a few, but some will need to simply be shut down.

 

[Small Market Guy]

For overnight, you're right. For afternoon drive, maybe not. Rush & Hannity are drawing smaller numbers on WOR than they did on WABC, but it's an improvement for WOR. So it's all relative. WOR is struggling to find a solid local morning show. How can that be?

Yeah, I don't know the numbers for WOR in particular, but I would imagine that it's hard to find a talent good enough for the New York market that will work for the kind of salary they could afford to pay?

That's just speculation. In the old days they would have promoted a talent from Market #15 or something, but things are so screwed up now they're probably trying to find a celebrity to host and none will.

 

[umfan]

You can apply the 'had the economy not crashed....' to any business. When CC acquired the stations, it was based on their future financial projections. Clearly, CC didn't apply a rigorous analysis to the future potential taking account the threats to the prevailing business model of the time. Maybe noone could've foreseen it, but they placed an awful big bet that revenues would not only be stable but forever increasing. This bore out until 2004, revenue was slow to flat until 2008 when the bottom dropped out.

Why is CC having trouble finding a local show for WOR? Obviously they aren't willing to pay what a top flight local show wants. They are having trouble finding a good local show for WHAT THEY ARE WILLING TO PAY.

Is Doug Stephan even cleared in NYC? Try him. He won't cume hugely or attract the most desirable demos, but they could probably sell some local ads and maybe it would be better money wise then what they have now. I think the show is free if they run the embedded ads. Not going to happen, I know, but a thought nonetheless.

 

[TheBigA]

Why is CC having trouble finding a local show for WOR? Obviously they aren't willing to pay what a top flight local show wants. They are having trouble finding a good local show for WHAT THEY ARE WILLING TO PAY.

According to the other board, they're offering $500,000 for their morning show. Is that enough?

 

[L Chanon Gade]

According to the other board, they're offering $500,000 for their morning show. Is that enough?

Maybe not, when you consider the likely factor that it is about getting a marketable name for syndication. That is what these two stations are about now.

Chan

 

[TheBigA]

Maybe not, when you consider the likely factor that it is about getting a marketable name for syndication. That is what these two stations are about now.

Chan

Except that's not what CC is looking for. CC doesn't have a syndicated morning show. They believe in local talk for mornings. That's what they're doing in all major markets.

If the show succeeds and they decide to syndicate it, that's a separate deal, made with Premiere.

 

[L Chanon Gade]

Except that's not what CC is looking for. CC doesn't have a syndicated morning show. They believe in local talk for mornings. That's what they're doing in all major markets.

If the show succeeds and they decide to syndicate it, that's a separate deal, made with Premiere.

If that was their intent they could have kept Gambling. Perfect folksy-homey and built-in clients. There are a number of other hosts who are known to the market and probably would work.

No. "A" -this is about syndication. If it weren't they'd have somebody long ago. There isn't shortage of talent here.

Chan.

 

[TheBigA]

No. "A" -this is about syndication. If it weren't they'd have somebody long ago. There isn't shortage of talent here.

Once again, the syndication part of CC isn't doing the hiring. So no, it's not about syndication. It's about getting the right local host.

 

[FredLeonard]

Big A: Edison never "got into" radio. Bill Paley was already rich. That's how he could afford to get into radio. He was into power (and women). Marconi was into science and technology. Like today's software geeks, he was into the tech and money showed up.

Bean counters are into money. First radio was run by engineers. Then programmers. Then sales types. Now bean counters. Each time, it's gotten worse. Stupid, arrogant greed killed radio. Stupid arrogant bean counters are also wing-nuts, which explains talk programming.