Clear Channel and Cumulus

[davideduardo]

If that was their intent they could have kept Gambling. Perfect folksy-homey and built-in clients.
.

... and low ratings with essentially no 25-54's.

 

[davideduardo]

Bill Paley was already rich. That's how he could afford to get into radio.

His father was rich; he was a recent college grad and was assigned to make something out of the radio investment his father had made. He did not use his own money to buy the stations, but he proved very competent at making money with them to the extent that he was able, after some years, to buy out the other investors.

Marconi was into science and technology.

Marconi was into making money from the transmission of messages via the Marconigraph. His invention was intended to replace the costly wires and infrastructure of the telegraph. He created "radio" but had no interest in "broadcasting" as he was a strictly point-to-point guy.

Like today's software geeks, he was into the tech and money showed up.

It was more the other way around. He spotted an opportunity to make money relaying messages across oceans and to ships at sea. His invention was intended to further this goal.

Bean counters are into money.

There is a difference between investors and "bean counters". The latter term is traditionally applied to accountants, not investors. Warren Buffett is an investor, not a bean counter. And like most good investors, he believes in increasing the value of his acquisitions via good products and services, good management and sound business practices.

First radio was run by engineers.

It was created by engineers. By the time the "gold rush" of licensing of stations occurred in 1922, most significant stations were owned by businesses that could gain by having a voice... radio set manufacturers, insurance companies and even retailers. The bulk of the stations were owned by hobbyists at the time, and had low power... with most disappearing even prior to the FRC clean up of 1927.

Then programmers.

And when was that? NBC was a Sarnoff creation. Sarnoff was a businessman. CBS was the aforementioned Paley, a cigar merchant and businessman. Even the independents, like Don Lee and Earle Anthony were businessmen.

Then sales types.

Since the 20's radio has been about sales. The principal job of a general manager, whether in the 40's or today, is to seek revenue, control costs, hold safe the license and make money.

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.

This makes no historical sense as you can't give examples of the "engineers to programming to sales to bean counters" progression you seem to hold dear.

Of course, you are the same person who called one of radio's greatest voices and spokespersons, Sol Taishoff, a "ho". So I expect no less than a position that is totally devoid of truth.

 

[L Chanon Gade]

... and low ratings with essentially no 25-54's.

True. But nothing is going to change that fact. This station has the same listeners as it had in the Eisenhower era...albeit fewer.

Chan

 

[FredLeonard]

Of course, you are the same person who called one of radio's greatest voices and spokespersons, Sol Taishoff, a "ho". So I expect no less than a position that is totally devoid of truth.

I don't expect you to recognize the truth about Taishoff and the magazine he published. It was a trade magazine. It existed by tell readers what they wanted to hear; self promotion, the industry line, self-congratulation, puffery. Since he sold himself and his integrity for money, he's a ho. A high-priced ho but a ho none the less. Maybe you'd prefer he be called a "courtesan" or the industry's "mistress."

You spout the industry line, too, but you don't get paid nearly as well. That just makes you easy.

Here's the pattern: The creators and inventors. Then people who love the product and develop the product. Then people who sell the product take over (the process of compromise and debasement begins). Then bean counters.

I notice that Warren Buffett hasn't invested in radio.

Samuel Paley never invested in radio either. He made and sold cigars. Lots of money in cancer. Bill Paley was a scion, an heir, a trust fund brat. It may not have been his money but he had access to daddy's money. He got United Independent Broadcasters cheap and then he got Columbia Records to put money in. No owned stations at the point. All he bought were some contracts.

 

[davideduardo]

I don't expect you to recognize the truth about Taishoff and the magazine he published. It was a trade magazine. It existed by tell readers what they wanted to hear; self promotion, the industry line, self-congratulation, puffery. Since he sold himself and his integrity for money, he's a ho.

You could then say the same thing about the publisher of any trade journal... they exist to inform the participants in a particular field of the goings-on within that field. A good trade magazine did not "toe the line" but pushed the envelope. In the case of Broadcasting, the magazine often editorialized against accepted industry or majority positions. It also published plenty of stories about those that would regulate, control or in some way censor or censure broadcasting.

In fact, you could say the same thing abut Arthur Sulzburger who took over the New York Times in 1935 and made it more responsive to what "readers wanted to hear" by improving the writing and coverage coming from the newsroom.

In fact, is not the purpose of any mass medium, from print to radio to TV to give the readers, listeners and viewers "what they want"?

You spout the industry line, too, but you don't get paid nearly as well (a). That just makes you easy.(b)

a) You don't know that
b) It's really not nice to call people "whores" in this forum... or anywhere, for that matter.

Here's the pattern: The creators and inventors.

In broadcasting, that invention and creation happened before W.W. I, and was halted due to the prohibitions of wartime. By 1920, the fruits of the de Forest Audion and Armstrong's regeneration principle in the triode and superheterodyne process in receiver design made widespread broadcasting possible.

Then people who love the product and develop the product.

You are saying that Westinghouse and RCA and AT&T and Crosley et. al. built stations out of love of radio? Hah! I call "BS" here. They built stations to sell radios, and they did that because they loved being profitable. As did the retailers and insurance companies and car dealers and such who also put stations on the air at the time.

Then people who sell the product take over (the process of compromise and debasement begins).

You mean like Sarnoff and Paley?

Then bean counters.

As I said, you are totally mis-using this term. Investors are not bean counters.

I notice that Warren Buffett hasn't invested in radio.

Not that he hasn't tried. He put in a bid on the bankrupt Fredericksburg, VA, radio and print group recently and two years ago, he bought a chain of about 60 newspapers run by Media General.

Samuel Paley never invested in radio either.

He was one of the original investors in what became CBS. His son did not have the money, but did have the idea that he could save in advertising costs by owning the medium. He did not anticipate, initially, what CBS would become but he did have the vision that radio could make the cigar business bigger.

Bill Paley was a scion, an heir, a trust fund brat.

He was a kid right out of Wharton. A kid with a good idea. And an incredibly hard worker who unleashed the potential of some failing stations and gave the RCA / NBC monopoly a helluva good fight.

It may not have been his money but he had access to daddy's money. He got United Independent Broadcasters cheap and then he got Columbia Records to put money in. No owned stations at the point. All he bought were some contracts.

Actually, when Paley became involved was when Judson and Columbia Phonographic sold the now-named "Columbia Phonographic Broadcasting System" to the Levy family and of Philadelphia and some of their associates who were the owners of local affiliate WCAU. The United Independent name was long gone when the Levys arrived.

26-year-old Paley came in when the Levys needed a manager with a good name and background. By that time, the record tie-in was gone, as the Levys bought out Judson and the record company prior to Paley coming in, but the "Columbia" name remained, shortened to Columbia Broadcasting System later by Paley.

Of course, in 1938, flush with cash, Paley bought Columbia Records and made it part of CBS. But Columbia Phonographic Company (It was not called "Columbia Records" until much later) was out of the radio business before Paley arrived

 

[davideduardo]

True. But nothing is going to change that fact. This station has the same listeners as it had in the Eisenhower era...albeit fewer.

And that was why Clear Channel got the station for a relatively good price.

 

[Small Market Guy]

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

You know more about the business end of radio than I do, but $500,000 per year in New York City doesn't go far. I'd guess they need to pony up a lot more to get someone worthy of that slot unless they want to build someone from a much smaller market. That would require patience. Something radio management types aren't known for these days.

 

[umfan]

I would presume they could get something for that money, but when top morning shows in other (smaller) marketshave paid seven figures, I must agree that isn't likely to get top flight talent in NYC. It's likely for the entire show staff as well and not just the primary host.

 

[TheBigA]

I'd guess they need to pony up a lot more to get someone worthy of that slot unless they want to build someone from a much smaller market.

You just have to drive 30 minutes outside of NYC to find local talk show hosts making a tenth of what WOR is offering. I'm not kidding.

An AM station with a 1 share isn't going to make enough from advertising to pay someone a lot more money. This brings us back to syndication, and why it's so hard to get local talk in NYC. Based on their track record, I still believe CC really wants a local morning show for WOR. And I think a half million is a good figure to start with. Add the potential to make endorsements, something many major market talent get, and you're talking some real money.

 

[Small Market Guy]

You just have to drive 30 minutes outside of NYC to find local talk show hosts making a tenth of what WOR is offering. I'm not kidding.

I know this. But for some reason once you cross the river, the price tag for a host goes way up.

I have no doubt they could get a capable host for $500,000. But he wouldn't already be in New York. He'd have to come from Dallas or Miami or Chicago, and they'd have to give him time to build an audience.

 

[jmtillery]

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.

That was my whole point all along when I said CC overpaid for its stations, as much as 18X cash flow which was an unheard of multiple considering station trading multiples were considerably less prior to the CC buying spree. CC had an abundance of stockholder cash in its war chest following its IPO and it had to spend it somewhere. Coupled with wanting to be the biggest radio company in the world, CC deliberately overpaid for its broadcast properties to ensure the previous owners would sell. It worked in terms of building a huge station portfolio. However, as you pointed out, the strategy was based on "best case" scenario rather than a worst case scenario as it should have been. Hence, the financial challenges CC is experiencing today. The company isn't broke by a long shot, but it isn't as profitable as it should be, either, considering the investment made in its properties. To summarize, the ROI isn't there.

 

[TheBigA]

they'd have to give him time to build an audience.

Regardless of who they hire, they'd have to do this.

 

[TheBigA]

That was my whole point all along when I said CC overpaid for its stations, as much as 18X cash flow which was an unheard of multiple considering station trading multiples were considerably less prior to the CC buying spree.

That 18 times figure may have been an extreme. However, it wasn't too far out of line. Westinghouse/CBS paid 15 times cash flow for the American Radio Systems stations in 1997:

http://articles.baltimoresun.com/19...63053_1_american-radio-westinghouse-cbs-radio

 

[jmtillery]

That 18 times figure may have been an extreme. However, it wasn't too far out of line. Westinghouse/CBS paid 15 times cash flow for the American Radio Systems stations in 1997:

http://articles.baltimoresun.com/19...63053_1_american-radio-westinghouse-cbs-radio

While that is true, it was Clear Channel that set the "then" new multiple standard years before Westinghouse acquired American Radio Systems. As I had stated in a previous post, it was after CC started over paying for its stations that every other station owner got the idea their $500,000 radio station was worth $5,000,000 when there was no way the station could service its debt at such a high cash flow multiple. Before the Telecom Bill was passed in 1996, duopolies were approved in 1992, so the station consolidation process began as early as 1991 with acquisition completion in 1992 once the new ownership caps went into effect.

 

[Small Market Guy]

Regardless of who they hire, they'd have to do this.

True, but they seem to think that if they hire someone already famous (Geraldo, etc.) they will get an immediate audience.

 

[TheBigA]

While that is true, it was Clear Channel that set the "then" new multiple standard years before Westinghouse acquired American Radio Systems.

How about SFX? There were several companies driving merger-mania before Clear Channel got involved. No one forced these folks to sell. I once spoke with Buck Owens, who sold a few of his radio stations, but kept KUZZ in Bakersfield. He didn't need the money they were throwing. So he didn't sell. The fact was that a lot of owners were looking to get out. The process began in the 80s. There were lots of companies competing for the most valuable properties. Clear Channel was just one of several driving up the prices. But a property is worth what someone is willing to pay. That's the rule of the marketplace.

 

[jmtillery]

But a property is worth what someone is willing to pay. That's the rule of the marketplace.

Which is exactly what I have already said. And while not everyone sold, many did for reasons already stated.

 

[Chris Pronger]

They only "overpaid" in the context of what stations are selling for now. They paid the market price at the time.

I don't believe that this is true.

The model WAS for companies to pay 4-8 times cash flow for stations. But, large companies-- especially CC-- were paying a LOT more than that to get the big stations in big markets. At the time, no one could have known how the economy and technology would change both the the industry & listening habits.

Fast forward almost 20 years and the companies that gobbled up all those stations at exhorbitant prices have a ton of debt to deal with. Unlike the late 90's, there isn't a lot of optimism that they can get out of it on their billing alone.

 

[davideduardo]

The model WAS for companies to pay 4-8 times cash flow for stations. But, large companies-- especially CC-- were paying a LOT more than that to get the big stations in big markets. At the time, no one could have known how the economy and technology would change both the the industry & listening habits.

I don't ever recall 4-8 times BCF being the formula. I was involved with purchases going back to the 70's. When I looked at ongoing operations that included a decent FM, we were seeing multiples of 10 to 12 depending on the market. When establishing a purchase price for WTFM in New York, which was basically a stick in 1978, we saw other properties going in the 10 to 12 range. The same year when we were optioning WWOK and WJOK in Miami, we saw multiples of 10 in that market.

A decade later, around 1989, the group I was with was cash flowing about $5 million and we used that to establish the value of our existing properties which was around $55 million (plus real property). This was accepted by lenders for our acquisitions beyond that point.

Fast forward almost 20 years and the companies that gobbled up all those stations at exhorbitant prices have a ton of debt to deal with. Unlike the late 90's, there isn't a lot of optimism that they can get out of it on their billing alone.

But the multiples were based on no recession and no ability to predict streaming's influence. The buyers paid based on BCF and the belief that economies of scale at the corporate and cluster level would add enough in savings to make a 15 multiple equal to an old 10 multiple.