Re: Livin' On the Fault Line
SirRoxalot said:
Clear Channel getting out? CBS/Infinity reducing their holding?
What do THEY know that WE don't know - or that we aren't paying attention to?
Personally, I know it, and I think you do to, you just haven't, as you said, been paying attention. Here's how I see it...just my opinion and nothing else:
After the Communications Act of 1996, big companies started consolidating at a break-neck pace. Many companies, including Clear Channel, paid a premium for the stations they bought. In almost every single situation, Clear Channel paid more for stations than they were worth. I personally think the Mays fellas were good radio managers. However, with their company growing as fast as it was, and with them becoming a publically-held corporation, things got a bit out of hand.
Clear Channel and other companies had to borrow money from Wall Street in order to acquire stations at the rate they did. This means they have debt service. Since they over-paid for the vast majority of the stations they bought, they were already behind the curve, because they had higher debt service than their revenue stream should be able to handle. Of course, since stations were being bought left-and-right at this point in history, practically everything was overpriced. It's that annoying supply-and-demand thing that we both love and hate. Anyway, several of the larger companies were willing to pay over-inflated prices for stations, or pay big money upgrading rimshots. I personally believe that Clear Channel, Infinity, Radio One and the like were in a hurry to acquire stations, even if they had to pay too much for them. I think that desire to grow quickly stemmed from the fear that if they didn't buy up the stations, their competitor would.
Once CC and other companies had a whole boat-load of stations, I think they hit a proverbial brick wall and realized "oh, crap...how do we manage all these??". It was something nobody had any experience doing...managing several hundred radio stations all at once. I know how hard it is to manage the two I own. I can't imagine what a cluster... it would be to manage a few hundred. Anyway, the big radio companies turned to their friends on Wall Street. After all, Wall Street has plenty of experience managing huge companies. The difference? You can't run a radio station the way you run a widget manufacturer or phone company.
The big radio companies were already behind the eight-ball, in my opinion, because they were trying to pay debt service which was higher than the revenues the stations they acquired should be able to support and still remain healthy. This would be like trying to pay a $400,000 mortgage when you only have an income of $30,000 a year. Of course, the debt service had to be paid. That means expenses had to be cut in other ways, and we all know too well what those "other ways" are. Good folks lost jobs, live programming became a rarity, and expenses were cut to the bone. However, as I said, radio isn't a business like any other. Wall Street probably didn't see it coming, because they didn't understand radio. However, cutting back at radio stations resulted in clients and listeners becoming unhappy. As a result, revenues declined. The end-result was that radio companies were paying debt service which was too high, with revenues which were shrinking. Even in instances where revenues weren't technically shrinking, they were having to work harder for the revenue they earned.
So long as there were more stations to acquire, the business model they had in place worked. After everybody was "tapped out" in the markets they wanted to be in, though, they were again faced with the "oh, crap" factor. I think history has proven that, despite the spin of the big companies, many of them simply aren't good at running radio stations, particularly in smaller markets. Now, I think we'll see a sell-off of non-strategic and smaller-market stations, until the larger companies reach a point of equilibrium where they can effectively manage the properties they choose to keep.
Again, this is only my opinion, based upon observing industry trends over the years. Some of you will probably disagree. I think that the net result will be that very soon, supply of "good" radio stations will increase, which will lower prices since demand is fairly soft now. It will be a great opportunity for smaller broadcasters to grow, and I'm looking forward to it. I think that we might again see "good" radio the way most of us remember it.
