CUMULUS LEADING RADIO... STRAIGHT TO THE BOTTOM!

[Goat Rodeo Cowboy]

Here's a question: Was Apple's lawsuit against Samsung good for the electronics industry?

When we buy a stock, we buy it with the expectation of a return on our investment. You can call my desire for ROI "lusting for profits" if it suits you but hyperbole aside, there are few other reasons to buy a stock. I am not buying stock with the hope and expectation that a company will put the good of the industry above its own financial results.

What makes this conversation different than the conversation we would have been having 40 years ago on these issues is Time Frame.

I don't know when "Capital Gains Tax" entered our vocabulary, but there was a time when shrewd investors wanted to know their purchase of a company was going to be profitable for 30, 40, 60 years. Thus, the good of the industry and the good of the investor
were twins walking down the street arm-in-arm.

Circa 1970 with income tax rates sky-high and some very generous capital gains provisions, investors learned to focus on buying " sow's ear" investments if they saw some way of "flipping the deal" (as they say in the housing market today). They didn't care about the good of the industry. Buy a dog, shut it down, develop the land, cash out the pension fund, selll off the one or two good patents and sell the left-overs at salvage dealer prices.

We live in an era where there is tension between the wheeler-dealer types who want to buy an operation and part-it-out like a car at the salvage yard and move on to the next deal. It makes life tough for the young guy who just wants to get into a certain business and spend the next 40 years making profits and then sell the operation to the next guy that wants to make a career of it.

40 and 50 years ago radio was selling a lot of advertising to merchants who looked at their store as a "long haul operation" that his son would some day take over. When radio consolidation sent buyers out buying all kinds of stations within x-number of miles of any significant city so they could part-them-out (move the frequency into the metro) and the existing owners found them selves trying to sell advertising to retailers who were also being consolidated, this little passtime that so many of us had a passion for went through financial changes somewhat like happened in the story of Dracula.

Today's big corporations may have 5, 10 and 20 year plans on paper, but they really live every 90-days as if it were a lifetime.

We can call Clear Channel and Cumulus all the names we want to. They didn't invent this new style of business.... they just jumped on the band wagon before it left town.

 

[SaltyDog]

Thus, the good of the industry and the good of the investor were twins walking down the street arm-in-arm.

That may have been true, and may still be true, but when a person bought a stock then, just as now, they were still looking for a return whether it was in 1 year, 5 years or 30 years. What is good for the company might also be good for the industry but that's not what drives the decision. Apple did itself a lot of good when it came out with the iPhone. It also did a lot of good for the industry by essentially creating the market that others then entered.

 

[TheBigA]

I think it was in the 50s when the President of GM said, "What's best for General Motors is what's best for the country."

I'm pretty sure David Sarnoff would agree, and often made decisions that only benefited RCA, not the industry. Unless he was forced to do otherwise. Which he was, on several occasions.

 

[davideduardo]

I don't know when "Capital Gains Tax" entered our vocabulary, but there was a time when shrewd investors wanted to know their purchase of a company was going to be profitable for 30, 40, 60 years. Thus, the good of the industry and the good of the investor
were twins walking down the street arm-in-arm.

I'm not sure that this was the totally general feel for investments and the market even 50 years ago.

Between '58 and '63, I traded constantly, sometimes buying and selling within a single month (day trading, unless you sat at a brokerage office, was impossible due to the slower nature of market data flow).

Over the course of those 5 years, I made enough to build my first radio station. None of those investments was a long term dividend and appreciation play... most were on the Toronto exchange and were mining and oil penny stocks.

Publications like Barron's specialized in giving information on those small-cap issues, and even the WSJ carried the Toronto quotes for the most traded issues.

The biggest issue I had was opening a brokerage account at age 13, but while I was younger than the average speculator, I was not alone as the volume in the riskier and more volatile issues proved.

 

[Goat Rodeo Cowboy]

I'm not sure that this was the totally general feel for investments and the market even 50 years ago.

Between '58 and '63, I traded constantly, sometimes buying and selling within a single month (day trading, unless you sat at a brokerage office, was impossible due to the slower nature of market data flow).

Over the course of those 5 years, I made enough to build my first radio station.

I have nothing but admiration for people like you who can look at life and see things that just float past me un-noticed. I was almost 30 years old before I ever lived in a community where you could buy a WSJ or go to the library and read one. It was a community where for the first time in my life I could walk by the impressive entrance to the office of MLFS I think they ware called back then.

I may not be qualified to analyze how many people in the era you are talking about were "players" in the world of corporate investment. But once I learned that there was a culture of investors... and I became a protege and "partner" in business with a man who was a partner in the Arthur Andersen Accounting firm, I got a fast "short course" in recognizing how wealth and capital work. Over a period of being the equivalent of the court jester in his kingdom for 16 years, I became mildly aware of the world you discovered at age 13.

I never worked for a radio station owner who ever hinted that he might own even a handful of "investments" in the sense of stocks and bonds.

Here is what I do know that the "school of hard knocks" was teaching young broadcasters in the South and the Southwest in that 1958 to 1963 era. The path to having your own radio station is to be ready when someone is ready to walk away from the business. He/she has probable depreciated all the physical assets of the business they built so if they sell it our-right, taxes will eat them alive. (I worked for people in the 70% tax bracket in those times.) The law said: sell your business, your assets with less than 30% down and take contract payments over at least 7 years and you get to pay only a Capital Gains tax rate. The game plan in rural American radio was to be ready when one of those opportunities came along. And as a radio sales rep in rural America, you were calling on merchants who were preparing to sell their hardware store or car dealership under those same tax regulations, or you were dealing with an advertising buyer who had purchased one of those retail businesses in recent years under that kind of scenario. It was like we were all in the same rodeo arena together. (None of these people wanted to be paid in cash... even if you had it!)

I have no idea whether the world as I saw it then represented 20% or 80% of the American business population. I have no idea whether the world of short-term trading in the market represented 20% of population or 80% of the population.

I do know that somewhere in the vicinity of maybe 1978 the political influence and the investment influence on American financial life took a major turn in direction and life has been like one big "Double Black Diamond" ski slope since then. Remember, prior to that time in many states, a bank could NOT open a branch bank outside their home county. I never saw a "branch bank" prior to my arrival in the city in 1965.

Because some of us grew up in a place like Tonoto or NYC while some of us grew up in the shadow of the Kleburg's King Ranch in a sea of cactus, we have differing views on finance and life and politics. And differing views on how to make money in radio. And differing views on the charter that established the American system of broadcasting.

Thank you, David. The first person I recognize as a MENTOR in my life dates back to about 1948. And today I am happy to add your name to the list of people who have served as mentors.

 

[davideduardo]

Thank you, David. The first person I recognize as a MENTOR in my life dates back to about 1948. And today I am happy to add your name to the list of people who have served as mentors.

Thanks! And at the risk of going way off topic, here is an anecdotal story that has to do with the oft-maligned community of investors. That, of course, applies to those who invest in radio stations.

My father was an investment banker in New York, and, disliking the culture, moved to Cleveland, Ohio and started a small bank. That was in about 1927. What he had, he lost trying to pay off depositors.

From then till he passed away, he ran a cemetery... one of the most beautiful in the country, and one where a President is burried. He he created hills of daffodils where hundreds of thousands of flowers covered hillsides in spring, and had rare trees and plants from as far away as Mongolia even in the heat of the Cold War. Yet he was an investor, because cemeteries take that payment for a plot and have to invest the funds so that the grounds will be perpetually maintained forever... in other words, a classic long term investor and one whose constituency did not have much of a voice in the matter.

Walking among the crypts, mausoleums and almost forest like planting of Lake View Cemetery, my dad the long term investor explained to me that there were different kinds of investments... ones to start business, ones to sustain them, and ones to prime a nd preen them for sale. It's not surprising that for most of my career, I could not stay in one place for over 7 years... because I was not an investor, but a speculator.

After my father's death, I recall my Saturday bicycle ride to the store that had Barron's and all the details of Acme Petroleum and the other penny flyers of the day. On occasion, I'd have a dive for a soda, and sit with the old guys (old was 35 to me) and hear their tips on the week ahead. Car sales down, trucks up,´machine tools with a 180 day backlogue. Trying to forcast the economy and to determine whether to sell Caterpiller and buy Deere and General Mills.

Years later, trying to determine trends became part of my technique for qualifying a market or doing a deal.... new factories, new restriction, new governments opposed to old ways.

I got a lot of respect for my dad the banker out of all that. As some know, I was cut loose from a fine job just a year before retirement after 52 years in radio. It's no the end that bothers me, it's how I go so frikkin´far! I have to believe that looking at something more than spot rates such as retail trade figures, home sales, job figures and such made me know my communities all the better because I could use money as a tool, not just as a goal.