Good News, Bad News

[TheBigA]

So, the consolidators didn't overpay, "synergies" and "efficiencies of scale" worked, and nobody could anticipate that there might possibly be a recession sometime in the next 20 years. Have I got that right?

I don't know. Ask the millions of people who bought homes at the top of the bubble. Ask the government, that's sucking up the trillions of dollars overpaid by all those greedy homebuyers. None of them ever expected home prices to stop going up, did they? There are lots of stupid people out there, all caught with their pants down. Yet everyone wants a job.

By the way, in my view, the synergies never happened, and the economies of scale took way to long. Too many fiefdoms and too much bureacracy. It's a good thing I wasn't in charge of these companies. The layoffs would have happened 6 years ago. The current owners were way too benevolent, and that benevolence sowed the seeds for the current situation. No kool aid being drunk here.

 

[gr8oldies]

Who would have ever thought in their wildest dreams that the great and mighty General Motors would be in bankruptcy today. Or radio people, who when they were wishing in the 70s and 80s that "real radio people" with money would buy their stations, would now want insurance companies to buy them back. In a way, with bankers like Bain now running CC, we have that system back.

No one who may own these stations in the future is going to make their first act calling the broadcasting school and having them send a busload of applicants for jock jobs. The companies who have bought stations CC has spun off, like BAS in Ohio, haven't done that.

 

[SirRoxalot]

So, what I'm hearing is that the greedy consolidators are about as smart as the dopes who committed to a mortgage that they couldn't possibly pay, from bankers who were jobbing the system and making huge profits on bad paper that they were selling to the Chinese. Is that about right?

I thought that guys being paid MILLIONS - especially ACCOUNTING WIZARDS - were supposed to be SMARTER than that. These guys never planned to operate. They planned to construct de facto monopolies in specific demographics, push rate and cash flow up, then sell to the NEXT sucker for a tidy profit. Most of them didn't get out in time, which why they're facing bankruptcy.

Bain & Co. aren't bankers. They're money-churners. They don't want to OWN or PRODUCE anything. They just want to buy low and sell high. Unlike bankers, who have an investment in the community through real estate, people, and services, they have no ties to an area or a property. It's simply monopoly with real money.

The debt is the killer, and the quality of radio programming is declining in the opinion of almost every radio programming professional and listener that I talk to, read, or hear from. Ratings on stations that have replaced local talent with out-of-market VT and syndication are sinking rapidly where there's decent local competition. That will accelerate the bankruptcy process for the consolidators who are cutting thousands of jobs.

Bankruptcy will change the playing field. It will revalue stations to more reasonable levels, bringing people back into the industry who will offer better programming. As far as I'm concerned, it can't happen soon enough if radio is going to retain viability as an advertising-supported medium.

 

[TheBigA]

I thought that guys being paid MILLIONS - especially ACCOUNTING WIZARDS - were supposed to be SMARTER than that.

I thought that the US government was supposed to have actual money backing up the dollars we all have in our wallets. I didn't take the phrase "In God We Trust" literally. The finances of our government should be based on more than just trust. Don't you think?

You think the Chinese only own bad mortgages? They also own US debt. Hundreds of billions of dollars of your country's debt! These are the same people we smugly lecture about human rights, and they own the deed on our country. It's hard to be high and mighty, and tell people how to live, when they're the ones paying our bills.

Before you get so high and mighty about the finances of some companies, take a look at how your tax dollars are spent. It's YOUR MONEY. I would think you'd be smarter than that.

Bain & Co. aren't bankers. They're money-churners.

We live in a country that doesn't manufacture much any more. We used to make things. Now we just move money around. That's a problem that isn't restricted to radio. But radio stations used to be owned by companies that manufactured things, like electronics companies (RCA, Westinghouse, GE). Those companies don't own radio any more. Who is left? Car companies? Ha! Tire companies? Steel companies? Look at the companies that used to have plants in upstate New York where I lived. All gone. So who's left to own things? Look at the names on the arenas. Banks? Insurance companies. Credit companies. What do they do? They're money churners. Welcome to the 2st century.

Bankruptcy will change the playing field. It will revalue stations to more reasonable levels, bringing people back into the industry who will offer better programming.

As we've discussed, programming people don't have money to buy radio stations. Most don't even own their own homes. The kinds of people who will buy radio stations are exactly the kinds of people you don't like. Why? Because no one makes anything any more, and so no one has hard money to buy things. Even if Larry Wilson were to buy back Citadel, it would be done with money from investment bankers. Which means he is beholden to turning a profit every quarter.

So there may be programming people involved. Like when Larry Tisch bought CBS, he brought back Bill Paley. But Larry Tisch was in charge, and he cleaned house with Paley's blessing. THAT is the future. If you think I'm kidding, look carefully at who is buying properties from Aloha Trust. Tell me how much better those stations are.

 

[gr8oldies]

Rox, if you're waiting for radio as it was in the 70s to come back, it ain't happening, no matter who eventually gets these stations. You also lost all credibility with me when you insisted that "only radio geeks" in my high schol listened to CKLW, and all the other kids listened to the local farm report station (when in fact The Big 8 was blasting out of the speakers at the pool and virtually every car owned by a teeenager).

 

[amfmxm]

Couple of things.

David, the notion that half of all radio stations were losing money prior to consolidation--much less back into the fifties--has always been a crock.

The majority of radio stations--even to this day--are licensed to very small communities, and (especially before consolidation) have been owned by small companies--proprietorships, partnerships and small corporations. In the seventies & eighties I was in a partnership (two sales guys with some programming savvy--a subchapter S corporation) and went through the annual end-of-the-year ritual determining how many cars, furnishings, or "business" trips we needed to buy to create our "paper loss." All within the law.

When the NAB first paraded this "half of all radio stations are losing money" nonsense before the feds to justify deregulation, the consensus among us small market (remember, the majority) radio guys was "that's BS." We all knew what they were up to.

And Big A, I almost hesitate to engage you on this stuff, because I've never figured out whether you seriously believe the things you write or whether you do it just to stir the pot.

But, no, Clear Channel did not come along as a White Knight to save a foundering industry. They recognized an opening to rewrite the law--effectively skipping the pesky rulemakers at the FCC--to gobble up a commanding presence in about 250 of the 300-or-so rated radio markets and thereby control the lion's share of the money spent in our industry. They had the plan in place before pulling the trigger on the legislation, giving themselves an unfair advantage over everyone else. A pure power play, motivated by pure greed.

And they settled for oligopoly only because they knew that monopoly wouldn't fly.

 

[TheBigA]

But, no, Clear Channel did not come along as a White Knight to save a foundering industry.

It wasn't one single company that came along in the late 90s to buy stations. It was a group of about ten. They all bought stations under the same rules, and each had their goals and agendas. Sillerman's goals were very different from Mays. But the government insisted that each buy a certain number of AM stations for every group of FMs they bought.

They recognized an opening to rewrite the law--effectively skipping the pesky rulemakers at the FCC

Once again, they were not the only company involved at the time. The "pesky" FCC had already loosened the ownership limits, and was on its way to loosen it even more. Also, companies had already begun operating stations under LMAs. I know for a fact that had the change in ownership law not been passed, these companies would have achieved the same thing through LMAs. They'd just have skipped the debt. which in the final analysis was the mistake. They would have been better renting than owning.

The ONLY reason the door was even open for companies like CC to get involved is because the government, in a bi-partisan way, wanted something from the owners. They wanted them to invest more money in their stations, invest in digital infrastructure, and buy failing AM stations. The owners wanted something in return. Everybody got something out of this deal.

It's a very interesting and complicated story, and not as simple as you indicate. It's easy now and look back at it as a huge mistake, but it was obvious that the 1934 Act needed to be re-written. It was one of the last great bi-partisan laws, in which political agendas were put aside (for the most part), and the purpose was to modernize the media. My view is it worked for the short term. After 8 years, newer unregulated media were able to bypass the rules and made the 96 Act obsolete. But to open that bees nest again won't be as easy.

to gobble up a commanding presence in about 250 of the 300-or-so rated radio markets and thereby control the lion's share of the money spent in our industry.

But the government put several clauses in the law that prevented them from doing that. Which is why, over the years, CC has been forced to divest itself of radio stations in certain markets. And why all of their stations aren't top rated in every market. They HAVE to own some losers in every market. That's the law. No one at CC wanted that. Had CC actually written the law, as you state, I doubt they would have written it this way.

They had the plan in place before pulling the trigger on the legislation, giving themselves an unfair advantage over everyone else. A pure power play, motivated by pure greed.

Once again, they were not the only ones in the room, not the only ones lobbying for change, and not the only ones who stood to gain from change in the law. They just had more money to spend than everyone else. But CBS was just as interested in being a player here as CC. As for the greed factor, it's better than the alternative, which is political power or thought control, which is what some in the left charge. My fear is the next big wave in media ownership will be for political control, and that is far scarier than simple greed. There has to be a motivation for doing something, and in this country, the motivation is money. That is the way the game is played. The alternative is we all become hobbyists, and although I did that for several years, I prefer getting paid.

 

[TheBigA]

And they settled for oligopoly only because they knew that monopoly wouldn't fly.

Well, they didn't even get "oligopoly," because the entire marketplace changed overnight. Just as they found themselves with 10% of the pie, the pie became much bigger, and their 10% became less than 1%.

So now the government has a new agenda: Localism and diversity. They want more women and minorities as owners. The current owners have a lot of debt and are being hammered by unregulated new media.

Sounds the the making of a new deal, if you ask me. Both sides want something. So maybe we see CC donating a bunch of licenses to minorities. Maybe we see them agreeing to a certain percentage of localism. In exchange for.....

Go through the list. Radio owners don't want to pay new music royalties. They want some controls on new media. They want their content to be mandated on new devices. Plus they want more favorable financing.

I believe there will be a new deal sometime in the next three years. That's what everyone is holding out for.

 

[amfmxm]

Thanks, Lowry.

 

[TheBigA]

Thanks, Lowry.

Just because we don't agree doesn't mean I'm rooting for CC.

And there are more sides than just Lowry's side and your side.

 

[amfmxm]

But, no, Clear Channel did not come along as a White Knight to save a foundering industry.

It wasn't one single company that came along in the late 90s to buy stations. It was a group of about ten. They all bought stations under the same rules, and each had their goals and agendas. Sillerman's goals were very different from Mays. But the government insisted that each buy a certain number of AM stations for every group of FMs they bought.

They recognized an opening to rewrite the law--effectively skipping the pesky rulemakers at the FCC

Once again, they were not the only company involved at the time. The "pesky" FCC had already loosened the ownership limits, and was on its way to loosen it even more. Also, companies had already begun operating stations under LMAs. I know for a fact that had the change in ownership law not been passed, these companies would have achieved the same thing through LMAs. They'd just have skipped the debt. which in the final analysis was the mistake. They would have been better renting than owning.

The ONLY reason the door was even open for companies like CC to get involved is because the government, in a bi-partisan way, wanted something from the owners. They wanted them to invest more money in their stations, invest in digital infrastructure, and buy failing AM stations. The owners wanted something in return. Everybody got something out of this deal.

It's a very interesting and complicated story, and not as simple as you indicate. It's easy now and look back at it as a huge mistake, but it was obvious that the 1934 Act needed to be re-written. It was one of the last great bi-partisan laws, in which political agendas were put aside (for the most part), and the purpose was to modernize the media. My view is it worked for the short term. After 8 years, newer unregulated media were able to bypass the rules and made the 96 Act obsolete. But to open that bees nest again won't be as easy.

to gobble up a commanding presence in about 250 of the 300-or-so rated radio markets and thereby control the lion's share of the money spent in our industry.

But the government put several clauses in the law that prevented them from doing that. Which is why, over the years, CC has been forced to divest itself of radio stations in certain markets. And why all of their stations aren't top rated in every market. They HAVE to own some losers in every market. That's the law. No one at CC wanted that. Had CC actually written the law, as you state, I doubt they would have written it this way.

They had the plan in place before pulling the trigger on the legislation, giving themselves an unfair advantage over everyone else. A pure power play, motivated by pure greed.

Once again, they were not the only ones in the room, not the only ones lobbying for change, and not the only ones who stood to gain from change in the law. They just had more money to spend than everyone else. But CBS was just as interested in being a player here as CC. As for the greed factor, it's better than the alternative, which is political power or thought control, which is what some in the left charge. My fear is the next big wave in media ownership will be for political control, and that is far scarier than simple greed. There has to be a motivation for doing something, and in this country, the motivation is money. That is the way the game is played. The alternative is we all become hobbyists, and although I did that for several years, I prefer getting paid.

CBS was just as interested, but Clear Channel had a huge headstart--as they knew they would since Mr. Mays had authored the legislation within the NAB.

Tom Hicks may truly have been the brains behind the whole thing since he had seen, in his role as one of the nation's biggest investment brokers, how laws were being manipulated to enable financial windfalls (see Enron).

Many of the early "big players" were Hicks creations: Capstar, SFX, Evergreen, Chancellor, AMFM--folded into each other at opportune moments to create the 1250-station/250-market monster. There were more shell companies (Patterson?) that came into business and became "big players" for three years before disappearing. I believe that I worked for two of them. Clear Channel needed these guys working in parallel during those first three years simply because the task--acquiring that many stations as quickly as possible... in legally-specified configurations (x number FM + x number AM)--would have taken too long for one outfit. Those companies were "finders"... pass-throughs. Get it?

Remember that even though Lowry remained CC's figurehead through it all, Tom ended up as the largest individual stockholder.

Sure, CBS... and later, Cumulus, Citadel, Saga et al... liked the law that Lowry had written. But they didn't have their plans in place on the day the Telecom Bill of 96 was passed.

But on that day, Clear Channel's acquisition team was crouched in the starting blocks, and when the gun fired they shot out from San Antonio & Austin & Dallas--and New York & LA--and started grabbing stations in exactly the right configurations and exactly the right markets.

And in just three years--a mere 780 business days--won the derby with 1250 radio stations.

Think about it. They successfully acquired 1.6 radio stations PER DAY for THREE STRAIGHT YEARS.

They had a hell of a headstart. And that's not just good business practice. It's having an unfair advantage.

 

[TheBigA]

They had a hell of a headstart. And that's not just good business practice. It's having an unfair advantage.

There was no "unfair advantage." Everyone knew what was going on. It was reported in the trade press, and I have the articles to prove it.

What you write reminds me of the Congressmen who complained about the AIG bonuses, when the whole plan was in the law back in December. They just didn't read it. That's no one's fault but theirs. That applies to anyone in government. If there were any concerns about the 96 Act, regardless of who wrote it, it was up to the people in Congress to say no. Only two or three spoke out. One was John McCain. Another was Russ Feingold. The rest were in support. Including some of the most liberal members and some of the most conservative. This was not an ideological debate. It was, as I said, the last really bi-partisan bill.

Your post also ignores the fact (and this is a fact) that the radio industry didn't call for the re-write of the Communications Act. That's what opened the door. Once Congress made it a priority, and laid out their agenda, the next step is to ask what it would take to get what they wanted. That's how legislation works.

This is why I am very skeptical about re-writing the Act again. Opening that door was a huge mistake for everyone. I think it would be even worse now.

 

[amfmxm]

Uh, yeah, I understand how legislation works. I may just be more jaded than you. And I had a ringside seat.

And you may be one of those folks who gazes at the forest and sees all those trees.

When you step back from that episode in radio history and start connecting the dots, the picture actually becomes very clear.

So I'll repeat the original thought triggered by the New York Times article about Clear Channel possibly becoming the "biggest loser."

It couldn't happen soon enough.

 

[davideduardo]

David, the notion that half of all radio stations were losing money prior to consolidation--much less back into the fifties--has always been a crock.

Of course, I said that half of all stations were not profitable. There is a major difference there, and the rest of your responses bear witness to the misinterpretation of what I said.

The majority of radio stations--even to this day--are licensed to very small communities, and (especially before consolidation) have been owned by small companies--proprietorships, partnerships and small corporations. In the seventies & eighties I was in a partnership (two sales guys with some programming savvy--a subchapter S corporation) and went through the annual end-of-the-year ritual determining how many cars, furnishings, or "business" trips we needed to buy to create our "paper loss." All within the law.

And that proves my point... Subchapter S's were not, first, available in the 50's and then not common until several decades later. The problem for small proprietors or partnerships was avoiding double taxation of earnings... corporate first and then personal. This is the same inequity that exists today in the taxation of corporate profits and then, again, dividends.

The fact that a car or some furniture could "wipe out" the profit of the licensee corporation proves that stations were, in the majority, marginal. And those spiffs were, in essence, an employee bonus in the setting of a small company. Those smaller market stations continue to produce no profits in most cases, and only a reasonable income for the owner in the best of cases.

In larger markets, the 50's saw many stations unprofitable until the industry adjusted to TV. In the 70's, it had to adjust to FM and the virtual trippling of the number of competitive facilities once FM became "useful" in that decade.

The 80's saw many smaller and medium markets fill up with the effects of Docket 80-90 and the change from a major application to a minor one for COL changes and upgrades in FM class from A to B or A to C. This drove more stations into unprofitability.

When the NAB first paraded this "half of all radio stations are losing money" nonsense before the feds to justify deregulation, the consensus among us small market (remember, the majority) radio guys was "that's BS." We all knew what they were up to.

The data goes back way before the NAB got some accountants to do a blind survey. The FCC's own financial reporting requirement showed it, and filling those in wrong was "lack of candor" and a revocation offense. Sure, owners took their car and expense accounts and stuff. That does not mean that they had lots of money left at the end of the year, and radio was a pretty low ROI business. And that is why nearly no bank or lender would do financing.

Radio has always been a risky business since the time of the death of the network era in the 1952-1955 time frame. And the government has made it worse and will continue to do so.

 

[TheBigA]

Uh, yeah, I understand how legislation works. I may just be more jaded than you. And I had a ringside seat.

Not as close as me. I was on Cap Hill as a reporter covering the process first-hand.

So I'll repeat the original thought triggered by the New York Times article about Clear Channel possibly becoming the "biggest loser."

It couldn't happen soon enough.

And I'll repeat that any personal grievances aren't useful. It won't be good for the industry to have a vacuum in radio ownership. And it certainly isn't good for anyone who earns their living in it to have companies with financial problems, even if they're not within the company where you work. Just as they did in 1997, the repercussions will be felt everywhere. And I don't expect they'll all be good.

 

[SirRoxalot]

Where do you think you stand a better chance as a radio professional:

1. With a company that has a mountain of debt and is cutting every expense based on the need to keep money flowing to creditors.

or

2. With a company that has manageable debt (3-6x cash flow) and is trying to be competitive, or win in a ratings battle with other operators.

It seems to me that a company with a lot less debt can spend more on development and talent than one that's strapped for cash.

 

[amfmxm]

And I'll repeat that any personal grievances aren't useful. It won't be good for the industry to have a vacuum in radio ownership. And it certainly isn't good for anyone who earns their living in it to have companies with financial problems, even if they're not within the company where you work. Just as they did in 1997, the repercussions will be felt everywhere. And I don't expect they'll all be good.

I have no personal grievance against Clear Channel. I've successfully competed against them, but have never worked for them. Three of their remaining 800-or-so stations are radio stations I previously managed, so I've had an inside view for many years. And during their mass-acquisition phase had the pleasure (?) of many lengthy conversations with CC executives and numerous exchanges with execs from their pass-through companies. So I saw what was happening as it was happening. You got the reporter's version. I got the insider's version. So we have very different perspectives.

From the beginning I've felt strongly that the process that brought us Clear Channel and ultimately its rape of radio was strictly for the benefit of the greediest slime in our society and to the detriment of radio practitioners--those of us who work every day creating radio. And unfortunately, time has proven me to be correct.

The collapse of Clear Channel will trigger a reverse acquisition process: stations will be purchased by other, smaller, companies. Hopefully, many of these companies will be led by good people. There is no guarantee of that, but there is plenty of reason to hope. With a bit of good fortune, many of these stations will be rebuilt and re-staffed by other good people who love to do radio on a daily basis.

Not the investment bankers. Radio people.

But few of us (and, yeah, I'll speak for the thousands who have had their careers trashed by these people)... few of us in the radio business will miss Clear Channel.

 

[gr8oldies]

We used to wish that "radio people"ould buy our stations in the "good old days" too. What programming people have the money to buy them now, and fully staff them 24/7? Doubt many if any.

 

[amfmxm]

David, the notion that half of all radio stations were losing money prior to consolidation--much less back into the fifties--has always been a crock.

Of course, I said that half of all stations were not profitable. There is a major difference there, and the rest of your responses bear witness to the misinterpretation of what I said.

The fact that a car or some furniture could "wipe out" the profit of the licensee corporation proves that stations were, in the majority, marginal. And those spiffs were, in essence, an employee bonus in the setting of a small company. Those smaller market stations continue to produce no profits in most cases, and only a reasonable income for the owner in the best of cases.

Only a reasonable income? Hey, there is nothing wrong with small businesses that provide a reasonable living for the owners. If we can accept the reality--yes, the reality--that the radio industry is an industry where the majority of stations are in small towns... not major markets... then isn't a structure of small companies/licensees providing a reasonable living for owner/operators & their employees the norm?

And, gr8oldies, that sort of relates to your comment. When you subtract folks like the Mayses & Mel Karmazin & Sam Zell from radio--those whose only interest is in piling up mountains of money--you end up with people who are involved with radio because they love broadcasting. And that's the way it should be.

 

[davideduardo]

Only a reasonable income? Hey, there is nothing wrong with small businesses that provide a reasonable living for the owners. If we can accept the reality--yes, the reality--that the radio industry is an industry where the majority of stations are in small towns... not major markets... then isn't a structure of small companies/licensees providing a reasonable living for owner/operators & their employees the norm?

A "reasonable income" from operations is a separate item from a decent ROI on the investment needed to buy the station to begin with. I can see the justification for buying a station much like buying a house, where the value is in the usage of the property more than the equity (particularly today) earned over a 15 to 30 year period. You really have to want a radio station to do that, as the hours, the worry and the future just don't always compensate.

I have plenty of friends and acquaintances who have "bought" smaller market stations or small stations in larger markets, and the plus is that they can't be fired. But the downside today is a bit like that of the newspaper business... and any thought of leaving a station's value as an estate for family and children is at least of questionable value.

I had a friend who built the second station in Traverse City, MI, around 1961. For many years, there were only two operators, and no ratings, and his station was a part of the city and he was active in it. Now, there is an Arbitron market, more than a dozen stations, and no sense of being part of the community as there is not enough money to go around. Radio's role is just not what it was.