Survival of the fittest

[Surfer]

I think most of us would agree that radio isn't what it used to be. I also would like to say that it probably isn't ever going to be what it used to be, either. Stocks are tanking, air talent is being let go in droves, companies are cutting back even more than they thought they'd have to. With all this gloom and doom coming our way there are several things that come to mind.

First, our beloved medium now has more competition than ever. Internet, Ipods, TV, etc. Most people I know agree that there's too many commercials and not enough content. And the content you are offered is usually horrible. Would any other logical business operate the way radio does in the face of such competition? I doubt it. And yet, radio needs advertising dollars to survive. So, how do we create compelling content that sells advertising and keeps listeners? Seems to me, from a business standpoint, that's what is needed for radio's survival. We can talk all day about playlists, formats, research, jocks, cutbacks, etc., but at the end of the day, you've got to make money or turn off the station. Even public radio is not immune as they must also strive for the elusive dollar. The real question becomes, then, "How does a radio station survive in our new economy?"

Second, with the impending doom of many radio ownership groups, how can it be that people in our business are not making more noise about what WILL happen. Stations are going to be up for sale at a DRAMATICALLY REDUCED PRICE! For the first time in decades, radio properties have the potential to become somewhat affordable again. This could have a positive effect of injecting new lifeblood into the medium and with that could come new ideas and even hope of a renewed future. Radio isn't going anywhere but we all agree that something needs to be done. The questions becomes, "Why hasn't anyone tried to make a significant change for the better?"

I think groups like Radio One, Citadel, even Clear Channel, will be selling off stations soon. I honestly expect each day to hear that a group will be filing bankruptcy and selling off major assets in order to remain afloat. Stock prices being what they are, the potential is there to see stations in major markets that would have sold for hundreds of millions of dollars 3-5 years ago now go for just a few million. While that still is a lot of money, it's not what it was and allows folks with less to spend into the medium.

In the end, radio needs to evolve. Corporations that take all essential services in house will operate cheaply. Putting on satellite programming is cheap but is it good radio. Honestly, that's up to the listener. If they like what we play, then we continue to play it. When they stop listening, and they always do, radio needs to make changes to continually feed our ravenous appetite for entertainment. If we cannot do this, Our listeners will be gone, our advertisers will dry up, and we will be left with one big, useless toy. Radio geeks will love it but even they will eventually have to turn it off because they can't pay the bills.

...and so, to my question. What are the top 3 picks you have for companies to survive, and fall first? For survival, I would pick Clear Channel (the 800 pound gorilla in the room and the owner with the most to sell to survive, if necessary), Cumulus (based on statements by corporate officers about how they're striving to streamline their business, like developing their own ratings service), and either Lincoln Financial (because they're stock portfolio is diversified outside of radio) or Cox (where the bottom line is just that...and you better not cross it or else).

I'm interested in your opinions. Let the fingers on those keyboards fly...

 

[carolinaradio]

Hmmm...I like your post. You make great points, lots of great insight.

I expect these 3 to survive, definately:

1. Clear Channel
2. Cumulus
3. CBS Radio (or Cox?)

and these three to divest under-performing markets, sell out completely, or file bankruptcy:

1. Citadel
2. Radio One
3. Entercom

I'm not sure about Entercom, though...they did 'trim the fat' a little bit but I expect to hear them exiting some markets soon. Their stock has tumbled. CC will not fall completely. Yes, they may sell stations (like you said), but I think they could raise enough money by selling stations and cutting back staff to stay afloat. Citadel got in to trouble with the ABC thing, IMO. I expect to hear them selling a lot of assets soon or either mass cutbacks. I am no expert about Radio One at all, but things haven't sounded good for them lately. CBS is trying to unload some of their stations in smaller markets, I believe. No idea about Cox or their business model. Cumulus has been cutting back and seems to be planning ahead, like you said. I think they can make it.

It'll be interesting to see how the business plays out in the next few months. A lot of stations could be owned by completely different companies next year at this time.

 

[LasVegasRadioJunky]

Survive: (I could name a few more, but the post asks for just 3)
Clear Channel
Saga
Lincoln Financial Media

Fail, Divest, etc.
Citadel
Entercom
Radio One

 

[Goat Rodeo Cowboy]

I think most of us would agree that radio isn't what it used to be. I also would like to say that it probably isn't ever going to be what it used to be, either. Stocks are tanking, air talent is being let go in droves, companies are cutting back even more than they thought they'd have to.

• 
  You obviously have some images in your mind of what radio used to be, and what you hope it will be. (We all do!) When you say 'radio isn't what it used to be....' are you talking about what it used to be in 2000, or 1990 or 1970 or 1955? If we are going to debate who may survive, maybe we need a picture of WHAT is going to survive or what is going to return. :-\

If they like what we play, then we continue to play it. When they stop listening, and they always do, radio needs to make changes to continually feed our ravenous appetite for entertainment. If we cannot do this, Our listeners will be gone, our advertisers will dry up, and we will be left with one big, useless toy. Radio geeks will love it but even they will eventually have to turn it off because they can't pay the bills.

• 
  Most of us were not smart enough to see the national economy having convulsions, so I'm am not ready to claim to be smart enough to predict which of the present companies will survive and which will fail. I will predict this: If any three of the companies that have been listed so far survive, and as survivors are not on life support, then programming as we have known it in the last 6 to 10 years will survive. The current programming is the natural result of Wall Street mentality.

I worked for one company that went big time, suddenly bankrupt. (Not broadcasting.) My cubicle was located where I would run into the company president at the coffee pot from time to time. From even that close-up view I didn't see the failure coming. How can we who are not in the building with any of these people predict which corporations have financial resources to survive, and who is going to fail when the termites quit holding hands?

By the way: who are the Radio Geeks who will enjoy picking through the ashes and debris and enjoy turning off the switch after everything fails?

 

[TheBigA]

I think groups like Radio One, Citadel, even Clear Channel, will be selling off stations soon.

Clear Channel has been selling off stations for three years. Some were forced divestitures, required by changes in ownership rules. Some were voluntary, as part of their program of selling off smaller markets. Obviously, the whole process has stopped, due to lack of credit.

Same with Citadel and CBS. All publicly announced they'd be selling off stations. The CBS announcement was just a couple months ago. As far as I know, no CBS or Citadel stations have actually been sold. Once again, the issue is obtaining credit.

In the end, radio needs to evolve. Corporations that take all essential services in house will operate cheaply.

I disagree. The advertising market has dried up. These companies need a source of income. So if they outsource programming for a fee, they will have a source of income.

What are the top 3 picks you have for companies to survive, and fall first?

Obviously, those that have gone private are the safest now. The smart move is to take your stock off the market. It's all hugely undervalued. The property alone these companies own is greater than their stock value. So the private companies, like Greater Media and Clear Channel, are the best. Then diversified companies, like CBS and Lincoln Financial. If radio is their only source of income, they're in a whole lot of trouble. That means Cumulus, radio One, and Entercom.

Regarding Citadel, there are aspects of the Disney deal that may come into play. Disney still owns 57% of the company, and we may see them buy the stations back at pennies on the dollar for a huge net profit. Then again, it may be Citadel that is dragging down Disney's stock. It also depends on what the Forstmanns want to see happen. A few years ago, my bet was that Forstmann Little wanted to get out of radio. Instead, they bought ABC. Bad move, in my opinion. That took a stock values in the low teens and dropped it to less than a dollar.

 

[carolinaradio]

If radio is their only source of income, they're in a whole lot of trouble. That means Cumulus, radio One, and Entercom.

Doesn't Radio One own TV One? I wonder how much extra $$$ that gives them. It could always be sold for extra money, I guess.

The big question: say for example Entercom, R1, Citadel folded...where do those stations go? Local owners or to larger ones (CBS, Cumulus)? I don't see CC buying.

 

[SirRoxalot]

If a radio group goes belly-up, it's likely to become the property of the largest secured creditors. Usually the group files for reorganization, stiffs the unsecured creditors, and a management team acceptable to the creditors takes over. There is oversight by the bankruptcy court to protect the unsecured creditors.

Stations may be sold off, or they may remain largely intact, depending on the reorganization plan that has to be approved by the bankruptcy court.

I'd think that Clear Channel should actually be in great shape considering that they sold off a lot of stations, and cashed in at about $36.00 per share when they took the company private. The major shareholders - who still own most of the company - should have plenty of cash to work with thanks to the banks who financed the privatization deal.

From what I hear, Entercom is probably more stable than many other groups. I don't think that they'll go down.

Groups like Citadel who are owned by venture capital groups are likely to be in the worst trouble. Who knows when the venture capitalists will decided to cut their losses and take what they can out of the company in order to invest it in something with more growth potential?

You may see a return to local ownership in smaller markets because those radio stations will sell at a price that's affordable for a local investor. Some groups are also cherry-picking undervalued properties where they see an opportunity. One think about radio - it still turns a healthy profit in most markets. Profit margins in excess of 30% are not uncommon. It's tough to make that kind of profit in most other industries.

 

[EricStein]

In the end, radio needs to evolve. Corporations that take all essential services in house will operate cheaply.

I disagree. The advertising market has dried up. These companies need a source of income. So if they outsource programming for a fee, they will have a source of income.

Now especially that Interep is closing its doors, it's going to get worse. I think that Google should still be able to purchase the Interep client list and develop a rep model based on an online portal for the agencies. This is an easy way for them to gain traction with their Audio Ads concept. Station groups that can afford to take their national sales in-house will (which will be hard in this economy), and those who won't will become Katz clients. You can't just let one company, which happens to be owned by the largest station ownership chain, control the national sales field.

As for station groups surviving or not, it's a toss up. Everyone's vulnerable now. Some more than others (Emmis, Radio One, Spanish Broadcasting System, Citadel).

 

[carolinaradio]

What about Davidson Media, the company that time-brokers their stations to Spanish broadcasters, forgot all about them. Not a large company, but they are a pretty big deal in that market. They have had little growth recently and sold some stations, I think. They expanded a lot in '04-'06. I read an article that the Hispanic population is not thriving in the US financially like they were in the past few years and the growth is slowing. I guess that could have a ripple effect through the broker back to Davidson if the broker can't pay the fees.

 

[davideduardo]

I'd think that Clear Channel should actually be in great shape considering that they sold off a lot of stations, and cashed in at about $36.00 per share when they took the company private. The major shareholders - who still own most of the company - should have plenty of cash to work with thanks to the banks who financed the privatization deal.

The cash from the sale of the stock went to the shareholders, most of whom were mutual funds, pension funds, insurance companies and investment banks. It did not go to Clear Channel.

The major shareholders today were not owners prior to the privatization. The new owners paid the old owners (the shareholders) and surrendered their shares.

None of the proceeds went to Clear Channel, the company. It went to the old shareholders, who no longer are shareholders (ignoring an unvalued limited interest in the new company).

From what I hear, Entercom is probably more stable than many other groups. I don't think that they'll go down.

It's tough to make that kind of profit in most other industries.

For most of the last 5 decades, about half of all US stations have not made money.

 

[SirRoxalot]

Who owns the majority of the CC Media Class A common stock issued under terms of the sale to Bain and Lee? Who still controls the day-to-day operations of the company? Clear Channel is now a private company, but the major players haven't really changed.

What happened to all the income from the sale of the TV division, and the sale of hundreds of radio stations? That money was returned to shareholders - who put up the money for purchase of those radio and TV stations in the first place, mostly at share prices considerably in excess of the $36 per share that they were paid if they decided not to keep a stake in the "new" company.

Some of the shareholders who took the buyout did very well. Some shareholders who bought in a few years back lost half their money.

For most of the last 5 decades, about half of all US stations have not made money.

If they haven't made money, or been part of a money-making group, why didn't they go dark? Why did major corporations pay big money for those stations? How many of those stations are designed to be flankers for big money-makers, denying the frequency to someone who would program it to compete with an existing signal?

An awful lot of people want those "losers".

 

[redneckriviera]

For most of the last 5 decades, about half of all US stations have not made money.

Please allow me to take gentle exception to that idea, for a couple of reasons.

The vast majority of radio stations in the U.S. are not owned by public companies, but instead are privately owned and therefore don't publish their financials.

"About half"--the half we pay absolutely no attention to--are located in extremely small (non-rated) markets and are still effectively "mom & pop" operations--proprietorships & partnerships whose business and personal financials are often intertwined. Speaking from many years experience, such outfits often seek spending opportunities at year-end in order to show a loss to avoid tax liability. But since big chunks of revenue are going directly into the principals' pockets, the "paper loss" doesn't reflect daily reality. Technically, those outfits have "not made money," but those "losers" aren't shedding any tears and certainly are in no danger of going belly-up.

In recent decades radio has attracted more than its fair share of "greater fools" who have paid too steep an entry fee into the industry, but overpaying is a different matter. Those people would be losers in any business, not just radio.

 

[Goat Rodeo Cowboy]

For most of the last 5 decades, about half of all US stations have not made money.

Please allow me to take gentle exception to that idea, for a couple of reasons.

The vast majority of radio stations in the U.S. are not owned by public companies, but instead are privately owned and therefore don't publish their financials.

"About half"--the half we pay absolutely no attention to--are located in extremely small (non-rated) markets and are still effectively "mom & pop" operations--proprietorships & partnerships whose business and personal financials are often intertwined.

My recollection is that the FCC used to publish some numbers revealing the overall profitability of radio stations without identifying individual stations.

Both David Eduardo and RNR speak from long experience, having seen actual numbers on real stations and real operating companies. They may not evaluate the information exactly alike, but I tend to pay attention when either of them speak.

There is another factor that expands on part of what RNR pointed out. With the changes in income tax law in the last 20 years, this trend may not be quite as prevalent as it was a bit earlier: Not only in radio but in a number of businesses, when an enterprise becomes reliably profitable owners tend to shelter income with other family members. If you buy a business where the seller operated the business but was renting the real estate at rather high prices, the new owner would buy the operating business and have the trust fund set up for his children buy the real estate. Since the previous relationship was "arms length" between two independent parties, the IRS would allow the higher than normal rent to continue. If you own a station and over time it becomes very profitable, the IRS for income tax purposes, is not going to allow you to create an artificial relationship between related parties just to avoid taxes.

I would think that particularly back in the 1960s and 1970s the information provided by the FCC on broadcast profitability was a bit skewed by such tax avoidance schemes.

During the Reagan era a new tax mentality was put into practice: reduce the tax rate charged against "taxable income" but balance that out by eliminating a lot of deductions from taxable income and some reduction of tax shelter schemes. Thus to compare profitability schemes of today against profitability schemes of 1975 becomes something of a "comparing apples to oranges" exercise.

In spite of that... such comparisons are necessary and helpful.

 

[Tibbs4]

I look at this from a slightly different perspective. The companies that will continue to prosper
will be those that bought stations prior to the de-reg when prices were reasonable and/or
are debt-free. Just because a company is large, stock-oriented (which is just another form
of debt or expense) or in multiple markets doesn't make them any less subject to this or any
downturn. Certainly, when I was buying and selling radio stations for my small group in the
1990's, I was fortunate to ride the wave of large companies cash infusions from stock
buying mania. The big guys paid way to much, to me and everybody else. I thank them
for that. Prices for shares and stations soared. NO ONE with any sense of business
could believe the multiples or that the heyday would last as long as it has. To say that
this downturn in the economy was unexpected is unrealistic. It always happens. 100%
guaranteed, like death and taxes. And for the record, this correction, while unpleasant,
is long overdue (to the economy and radio stations "success".) I don't believe we have yet seen
even 30% of the overall financial problems that will grip the industry in the first quarter of 2009, after
a horrific fourth quarter this year. Additonally, I would not rule out some of the big companies
divesting at crazy low prices many small to medium markets to create cash flow as stock
prices drop below necessary levels to keep the companies afloat. I am not saying this is
the Titanic, but certainly it is going to be one hell of a bump. I think Clear Channel will
have a very rough start to '09 and that many advertisers caught in their own slowdowns
and financial pinches will single radio out for being less glamourous and pass on buys based
soley on the questions of ethics, viability and quality of the radio industry.

By the way, does anyone even know of any radio companies owning over 15 stations that
are owned free and clear without a penny of debt? I know of ONE. I am sure there are more.
But, it's extremely interesting, as I have stated before, that with all the cutbacks, trimming
of fat (now bones), con-solidation, layoffs of actual air staffs that affect ratings and quality,
combining of station clusters under one roof (saving/sharing expenses), etc. that it's tougher
to be profitable now than the days of single or double station ownership in minimal markets.

The damn corporations have sucked the life out of this industry. It is said that it is the
fu--duciary responsibility of all U.S. corporations to benefit the stockholder's first. I contend
that by cutting the very legs off of these stations, the stockholders have been robbed
and screwed, just like the listeners and loyal staffs that gave their heart and souls to these
companies only to be flushed down the gold plated toilets with no thanks or appreciation.

Yet, some of the CEO, like the rest of Wall Street, get their rewards for ruining the industry
in the form of million dollar checks. Like sending money overseas for oil...the money is GONE
and it ain't coming back until someone dares to try a different approach of rebuilding this
once-great industry back. Hint: there's thousands of brilliantly talented people out of work
willing to take pay cuts and work hard, if only someone would see that the current formula
has ruined radio and as a CEO would be willing to start afresh and re-invent radio and give
them some security for the future.

Oh, and the FCC should strike the letter "C" from the radio vocabulary. Seems like anything
starting with that letter has gone into the _rapper.

 

[dgendvil]

While we're on the subject of small broadcasters that are owned by those groups, do you think any like Cherry Creek Radio, GAP West (who bought some of the Clear Channel stations in the Northwest), American General Media, El Dorado Broadcasters & New NW Broadcasters will be able survive in radio's economic crunch, too?

 

[redneckriviera]

By the way, does anyone even know of any radio companies owning over 15 stations that
are owned free and clear without a penny of debt? I know of ONE. I am sure there are more.
But, it's extremely interesting, as I have stated before, that with all the cutbacks, trimming
of fat (now bones), con-solidation, layoffs of actual air staffs that affect ratings and quality,
combining of station clusters under one roof (saving/sharing expenses), etc. that it's tougher
to be profitable now than the days of single or double station ownership in minimal markets.

I am aware of at least one radio company that I believe owns around a dozen stations free & clear with no debt, and it is one of those longtime small-town broadcasters far from the industry spotlight. The principal is around 80 and has owned all of the stations for 30+ years; he's been selling off properties piecemeal over the past few years.

Problem is that unless one is personally involved in the ownership, one never knows exactly what the situation is. The company I work for now comes pretty close to your description, but as a market manager I'm not privvy to the level of financials required to determine indebtedness.

And let me toss in something else. Although the stations I run are not hitting the revenue numbers we enjoyed in 2007, we are pretty close to 2006, and that was not a bad year by any stretch. Our little group of small-town radio stations (a couple of FMs & an AM) out in the woods will wrap the year at around $2.5 million in sales and churn out around $900,000 in operating profit. And that's even after my own princely earnings are factored in.

Point is, radio is still an extremely viable business, and I'm not convinced that we should all start pulling the plugs and knocking down the towers.

 

[Tibbs4]

I agree (as usual) oh hallowed RNR!

I think you and I have discussed this before, I don't think radio is anywhere near dead.
I think it's just been a bunch of like-minded alleged "business people" playing follow-the-leader
radio instead of striking out on their own courses. And the people and/or business models
they all follow are pretty much failures. I cannot believe this cookie-cutter mentality.

I'd still buy that small cluster in PC with you if the price was right, but they'll sink millions
(loose millions) before they "come off" the suggested retail sell price for those stations.

The company that angers me is Citadel (and Cumulus more and more) . Not one bit of
innovative thinking. Just slash, trash and they continue to fall in rev and ratings.

 

[davideduardo]

The FCC financial reporting covered three decades, and then the NAB did voluntary reports in a random sample for some time after. One of the last was in the year before consolidation was approved.

"About half"--the half we pay absolutely no attention to--are located in extremely small (non-rated) markets and are still effectively "mom & pop" operations--proprietorships & partnerships whose business and personal financials are often intertwined.

While a percentage of stations that make no money are wash situations with family corporations of different kinds, a huge percentage are the dogs in the 300 rated markets... daytimers, bad signal AMs, rimshot or class A FMs, etc. There are probably 8 or 8 such stations on an average in each market... maybe close to 3,000 total stations.

 

[redneckriviera]

The FCC financial reporting covered three decades, and then the NAB did voluntary reports in a random sample for some time after. One of the last was in the year before consolidation was approved.

"About half"--the half we pay absolutely no attention to--are located in extremely small (non-rated) markets and are still effectively "mom & pop" operations--proprietorships & partnerships whose business and personal financials are often intertwined.

While a percentage of stations that make no money are wash situations with family corporations of different kinds, a huge percentage are the dogs in the 300 rated markets... daytimers, bad signal AMs, rimshot or class A FMs, etc. There are probably 8 or 8 such stations on an average in each market... maybe close to 3,000 total stations.

1995? Time flies! I do recall the NAB using such figures in their (Mays' led) de-reg push of the late eighties--"Half of all radio stations are losing money, so we need deregulation/consolidation!!!"--and recognizing it as BS.

"Dogs" are in the eyes of the beholder. The old fellow I referenced above who still owns a dozen-or-so "dogs" in extremely small backwoods markets--all of them sound absolutely awful--lives like a damn king. How? He retired the mortgages twenty years ago, has everything automated, pays minimum wage and no benefits to his few employees. If his dozen stations each do $200K a year he grosses $2.4 mil and pockets a million+. After taxes he still has a half-million+ to toss around the country club and keep his idiot kids in booze and drugs. As they say, it ain't rocket surgery.

And those large market "dogs" running infomercials 24/7 or Korean numbers rackets? C'mon, man. You pay yourself a "market appropriate" salary as "GM"--say $300K a year--hire your spouse as "DOS" at $200K a year--and hire kids at $7.15 an hour to babysit. You don't have to bill $10 million to end up with a pile of dough.

What's "8 of 8" mean? You lost me there...

 

[davideduardo]

1995? Time flies! I do recall the NAB using such figures in their (Mays' led) de-reg push of the late eighties--"Half of all radio stations are losing money, so we need deregulation/consolidation!!!"--and recognizing it as BS.

With about half the stations we have today, the FCC financial reports showed half the stations in the US as not making money. It's impoortant to note that "not making money" is not the same as "losing money." Break-evens were and are common to avoid double taxation of stations owned in oder types of corporations where the owners took the profits as salries and bonuses.

The real problem that affected the profitability of radio was Docket 80-90, the result of the Bonita Springs case, which enabled upgrades of A's to B's or C's (and new classes of the latter two) which could not be done without exposure to a cross-filing previously as well as the addtion of several thousand new stations. Most of the changes, including permitted changes of COL to permit move ins, affected almost all markets, but mostly medium and small ones.

Smaller markets went from being pleasantly profitable to absolutely dismal as the number of stations increased somtimes by double or triple.

"Dogs" are in the eyes of the beholder.

Dogs are stations that don't perform.

And those large market "dogs" running infomercials 24/7 or Korean numbers rackets?

The Korean (or any niche ethnic option like Polish or Farsi or Vietnamese) position work only in very few markets, and have to be on signals that at least cover the particular community. The infomercial and brokered stations are limited, also. There are many other stations that simply can't do any of those things, and barely hang on or go from optimistic new owner to optimistic new owner.

(I meant to say "8 or 9" to indicate the dogs in each market... the stations that can't turn a profit with any option)