Confirming what most of us already know, the April 16th Taylor On Radio news letter offers a detailed breakdown on how the Cumulus pie is divided. There was a time when people worked in media, broadcasting or communications; now they work for banks, hedge funds or money laundering outfits. Oh yes, banks loaned money to CapCities, CBS, McLendon, Westinghouse, Taft, Heftel, ABC and Tribune back in the day, but they didn't have their tentacles into the companies as they do these days. And the bankers didn't call the shots back then as they do now. Most of today's radio companies are built on sand, a house of cards, robbing Peter to pay Paul.
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Who Really Owns Cumulus
- Thread starter Element9
- Start date
It's a complicated situation that has more to do with banking and investment than with broadcasting. The fact is that "broadcasters" simply don't have the money it takes to run their companies. It's a mature industry. There was a time when you were the first applicant for a new frequency, and you started from scratch. Today, just about all the frequencies have been built in every possible market. So you're buying an existing business rather than starting a new one. That's always going to be more expensive.
Then you deal with the fact that banks simply aren't loaning money any more. That's a huge change in the way banks do business. There was a time, not long ago, when banks were just banks. That's all they were. That changed, and now they're investment or brokerage companies. They once paid 5.25% interest on passboook savings. Have you checked interest rates on savings lately?
So this discussion is more about banks than broadcasting. Banks don't loan money because it's a risk, they don't make much interest, and they're still paying off their debts from 2008. In the meantime, who IS loaning money? As you point out, various investment companies have replaced banks as places to get credit. And yes, they don't just loan the money. They provide expertise to ensure they make back their investment. If you study the history of Bain, you can learn a lot. They didn't just provide money to Staples or Home Depot. They got equity in those companies, seats on their boards, and really controlled the companies because it was their money. That's simply how business is done. ALL business, not just broadcasting.
Another change in the landscape has to do with the government. At one time, you could get a government loan for your business. Small Business Administration. Various other government agencies were created to invest money in American business. Then the crash of 2008 also affected those agencies. And Republicans, some of whom are backed by investment companies, have promoted the idea that government shouldn't be in the investment business. They want to drive out the competition. That's what the 2012 election was about. Getting rid of government-backed investment. If you can't get money from banks, and you can't get money from the government, and individual investors only want a sure thing, then who do you go to for money?
Sure there are a handful of companies that have money in the bank. Companies that aren't in debt. Apple has billions of dollars in cash, and the investment community still doesn't believe them, and their stock is getting killed. If Apple isn't immune from the vultures, then what chance does Cumulus have? None. There is no point in owning broadcasting stock. It's worthless. Has been for a while. That used to be a way for a company to raise money without dealing with the investment companies. Then came the crash of 2008, and media stocks fell through the floor. Ninety years ago, tech companies invested in radio. Not any more. No one invests in radio. And there's really nothing radio can do to change that as long as it remains built around ninety year old technology. Clear Channel has the right idea, re-positioning itself as a streaming company. That's an easier sell than broadcasting.
Your last sentence about the house of cards is also not just radio. Millions of Americans are buried in credit card debt and underwater home loans. Millions of people. Millions of companies have sold their assets to foreign companies. Take a look at the record labels. Who owns Bob Dylan and Hank Williams? Not Americans. The latest debate has to do with expanding foreign investment in broadcasting. The ONLY reason foreign companies haven't bought American broadcasting is because a law limits foreign ownership. The FCC is discussing changing that rule. If they did, American investment companies would lose their stronghold on broadcasting. But at what cost? But once again, why aren't Americans investing in American companies? What does this say about American business?
Then you deal with the fact that banks simply aren't loaning money any more. That's a huge change in the way banks do business. There was a time, not long ago, when banks were just banks. That's all they were. That changed, and now they're investment or brokerage companies. They once paid 5.25% interest on passboook savings. Have you checked interest rates on savings lately?
So this discussion is more about banks than broadcasting. Banks don't loan money because it's a risk, they don't make much interest, and they're still paying off their debts from 2008. In the meantime, who IS loaning money? As you point out, various investment companies have replaced banks as places to get credit. And yes, they don't just loan the money. They provide expertise to ensure they make back their investment. If you study the history of Bain, you can learn a lot. They didn't just provide money to Staples or Home Depot. They got equity in those companies, seats on their boards, and really controlled the companies because it was their money. That's simply how business is done. ALL business, not just broadcasting.
Another change in the landscape has to do with the government. At one time, you could get a government loan for your business. Small Business Administration. Various other government agencies were created to invest money in American business. Then the crash of 2008 also affected those agencies. And Republicans, some of whom are backed by investment companies, have promoted the idea that government shouldn't be in the investment business. They want to drive out the competition. That's what the 2012 election was about. Getting rid of government-backed investment. If you can't get money from banks, and you can't get money from the government, and individual investors only want a sure thing, then who do you go to for money?
Sure there are a handful of companies that have money in the bank. Companies that aren't in debt. Apple has billions of dollars in cash, and the investment community still doesn't believe them, and their stock is getting killed. If Apple isn't immune from the vultures, then what chance does Cumulus have? None. There is no point in owning broadcasting stock. It's worthless. Has been for a while. That used to be a way for a company to raise money without dealing with the investment companies. Then came the crash of 2008, and media stocks fell through the floor. Ninety years ago, tech companies invested in radio. Not any more. No one invests in radio. And there's really nothing radio can do to change that as long as it remains built around ninety year old technology. Clear Channel has the right idea, re-positioning itself as a streaming company. That's an easier sell than broadcasting.
Your last sentence about the house of cards is also not just radio. Millions of Americans are buried in credit card debt and underwater home loans. Millions of people. Millions of companies have sold their assets to foreign companies. Take a look at the record labels. Who owns Bob Dylan and Hank Williams? Not Americans. The latest debate has to do with expanding foreign investment in broadcasting. The ONLY reason foreign companies haven't bought American broadcasting is because a law limits foreign ownership. The FCC is discussing changing that rule. If they did, American investment companies would lose their stronghold on broadcasting. But at what cost? But once again, why aren't Americans investing in American companies? What does this say about American business?
Why aren't Americans investing in American companies? Simple. American companies aren't investing in America - or Americans. American companies are investing in China, and shipping jobs there in hopes of tapping the Chinese market. Or, they're investing in India, hoping to tap into that market. American jobs are going overseas unless you're in a service industry, where you're not likely to make the kind of money once made in manufacturing. Then, you're trading services, not goods, and values are volatile at best.
Radio station prices were driven up to unsustainable levels by the consolidators. It's hard to blame broadcasters who sold out when a condolidator offered them so much money that they could make more living off the interest than they could as operators. All the talk of "synergies" and "efficiency" translated into massive job cuts, which left radio less attractive to advertisers. "Systems" replaced experienced sales people, who fled the industry in droves for other media, or other industries because of commission "restructuring" and increased reporting requirements. Too many spreadsheet jockies failed to recognize that radio sales are primarily local, and that relationships mean at least as much as raw numbers.
Crestview likes the profit margins, even if it doesn't like the growth potential. The Dickey empire was about to crumble, so they sold control to Crestview in exchange for their management "expertise". So far, their track record has been shoddy at best. Clear Channel faces massive hurdles, but likely will survive simply because they're owned principally by Bain and Lee. Once again, the profit margins are attractive at a time when there's little money to be made in interest. Once that scenario changes, bankruptcy could ultimately be an option for either group.
Radio station prices were driven up to unsustainable levels by the consolidators. It's hard to blame broadcasters who sold out when a condolidator offered them so much money that they could make more living off the interest than they could as operators. All the talk of "synergies" and "efficiency" translated into massive job cuts, which left radio less attractive to advertisers. "Systems" replaced experienced sales people, who fled the industry in droves for other media, or other industries because of commission "restructuring" and increased reporting requirements. Too many spreadsheet jockies failed to recognize that radio sales are primarily local, and that relationships mean at least as much as raw numbers.
Crestview likes the profit margins, even if it doesn't like the growth potential. The Dickey empire was about to crumble, so they sold control to Crestview in exchange for their management "expertise". So far, their track record has been shoddy at best. Clear Channel faces massive hurdles, but likely will survive simply because they're owned principally by Bain and Lee. Once again, the profit margins are attractive at a time when there's little money to be made in interest. Once that scenario changes, bankruptcy could ultimately be an option for either group.
SirRoxalot said:All the talk of "synergies" and "efficiency" translated into massive job cuts, which left radio less attractive to advertisers.
I don't know of any advertisers (and I talk to a lot of them) who feel radio is less attractive because of fewer jobs. They feel radio is less attractive because (1) Other media has lower CPM; (2) Other media provides better metrics for ROI; and (3) Other media is interactive. Radio stations could triple their sales staff, and it wouldn't solve any of those problems. The comments I hear most often about radio spots is they're too expensive, they're hard to track, and people have been conditioned to tune them out. None of that can be solved with more employees.
Obviously, responding to those objections - and there are reasonable responses - would go a long way toward getting those advertisers back onboard. When you don't have credible, trained sales staff, you can't respond to objections, so they go unanswered. More and better sales people would help that situation, and help reverse the ongoing revenue doldrums.
Considering that most sales people make their money from commissions, reducing their incentive to sell is counterproductive. Many of the best sales people have left radio because of reduced commissions, increased reporting requirements that they see as a waste of their time, and reductions in support staff. Add reduction in production staff, which makes it more difficult to get an outstanding spot for their customer, and they take their talent elsewhere. In many cases, they've taken their clients with them because they have a rapport with that client.
There a still good people left, and they're thriving. There are lots of rookies, and they rarely get the training and support they need to become really successful. Radio isn't exactly attracting the best and brightest these days, so sales and revenue languish because the company simply doesn't invest in its product.
Considering that most sales people make their money from commissions, reducing their incentive to sell is counterproductive. Many of the best sales people have left radio because of reduced commissions, increased reporting requirements that they see as a waste of their time, and reductions in support staff. Add reduction in production staff, which makes it more difficult to get an outstanding spot for their customer, and they take their talent elsewhere. In many cases, they've taken their clients with them because they have a rapport with that client.
There a still good people left, and they're thriving. There are lots of rookies, and they rarely get the training and support they need to become really successful. Radio isn't exactly attracting the best and brightest these days, so sales and revenue languish because the company simply doesn't invest in its product.
SirRoxalot said:More and better sales people would help that situation, and help reverse the ongoing revenue doldrums.
The problem that I described has been going on for at least five years. Advertisers and agencies don't need to hear from commissioned salespeople to know the situation. They've already heard the sales pitch. The time for that has passed. Unless salespeople have something new to say, the clients will simply stop taking their calls. The clients have many other outlets for their money.
On-air broadcasting has topped out. In other words, the numbers OTA radio stations can deliver are at their peak. What clients want is a better CPM. That means salespeople have to find a way to deliver more numbers. That won't come from more investment in OTA product, because that's topped out. It's pretty obvious that consumers use multiple platforms for media consumption. They use OTA radio, they use TV, they use streaming, mobile, and everything else. Right now, radio companies are looking to invest in things that will deliver more eyeballs to advertising. So these companies ARE investing in product, but not OTA.
None of this has anything to do with the OP, which is a completely different subject. The fact is that because advertising money isn't growing, because stock prices aren't growing, because banks aren't lending, and other conventional sources of money are drying up, radio companies are limited for ways to get the money they need to invest in their product. So for some companies, what it means is going deeper in to debt, delaying the target dates on existing debt, cuting more OTA expenses, or giving up more equity in their companies. Those are the only options. But the idea that radio companies aren't investing in their product is, for the biggest companies anyway, completely false.
I don't know of any advertisers (and I talk to a lot of them) who feel radio is less attractive because of fewer jobs. They feel radio is less attractive because (1) Other media has lower CPM; (2) Other media provides better metrics for ROI; and (3) Other media is interactive. Radio stations could triple their sales staff, and it wouldn't solve any of those problems.
It appears this will have an impact on the viability of AM radio stations, particularly stand-alone AMs (with or without translators.)
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