Larry Wilson has three big rescue dogs; he took them in after they had suffered at the hands of previous owners. They used to live with him on his two ranches in Montana, but they moved recently to his riverfront apartment in Portland, Ore. It's not ideal; they need to be walked at least four times a day. So on weekends they all pile into Wilson's private jet and fly back to Montana.
Wilson, 64, moved with his pooches to Portland because he bought six radio stations there, two from Microsoft co-founder Paul Allen and four from CBS. To many people, buying radio stations in the current climate is a little like taking in rescue dogs. There's a high probability of getting bitten in the butt.
Saying that radio is in dire straits is like saying Don Imus is chatty. As with nearly all media, it was hit with the nasty one-two punch of a dramatic falloff in local advertising because of the recession and the digital revolution, which not only offers listeners myriad new ways to get the content they want but also lets advertisers know exactly whom their ads are reaching. A series of mergers and buyouts that consolidated ownership and added enormous leverage has proved disastrous. In 2000 the industry was worth $20.1 billion. This year it's worth about $14 billion. Last year, radio's revenue fell 9%, to $19.5 billion; this year the numbers are off 20%.
Wilson knows all this, since he is one of the creators of the roll-up strategy. A former lawyer, he co-founded Citadel Communications Corp. in 1984, when he purchased two Tucson, Ariz., stations. By the time he sold it in 2001 to private-equity firm Forstmann Little & Co. for $2 billion in cash, it had grown to 205 stations in 42 cities. As it turned out, 2001 was a catastrophic year for business, because of the 9/11 attacks, and for Wilson personally. His wife, who had cancer, had her fifth brain surgery, and it left her in a wheelchair. He quit the business to be with her.
While Wilson was out, the buying spree that had been sparked when the Telecommunications Act of 1996 deregulated the broadcast industry hit a lull. From 1996 to 2000, 18.5% of all U.S. radio stations changed hands. From 2001 to 2006, that number dropped to 7.8% as broadcasters tried to figure out how to manage their assets. Nevertheless, in 2006, Citadel bought ABC Radio from Disney, making it the third largest radio group in the U.S.
When the financial crisis hit, Wilson's old outfit was stuck with a punishing amount of debt just as its cash flow dwindled and the credit market tightened up. And it's not alone in the quicksand. Clear Channel Communications, the country's biggest network, went through a tortured $24 billion leveraged buyout last year that left it--and its banks--sinking fast. "Most big radio companies have highly leveraged balance sheets and face a very tough future," says Standard & Poor's analyst Tuna Amobi.
Claire Wilson died in February 2008; later that year, her widower fell down some stairs and broke a lot of bones. As he lay recuperating, Wilson began to think about radio. "I thought I should get back in," he says. "I saw the industry make knee-jerk reactions--eliminating programming and salespeople. Going after the talent. Research was gone and external promotions were gone."
Luckily, Wilson still had some of that Forstmann Little cash lying around. He called an old Citadel hand, the fortunately named Bob Proffitt, and found a local private-equity firm, Endeavour Capital, that was willing to back Wilson's new venture, Alpha Broadcasting. It paid $11 million for Paul Allen's Portland stations--Allen bought them for about $50 million. Experts say the price premium for radio stations has fallen from 20 times earnings to eight times.
Radio has many would-be saviors. There are those, like the recently merged Sirius and XM, that have put all their chips on the pay-radio table. Others, including iBiquity Corp., believe the future is in HD radio. And there are others, like Mike Agovino, COO of Triton Digital Media, who believe that all radio stations need to create a digital infrastructure: ESPN Radio apps, Internet video of musicians or a morning-show host, online audio streamed through your computer at work. "We talk about the infinite dial," says Agovino. "The ability to access 20-, 30-, 40,000 radio stations in your car."
But so far, like much radio content, it's mostly talk. Satellite radio has been stunted by the recession and a lack of must-have content beyond Howard Stern. Consumers have taken slowly to HD radio receivers--there's an industry joke that HD stands for Huge Disaster. And there's no money to invest in digital. "The biggest challenge we've got right now in the industry," says Agovino, "is that companies are struggling to stay out of the way of their bankers."
Wilson's strategy is to take radio back to its local roots while at the same time keeping his company private and well capitalized. "When you cut the costs out of this business, you cut the product. Then you don't have anything to distinguish you from iPods or anything," he says.
It's also a repudiation of the consolidation strategy, which tried to increase profits by centralizing sales and programming. "People say, 'We'll program five markets from X city and we'll have one team doing it, and we'll save all this money,'" he says. "Doesn't work. Listeners want to talk about the mayor, the new light rail that's going in, the local sports teams." Wilson acquired the rights to air the games of three local sports teams for his FM sports channel. According to Arbitron, it has already started to poach listeners from the local AM sports channel.
Wilson isn't finished buying. His Alpha Broadcasting hopes to buy another station in Portland, and when revenues hit $10 million, he'll go after another city in the West. It all sounds like the actions of a confident man, but perhaps Alpha's logo is telling. It's a picture of his rescue dog Bear. "It looks like he's cocky and winking at you," says Wilson. "But really he just has one eye."
