Friday, June 26, 2009


If the Bible was being written in these times, and there was a chapter on radio, it would be filled with the same verbiage used in the book of Exodus to describe the various plagues God (through Moses) brought on Pharaoh’s Egypt. God was trying to convince Pharaoh to release the children of Israel from the enslavement they had endured for generations.

We are currently being held hostage by over leveraged companies who find it both impossible to pay down debt, and to operate stations the way they should be run to maximize both cash flow and their ability to compete in an increasingly crowded entertainment world.

Many words have been written and spoken in the last couple of years about the people sitting in the corporate offices of these companies; most of it has not been exactly flattering. But to be fair let’s consider how and why we find ourselves in this position.

Let me begin by stating that I am not a financial expert and these are just my opinions based on observing the industry from the inside.

The Telecom Act of 1996 was the beginning of our current troubles. Ironically Radio consolidation was an incidental part of the bill, not its main focus. It started a literal stampede anyway.

Well meaning and forward thinking individuals saw the bill as a way to gain market revenue share and turn their companies into real players. Of course in order to get the quick cash and they needed to buy up the beach front real estate they coveted, they had to go to Wall Street. This also made it easy to bargain for these properties by making shares of their company a part of the deal.

It sounded great and seemed reasonable except for one thing: Radio is a long term business. While quick audience movement can be accomplished in the younger targeted formats, it’s not so easy in the 25-54 world. As a result our long term business that was always a great cash flow machine became a short term “what have you done to increase value this quarter” industry.

Of course that wasn’t too hard to do while there were still good properties to buy. Purchasing cash flow is the easiest way to show growth after all. But, like all good things, the supply of cash flowing properties available for purchase began to dry up. As a result operators were forced to begin looking for ways to show “The Street” the increases it demanded on a pro forma basis after all the choice real estate was gone.

The estimates of cost savings to be realized by consolidating stations into one group in one location turned out to be greatly over-estimated. A Radio station needs certain things to be successful. Just because it is co-located with other stations does not mean those needs are going to be greatly diminished.

The longer the demands from “The Street” for increases lasted, the more desperate operators became. To make a long story hopefully shorter, dealing with those demands are what got us to where we are today.

You might say the current economic climate, the plethora of entertainment choices brought on by wireless technology and the Internet also played a part, and you would be correct. But those things only served to speed up the journey toward the inevitable.

So, before you focus your anger on a few corporate heads think it through. No one person or group of persons is necessarily responsible.

Radio will make a comeback. People like Larry Wilson will be a part of that comeback but it will take time and patience. The play isn’t over for the current group of large Radio companies but it is in the final act.

1 comment:

  1. Chuck, Excellent column. For the first time the overall picture all makes sense to me wrapped up by you guys. Great Stuff.