It’s been almost 20 years ago since the Federal Communications Commission (F.C.C.), the National Association of Broadcasters (N.A.B.), Congress and then President Bill Clinton all teamed up to reinvent broadcasting with the historic Telecommunications Act of 1996, the first major rewrite of regulations since the 1930’s.
With this combined brain power and political and business clout, what could possibly go wrong? Many assumed the President along with these groups would have the public’s “interest, convenience and necessity” in mind when crafting these new rules. And you know what happens when you assume.
Struggling broadcasters could now survive because of clustered ownership, allowing multiple stations in each market, and benefiting from economies of scale. We were told broadcasters granted the privilege and given licenses, along with the public’s trust, would create new and diverse programming options for listeners. A fragmented radio industry, mostly made up of mom-and-pop stations back then, would consolidate and once the big money of Wall Street discovered this high cash flow business, there would be incredible innovation. Best of all, radio because of its newly aggregated audiences, would be able to leverage and grow its share of the total advertising pie. Industry professionals, from CEO’s down to the overnight weekend DJ’s in Kokomo, Indiana, could now dream and it would be reality.
Really, what could go wrong?
Back in the 90’s, I commented, “I never thought radio would come down to 6 or 8 big radio companies.” The person I said this to responded, “Darryl, do the math. It will be 2 or 3 companies. Companies have just been trading stock. Wait until the real money comes in.” He meant Wall Street’s real money.
That real money did come in and now the two biggest radio companies, Cumulus and iHeart Media, are in big time trouble. And if they’re in trouble, so is the entire radio industry.
I’m going to make this overly simplistic. Remember financial data doesn’t exist in a vacuum. There are many variables.
I brought data to an economist/professor I know and his first reaction when checking it out on his Bloomberg terminal was a surprised, “Oh. They’re bankrupt.”
On November 10, 2015 Cumulus Media’s stock price was valued in pennies, as in “27 pennies” per share. iHeart Media’s stock was $1.50 a share that same day.
In financial circles, a company’s worth may be judged by its “market capitalization” and/or its “enterprise value.”
Let’s look at the “market cap” first.
- Cumulus Media with a stock price of 27 cents a share had a market cap of $63,460,000 meaning each of its 454 radio stations are worth about $139,779 a piece.
- iHeart Media with a stock price of $1.50 a share had a market cap of $134,210,000, meaning each of its approximately 850 radio stations are worth approximately $157,894 a piece.
Of course, each company has other businesses and divisions, but their core business remains radio.
Too simplistic for you? The other way to look at a company’s worth is by its “enterprise value.”
On November 10, 2015, Cumulus Media had an “enterprise value” of $2.468 billion, while iHeart Media had an “enterprise value” of $20.54 billion.
I know. You’re saying, “Well there’s the worth of these companies.” Kind of, since the buyer of a company would normally assume its debt, but if you take debt out of this equation, in both cases, these companies have negative equity. iHeart Media lists it debt at $20.588 billion and Cumulus Media has outstanding debt around $2.5 billion.
In 2014, the radio industry’s total spot revenues declined to under $14 billion, with total revenues just over $17 billion. iHeart Media alone is in hock by almost $20.6 billion. But, here’s the killer, each year the money companies pay to service debt is increasing at the same time radio’s advertising revenues shrink and that’s not sustainable.
Think about the interest you’re getting from a CD at a bank. It’s probably less than 1%. Interest rates are at historic lows, yet iHeart Media is paying, in one case, as much as 14% on its notes. When borrowing money, high risk equals high cost.
Both iHeart Media and Cumulus have also been selling tower sites (or land) to create cash. Land was the only equity some radio stations had, especially many AM stations. Call it what you want, but when a radio company starts selling its real estate, it’s nothing but a good old fashioned fire sale.
Back to that fellow I discussed radio consolidation with in the 90’s. I recently asked him why these companies haven’t been selling stations. His response, “They can’t. To make it work financially they’ll need to get at least 14 times cash flow, may be 16 times, depending on taxes and the cost of sale. They’re backed into a corner.”
Wanna buy a radio station really cheap in the future?
To paraphrase that old New York City TV pitchman Crazy Eddie, “The prices are INSANE!”
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If Publishing Clearinghouse ever shows up at my house, I am starting a Christian radio station here in North Carolina, probably a non-profit, so I can donate tons of money to it and keep it running all by myself and not worry about who is going to support my radio station.
I may be able to help if Publishers Clearing House isn’t happening…
Bert………I want to give high school sports back to the communities……right now there is very very little in the DFW market.
Hey Burt: If you or someone you know wants to invest in a very experienced radio station manager, let me know I got a station I want to buy. Steve
When The Levee Breaks
“If it keeps on rainin’, levee’s goin’ to break
If it keeps on rainin’, levee’s goin’ to break
When the levee breaks I’ll have no place to stay”
~ every radio employee
I remember being at an R&R convention in the late 90s. Clinton was the keynote speaker. When he came to the microphone everyone of these broadcasters stood up and cheered. I remember thinking, what is wrong with you guys, he is putting you out of a job. I asked Clinton once why he thought the Telecommunications Act of 1996 was a good idea. He said they thought it would increase competition. It did exactly the opposite. The real reason was that he and his democratic cronies had to find a way to pay back the big broadcasting companies for contributing to their campaigns. It was politics for him, it was a career for all of those broadcasters.
Jim, I was at the same convention. President Clinton was right before Stevie Nicks. Darryl
And Stevi Nicks made more sense, and told the truth!
She was still hot then too. 🙂
For the little guy or local Ma & Pa this may become a golden opportunity to buy into radio broadcasting if the stations in the fire sales come with some tangible property, studios and tower site. If not, then it won’t be such a good deal.
Ira, to your point, with the tower sites. I’m not sure how you put that genie back into the bottle though. All the best. Darryl
This problem all dates back to shortsighted, greedy owners who sold out for a quick buck in the 80s and 90s. Add in the docket 80–90 stations that never should have existed, and you have a recipe for Clear Channel, and cumulus. An unmitigated disaster all around
It’s a brilliant explanation of the situation but you probably won’t get many social media shares because those of us still pulling greatly reduced paychecks from these companies are hunkered down like moles dodging a flashlight. Our career radio instincts tell us to compete and win. The corporate reality and daily insecurity tells us to shut up, lay low and stay under the radar.
Dave, Actually this blog has. It certainly has hit a nerve. All the best. Keep your head down. 🙂 Darryl
Yeah, my finger hovered over the “share” button but insecurity prevailed.
I totally understand.
Well, as my partner and I comprised a broadcast engineering firm in a market with a couple of big guys and a number of 80-90s (we built the smallest and best sounding), we did fine. All of the little guys (an FM and/or a small AM with a two-holer studio) needed and an engineer once in a while, to fix whatever. Again, we did fine. Five years later (1970-71) five of them were housed in an abandoned supermarket across from the fairgrounds. One of our former competitors was the full time engineer. We essentially folded at that point – as we finished building out a (much nicer) studio complex for four of the remaining little guys.
BTW, there also is/was a big (daytime) signal AM in the market which worked like hell to do everything right: local owner, all local programming, local sports, local talk… they are surviving on the owner getting in once removed from the top of an MLM scheme by trading trading weekend morning time for a talk show called “Dead Doctors Don’t Lie”.
It morphed into a daily telephone show (the veterinarian who cooked up the supplement scheme, wherever he was holding seminars, etc.). Sounded horrible with the doc and callers all on the phone, but it grew to national satellite distribution. The station owner’s deal was his commission on /all/ business generated from his and the satellite-delivered stations. He won’t say how much, but he made a fortune.
The broadcast business is still good, if you are a small operator in a good town, and you do it the old fashioned way:
program to the community you serve, be known to your customers and get involved in the community. You can’t do that with 1,000 stations.
You are absolutely correct. “Program to the community you serve.” But, you don’t have to be just in a small town. Thanks for reading the blog. All the best. Darryl
I like your statement “program to the community you serve”, but I think Daryl misread your comment. You said “business is good if you’re a small operator”, he took/stated as “business is good only in small market”. I think business could be good for a small operator in all markets. The problem is when a company owns more stations than they need to. More is not always better, I will take two or three stations serving a two or three financially stable communities over 25-100 stations that don’t program to the community they serve and have no vested interest in them, other than to say they have a bunch of radio stations.
My example of this would be I would rather own: A station in town A, town B and city C than all the Cumulus or Iheart stations in the Memphis area. The first three managed properly would be a better situation I believe than owning multiple stations in Memphis competing for the same slice of the advertising pie.
I find alot of TRUTH in your statement Here in Akron Ohio, we have all the big guys but we have one talk radio station on FM that has been there since forever, An that is what they do, cater to the town even tho they really are in a small town (kent ohio) which is in another county lol but they claim to be the “Talk of Akron” an for years they are a success you go to get your haircut an the barber has them on you go shopping an the store has them on you stop in a office an they are on owned by one guy who died an left the station to his sons so now owned by 2 guys. but 98% is all LOCAL programing live 2% syndicated (late night)
Gee, maybe somebody will pick up some stations for next to nothing and start doing something crazy like, I don’t know, Broadcasting programming worth listening to more than once?
George, What a concept? Darryl
There will be no stations sold for next to nothing! If bankruptcy comes, the administrators will hopefully be more prudent than those that caused it. Many of these stations are worth more than the calculated value as presented. It is the mere debt load and lack of control …and excessive purchase prices that are the problem. I feel the ultimate losers will be the initial sellers…am I mistaken? JBI
The initial sellers? You mean the companies that sold into the existing consolidators? They got their money. How can they be losers? And if stock was transferred they long sold their stock in the existing companies.
There has been TOO MANY radio stations for a long time. You can only cut the pie so many ways.
Perhaps you are correct..BUT…Everything was doing nicely until the G word took over..think about it…JBI
About the comment on selling stock…”If” is the operative word…What “:If” they did not sell their stock? Now what?
Those companies do not reflect the condition of real radio. Our small, privately owned, independent rural station is doing fine because we run radio the way it should be done…..we provide local programming listeners can’t get elsewhere. We have been doing basically the same thing for 33 years. If you run your radio station (or stations) like a glorified jukebox you will be in trouble because there are lots of other places to get music. Those who know what radio should be and can be will be fine.
Maynard, you’re right on. There are a couple stations I work with in smaller and medium markets that super serve their markets and are anything but a jukebox. They dominate their markets. Hope you continue to do well.
In the 90’s the radio station o worked for forced all of its own employees to write their congressman and senator urging support of the consolidation legislation. If you didn’t write it you were out!
Karl, What company was that? My company didn’t do that? Darryl
Speaking of a less offensive consolidation, I nonetheless urge you never to buy another Busch owned beer.
My concern isn’t for myself, family, but my competitors. At 60 years of age, my places are fully paid for. I can stick a middle finger to the banker, if I wanted to. I’ve diversified, many years ago, and if radio disappeared tomorrow, you can only blame the guys who wanted to be ‘exactly like the Big Fish’. Mortgage your future. Buy too many stations, including a bunch of ‘dogs’, just because it looks good on a piece of stationery. When you miss your sales projections, go back to the banker and refinance…just like the Big Boys….and use them as the ‘industry standard’. Now, how many group owners are run by guys in their 70’s? A lot! And, they can’t get out. They work for the bank, until they die. A business built on Public Service, now based totally on ‘Greed’. And, there is no ‘good way’ out. You guys complaining about too many radio stations, have no idea what this FM translator boon, is going to do in the next 18 months.
Here we go again… I wrote a column mentioning that the current business model for radio is a failure, that the supposed cost savings never materialized and that radio cannot survive in its current state.
Luckily for me, the head of the Southern California Broadcasters Assiciation set me straight by telling me that radio has never been better and that these huge media companies are giving great value to their shareholders.
So these stories of debt and likely bankruptcy must be wrong. I mean, he would never lie to me, right?
“Those of us who watched radio stations being bought like trading cards over the past five years have repeatedly asked “How are they going to pay for this?” – Ken Dardis: June 24, 2002
“And if they’re in trouble, so is the entire radio industry.” hardly. Clear Channel and Cumulus are not the bellwether of broadcasting. I’m partners in a stand alone FM in Indiana. We are doing just fine. And it goes back to serving your listeners. which is what we do. Perhaps if Clear Channel and Cumulus does have a fire sale soon, we can pick up some rimshot Cincy stations cheap. Until then, we keep serving our listeners and turning a small profit. and let Clear Channel and Cumulus drown in their debt that was incurred in an effort to take over the world.
Very much agree with that Scott. The one thing that the big Corporates have failed at is keeping in contact with their communities. That is why radio soared to begin with, and it is why radio is crashing except for those who did not accept the LMA agreement from 1996. Kudos to your perseverance!
If I had the money I would love to purchase a radio station. One of which is in the trust. And I would run it properly and most importantly have fun with it. Bring back the fun days of radio. But that is just me. Maybe I should come back to reality.
I am a talk show listener longer than Rush as been talking on the radio. It is in this context that your blog is so interesting. It mirrors my dilemma, finding an alternative to the current “angry white male” programming or Willie’s “Jerry Springer” look alike. I read your blog since you are an “insider” (as are many of your commenters), and I enjoyed your comments on WLW on Saturdays (hasn’t been the same since).
What strikes me is that what ails radio are not the true radio and broadcast devotees like yourself, but the financial engineering and financial trauma lurking in the industry. This appears to be the “real” story and probably portends the real future of radio, not just a change in programming content. Anyone.. please explain to me how Clear Channel (a better name than iHeart) could amass a debt of $20 billion. Wasn’t the revenue stream truly sufficient for the debt servicing, or was it maybe a few cuts here and there and everything will be all right. Shouldn’t a banker (now there’s another topic) have said, “You’ve reached $5 billion in debt. Maybe we should slow down a bit”? Like why do I heard sport’s discussions about the Reds, and it has less to do with the game and more to do with, “can we afford that?” I remember reading one of your commenter’s “financial analysis” of a blog topic and thought, “this is really typical of the reasoning that appears to be the problem.”
Too big to fail. Where have I heard this before? The big banks are still there, I guess, because of personal interests and relationships (certainly not from true financial acumen). Do these personal interests and relationships exist in the radio business? If not, then Lehman, Bear Stearns, Merrill Lynch, Countrywide might be the only outcome for Clear Channel.
Thanks for the opportunity to express a thought into the ether. This is why I first started listening to Rush. He verbalized, on air, what I thought was “clearer” thinking (at least to me).
Respectfully.
But wait – programmatic buying will save the day! As Farid (or one of his minions) said, “Radio sells itself! We don’t need sales people. We just need order-takers.” On-line order takers, apparently.
If the latest shiny bauble from The Big Boys doesn’t work, then stockholders will take it in the shorts, banks will end up with radio stations via bankruptcy, and a “Big Picture” guy will tell them radio can be profitable if they just “tighten, lighten, and brighten”. “Synergies” will save the day, more jobs will evaporate into the morass of syndication, voice-tracking, and hubbing. The few people left will work harder while striving to dodge the flashlight beam. Another guy will get his corporate jet, perks, and multi-million dollar salary and bonuses instead of seeing that money invested in the product.
BTW, I’m available to drive your conglomerate into bankruptcy for a LOT less money, and I don’t have a corporate jet to fund. I’ll even fly corporate class instead of first class. Or just use Skype.
Brian J., I’ll fly coach! LOL I hope you are doing well. Darryl
Darryl, I had to post a link to this on my blog….it was a good read! And you have some good comments coming in from others in the industry! Thanks!
Many large companies overspent, then tried to win by saving money on programming and promotion. Some in the larger markets saved $1M on programming costs by parting with successful talents…only to see their revenue reduced by twice the savings.
So thankful I didn’t buy a couple stations 10 years ago when an opportunity arose. Hope there is a chance again in the next 10 years. If not, it’s my belief that online streaming stations will have parity with those with a license within the next decade as they will be able to occupy a button on the dashboard.
Maybe we’ll see a rebirth or reformation of local and creative radio.
Fake callers? Talk radio uses fake callers? I don’t know what you mean. 🙂
We all know what is wrong…the question is…how do you fix it and give radio back to the people and get it out of the board room?
Well that’s going to take a few things. First, the first problem is the N.A.B which lobbies for the big consolidators. The F.C.C. and those in Congress will sellout the “people” to the highest bidder and the N.A.B directs the government in the interests of these companies. The N.A.B., F.C.C. and Congress could care less about the “people” and their needs. Look what happened with the TelCom Act in 1996. Now the N.A.B. has lobbied to allow foreign ownership of broadcast stations. Second, it will take the “people” to demand Congress and the F.C.C. step in and limit ownership.
Sadly, that horse is out of the barn. What will save radio and broadcasting now is bankruptcy, forcing those who screwed it up hopefully out of the business. I have often asked, “How do you screw up free?” These companies did.
The cliff-notes.
You got that right, Darryl. Deregulation destroyed radio broadcasting, generally speaking. A damn shame. If I could find a couple of investors and scrounge up a couple million, I’d “buy back” one of the stations in Hartford, CT, for example, that has abandoned the community and its listeners, and prove that creative, interesting, locally oriented radio can be a huge success. I call BS on the corporate losers who claim that radio isn’t doing well “because of the Internet”. What a weak excuse. If all you offer is a tiny play list of the same dreary, trite “hits”, why would anyone listen? Of course they’ll go to Pandora, Spotify, etc. How about offering something they can’t get for themselves….like personality, information, introducing them to great new artists/music, all the stuff that makes radio fun and important to listen to. Oh, wait, but that’s harder than just airing voice tracks and 25 songs in computer rotation…
Darryl, you have one of the best radio voices that I’ve ever heard. Are you still with WLW? Three of the most creative people in radio were Dick Purtin, Gary Burbank and the late Larry Lujack. These people made radio interesting and fun. Then rich people, with no radio experience on the air, became station owners. Many simply think that all you need is to play wall to wall music or do a talk show without having a personality. Sales people depend on ratings to sell adds. People will listen if they want to be informed or entertained with humor or music. I started in radio in 1966 and retired in 2010. I’ve worked nearly every job in the radio business. I feel that radio was more fun in the 60’s and 70’s than today. Today talented people are told not to be funny or creative. Local managers are told what to do from corporate headquarters located thousands of miles away. I believe that broadcasting companies should be limited to a maximum ownership to just three stations per market. Regards from Rod Douglas
Rod,
Thank you for the kind thoughts. No, I’m not with 700WLW. I agree, when bankers took over radio, they didn’t realize what it took to make a station a success. And the result? High debt and “radio” not being able to afford to do “radio” anymore.
Have a wonderful week. Thank you for checking out the blog.
Darryl
I’d love to buy a radio station cheap! My dream/goal was to own a small market just before that infamous piece of legislation passed–effectively swallowing jobs and putting “paid” to any indie broadcaster’s dream of serving a community with a small-market station.
Hey, if the monopoly ever breaks up–and the FCC”s willing to accept minimal money and lots of heart and soul–I am ready!
I’d love to buy a radio station “really cheap”! Had the dream and goal of serving the community through a small-market station just before that infamous piece of legislation went into effect. That, in effect, swallowed jobs and put “paid” to the goals of any indie broadcasters (like me) of owning small stations. Hey, if the monopolies ever break up–and the FCC is willing to accept very minimal money and lots of heart and soul to make good radio–I’m ready!