Weasels In the Hen House?

[SirRoxalot]

I had a thought the other day, and it just won't go away. The more I think about it, the more I wonder...

Are some large corporate radio companies TRYING to go bankrupt?

Think about this. You're underwater on the massive loans that you took out to acquire hundreds of radio stations in an attempt to build de facto monopolies in dozens of markets so you could drive up ad rates. You expected to realize great savings by establishing "synergies" in regional markets, and save big money through corporate purchasing. You'd save big money on talent by using VT and syndication to bring "big name" talent to the rubes in the sticks, and cutting their local talent. Either that, or you'd dump local programming altogether and rimshot the closest large market. It might require a transmitter and tower move, but hey - you'd end up in the larger market where there's more money to be had.

The current reality? Revenue is down. Savings were not nearly as great as you thought because you have to wade through the HR rules, regs, and laws of dozens of states when trying to construct your "contract template" and "benefits package". In other words, you need somebody at the local level to "massage" your contracts and benefits anyway. Not only that, but most of your expenses are local anyway. Every try to work out a "package deal" with an electric utility - for 100 different locations in 30 different states?

You also found out that the "locals" weren't all that enthused by the loss of their local voices. Yeah, they sounded "amateurish", but everybody knew them, liked them, and related to them. The "big name" VT? The syndicated "big city" show? If the locals wanted to hear that, they'd likely live in the "big city".

Worse yet was the loss of their local radio station. It's now charging "big city" prices, and running "big city" programming, that local listeners aren't excited about. Looks like there are better ways to spend your advertising budget, right? Meanwhile, corporate is finding that there isn't much "big city" advertising demand for a station that's barely noticed, and doesn't really get good signal penetration as a rimshot.

Of course, there are exceptions, but I don't think that I'm overstating things too much. There's a reason that Clear Channel dumped hundreds of station before going private.

Which brings us back to the original thought:

Are some large corporate radio companies TRYING to go bankrupt?

Or, at least drive the stock price down so far that the rubes who bought in a few years ago will be happy to get out for pennies on their original dollar when a "magnanimous" hedge-fund comes along and offers to buy up the stock so they can take the company private.

Or, maybe some radio exec with a pocket full of bonus money might buy up a bunch of penny-value stock in order to accumulate the swing votes in a company that recently "merged", and the shareholders of one company hold a slim majority of the stock over the shareholders of his "old" company.

Worst case scenario? Bankruptcy. Reorganization. Banks and shareholders get stiffed, radio stations get sold off. Best way to maximize sale prices? Sell each market intact to maximize value. Stockholders have been burned badly, want no part of radio. Prices of radio stations are seriously depressed, and go at fire sale prices. SOMEBODY ponies up the dollars, and buys the most successful clusters for a fraction of what they sold for a few years ago. With luck, the FCC relaxes market limits because of "the depressed state of the radio industry". Maybe they agree to take on some of the lesser markets as a "favor" to the bankruptcy court. The small markets? Who cares?

Far-fetched? Maybe. But it makes you wonder, doesn't it? Lew Dickey says that "half the companies in business today will be gone within 36 months".

It's not possible that plans have been laid to make SURE that happens, is it?

 

[TheBigA]

Or, maybe some radio exec with a pocket full of bonus money might buy up a bunch of penny-value stock in order to accumulate the swing votes in a company that recently "merged", and the shareholders of one company hold a slim majority of the stock over the shareholders of his "old" company.

Let me ask you a serious question: Why don't YOU buy up all that penny stock? Even YOU can afford it.

Imagine you owning controlling interest in Citadel, paying less than 1% of what Farid spent on his shares. Imagine getting a seat on the Board of Directors, going to a Board meeting, and telling them what they will do now. Because it's YOUR money.

That's all it takes. Just a little risk, a little money, and a little courage.

Do you have any of the above?

You don't have to be a fat cat to buy stock. You don't have to have an MBA or an accounting degree. Even YOU can buy stock. You see the ads on TV all the time. You can buy stock on the internet. Roger Raimey built a company on it. Discount brokerage. No big science. Just send them your money, tell them what price you want to pay, and you get exactly what you want: Controlling interest.

If not you, who?

How about people who are even worse than the current owners. Like who? How about all those people with religious agendas, who want an outlet to push their points of view? How about Rupert Murdoch? He doesn't own any radio stations now, so he could buy in at a pretty cheap price. Some folks think Sam Zell might get into radio.

It's cheaper to buy controlling interest in a radio company than it would be to actually buy one of their radio stations outright. That's partly why no one's buying radio stations. Why buy WABC for a half a billion, when you can buy the whole company for less.

All it would take to buy a million shares of Citadel is about $50,000. That's it. Even YOU can afford it.

But will you take that risk? Will you actually put YOUR money where your mouth is? I bet you won't.

 

[gr8oldies]

Hmmm..wonder why where I gre up, small town that it was, substantial numbers of people put up antennas to get bigger city stations. Every citizen of a small town doesn't wanty to listen to recent broadcast school graduates stuttering through the farm report.

Yeah, let's see Rox and every one on this board who wants to "show us how it's done" buy those cheap shares. Let's get live, local, 24/7 air personalities everywhere and see if the stock price goes up or you go bankrupt even faster (you still have to get financing to do that).

 

[Steven21]

With luck, the FCC relaxes market limits because of "the depressed state of the radio industry". Maybe they agree to take on some of the lesser markets as a "favor" to the bankruptcy court. The small markets? Who cares?

Far-fetched? Maybe. But it makes you wonder, doesn't it?

Yes, it does make me wonder.

it makes me wonder why any present or future operator would embrace this cloak and dagger way of accumulating MORE radio stations, especially when the general consensus among most CEO's these days is likely: "WHY did we buy more radio stations?"

I cnanot imagine there is even one individual interested in owning more stations---at ANY price. It just means more liability as time rolls on.

Nice theory though. Very conspiratorial

 

[DavidEduardo]

Of course, there are exceptions, but I don't think that I'm overstating things too much. There's a reason that Clear Channel dumped hundreds of station before going private.

There is definitely a reason for selling stations, but it is not the one you would like to think it is.

Smaller market stations have lower margins than big market ones. If you have enough of those small stations, they bring the overall margins of the company down, and as a then-public corporation, you make the numbers that analysits look at look worse.

Why are margins lower in small markets? Electricity costs, on the average, the same in a big and a small market. But your transmitter uses the same amount, and your bill is a higher percent of revenue if you are in a lower billing market. That $60 k transmitter is a $60 k transmitter in New York or Nogales... but as a percentage of billing, it goes from a fraction of a percent to perhaps 15% of annual billings.

Similarly, many other fixed expenses will be the same, ranging from certain insurance policies to repairs and maintenance and such.

So, Clear cleaned house and eliminated stations in non-rated or small markets in order to increae the operating markgins and, in all liklihood, out of recognition that your smaller properties actually take more management time than the bigger ones.

 

[TheBigA]

I cnanot imagine there is even one individual interested in owning more stations---at ANY price.

I agree. The story of the next five years is not in what you OWN but in what you manage. The only thing ownership gets you is debt. No one needs more debt now.

 

[adma]

Also consider the "streetcar conspiracy" analogy.

 

[PTBoardOp94]

adma:

The companies were each fined $5,000, and the directors were each fined one dollar. The verdicts were upheld on appeal in 1951.

Sounds about right.

 

[SirRoxalot]

Financial Advice?

Or, maybe some radio exec with a pocket full of bonus money might buy up a bunch of penny-value stock in order to accumulate the swing votes in a company that recently "merged", and the shareholders of one company hold a slim majority of the stock over the shareholders of his "old" company.

Let me ask you a serious question: Why don't YOU buy up all that penny stock? Even YOU can afford it.

Imagine you owning controlling interest in Citadel, paying less than 1% of what Farid spent on his shares. Imagine getting a seat on the Board of Directors, going to a Board meeting, and telling them what they will do now. Because it's YOUR money.

All it would take to buy a million shares of Citadel is about $50,000. That's it. Even YOU can afford it.

But will you take that risk? Will you actually put YOUR money where your mouth is? I bet you won't.

Big, are you a stock broker? You sure sound like a few I've known over the years. First of all, thanks to my career in radio, I'd be hard pressed to come up with $50K, and if I did, I'd pay off my mortgage so I could retire a few years sooner. But, just for the sake of argument, let's take a look at your proposal:

At 18 cents a share, $50K would buy you about 278,000 shares of Citadel, not a "million". Now, without even getting into all the "details" like common stock vs. preferred stock, voting vs. non-voting shares, "special" shares, etc., you'd be up against the following (per Yahoo Finance & public SEC records):

% of Shares Held by All Insider and 5% Owners: 32%
% of Shares Held by Institutional & Mutual Fund Owners: 46%
% of Float Held by Institutional & Mutual Fund Owners: 68%
Number of Institutions Holding Shares: 248

Holder Shares Reported
SULEMAN FARID 8,150,406 4-Nov-08
SMITH WAYNE T 75,000 5-Mar-08
MILES MICHAEL A 510,000 24-Mar-08
ELLIS JUDITH A 345,135 27-Jun-08
FREEDLINE ROBERT G 204,772 26-May-07

Not only that, but the market cap is currently about $48.6-million, so $50K would buy you about 0.1% of the company.

This is what's known in the real world as a "sucker bet". You give the company a bunch of money, and you have zero influence with the real shareholders. They say "thank you for the donation", and go and do what they were going to do anyway. Not only that, but if they go bankrupt, you're an unsecured creditor, so you get NOTHING.

In other words, just how stupid do you think I am?

Bankruptcy may be the only way that Citadel can get out from under their mountain of debt. Who gets hurt? A few vendors, some employees, and the banks who were stupid enough to finance the ABC "merger". Not the "secured creditors" (i.e. owners of "preferred" and/or "special" shares), people who've already collected a big payoff, and people with the right compensation contracts.

Citadel goes into receivership, and the bankruptcy court sells off clusters on a market-by-market basis to maximize the value for secured creditors. Once they're paid off, anything left goes to unsecured creditors.

Who buys those clusters? Well, not the companies already in those markets. They're probably already at their FCC caps. So, somebody "new" has to be found to buy those stations. Who better than a "new" company that already knows those operations very well - because the principals were secured shareholders of the "old" company. Yeah, you risk losing some markets, or perhaps even some stations, but I'll bet most of the clusters stay intact, and the "new" owners get in for a LOT less money than the "old" company owed.

The "new" company cherry-picks the winners, and let's some marginal markets go. All old talent and management contracts are null and void, so the "new" company renegotiates contracts at a time when they have a lot more leverage. The new company also has a much lower finance cost. Their overhead is much lower, and they can ride out a recession a lot more easily. Crazy idea, huh?

With that thought in mind, I don't think that I'll be refinancing the house to "invest" in Citadel this week. I might be nuts, but I'm not STUPID.

 

[gr8oldies]

I can see some Chapter 11 (reorganization) situations happening, but not liquidation of broadcasting companies.

 

[TheBigA]

Re: Financial Advice?

In other words, just how stupid do you think I am?

You're the one who brought up some radio exec buying the stock. Why does it have to be some other bean counter? Why not you? Other than you don't have the courage. There are two kinds of people in this world: Those who get things done, and those who complain about those who get things done. Right now, you fall into group #2. All you have to do to actually fix the problem as you see it is replace the people you don't like. Because if anyone else does it, you're still not going to be happy.

Bankruptcy may be the only way that Citadel can get out from under their mountain of debt.

Two things you ignore: Ted Forstmann (if you don't know who he is, do a search.) And Disney. They still are players in Citadel based on the way they sold their radio stations to the company.

Would the company go bankrupt? Maybe, but they really don't have to. If they did, would it change the way their stations are run? Probably not. Lots of big groups have sold to smaller owners in the last 3 years, and none have made significant changes in programming or operations. The end result: You're still angry and unhappy, even though Farid is out.

 

[gr8oldies]

Case in point...BAS Broadcasting, who bought several Clear Channel castaways in Ohio. Yes, the ee-vil empire is gone from those stations, but all everyone does now on the message boards is blast BAS because they run satelllite programming instead of hiring broadcasting school graduates to DJ.

 

[DavidEduardo]

Re: Financial Advice?

First of all, thanks to my career in radio, I'd be hard pressed to come up with $50K...

And there is the root of your problems with radio and your bitterness. You found no rewards at the end of the road, and desire that nobody else have them either.

for you, this whole thread has not been about the business of radio, it has been about being laid off or unrewarded as an ageing jock.

Bankruptcy may be the only way that Citadel can get out from under their mountain of debt. Who gets hurt? A few vendors, some employees, and the banks who were stupid enough to finance the ABC "merger". Not the "secured creditors" (i.e. owners of "preferred" and/or "special" shares), people who've already collected a big payoff, and people with the right compensation contracts.

Secured creditors are mortgage and lien holders and, generally, tax authorities for due amounts and employees due back wages in some cases. Shareholders of any kind have no mortgage or lien, and are SOL.

 

[SirRoxalot]

Not a Pretty Picture

In other words, just how stupid do you think I am?

You're the one who brought up some radio exec buying the stock. Why does it have to be some other bean counter? Why not you? Other than you don't have the courage. There are two kinds of people in this world: Those who get things done, and those who complain about those who get things done. Right now, you fall into group #2. All you have to do to actually fix the problem as you see it is replace the people you don't like. Because if anyone else does it, you're still not going to be happy.

It ain't a matter of courage. If I was lacking in courage, I would never have gotten into the radio game in the first place. It's a matter of not entering a rigged game. The amount of impact I can afford to buy is imperceptable. I have greater impact from inside the industry than I'll ever have in the board room.

Secondly, it's not about replacing people. It's about replacing ideas THAT AREN'T WORKING. If no one questions the current practices, why would they change? If you're inside "the belly of the beast", you have a far better view of the inner workings, and ideas that are being floated by corporate.

Bankruptcy may be the only way that Citadel can get out from under their mountain of debt.

Two things you ignore: Ted Forstmann (if you don't know who he is, do a search.) And Disney. They still are players in Citadel based on the way they sold their radio stations to the company.

Would the company go bankrupt? Maybe, but they really don't have to. If they did, would it change the way their stations are run? Probably not. Lots of big groups have sold to smaller owners in the last 3 years, and none have made significant changes in programming or operations. The end result: You're still angry and unhappy, even though Farid is out.

I know who Ted Forstmann is. I also know a little about Disney.

Citadel is pocket change for Forstmann Little. They've already made a pocket full of money from buying Citadel in 2001, taking it private, then taking it back public in 2003. They still own 27% of the company, but they've already made a profit, and anything they get from this point on is gravy. Their "loss" if Citadel goes bankrupt is what they'd consider to be "sustainable" - especially considering the profit that they've already amassed.

Disney's stake in Citadel is about 57%. Disney shareholder's original stake in Citadel was worth about $3.8-billion. Disney stock in general is still worth about what it was worth when they acquired Citadel. The market cap for Disney is about $42-billion. So, if all the Disney shares are unsecured (unlikely), Disney would lose about 9% of its value.

When you consider that all Citadel stock is currently worth $48.6-Million, and the "enterprise value" (market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents - essentially what the company is worth) is $2.13-Billion, you get the idea that there's a mountain of debt in that $2.13-Billion. In fact, their current debt is $2.10-Billion.

Citadel's situation is like buying a $213,000 house, and owing $210,000 dollars. When you looking at the cost of interest, imaging that you can just stop paying the mortgage, not suffer any "personal" penalty. You let the house go to the bank, then go back and buy it - or the parts of it that you like - out of foreclosure for $125K, $150K, or maybe $175K. Certainly cheaper than what you contracted for a few years ago.

My guess is that guys who are cutting $8/hr. part-timers think about stuff like that.

Ultimately, the financial shenanigans will come to an end, and somebody's going to end up operating radio stations. Good operators will get good results. Bad operators will go out of business.

Unless, of course, "somebody" convinces the FCC that the bandwidth allocated to "traditional" broadcasting isn't valuable any longer, and should be auctioned off to increase the digital spectrum...

 

[evolve991]

From Another Who Can't: Since things mostly suck already and have for a few years now maybe after some (more?) awkward reorganization and format flips,etc,we could be RID of the audible swill thats been gaining strength and stupidity for too long? I already lost both my favorite stations to 'up and coming' formats that were unique and original just exactly like the station across town. I'll just keep loading my MP3 player like I have since 1/12/05 and hope the air clears soon. It looks like ALOT of the monster corporations are tripping over thier own garbage and maybe its time for those who DID to be free of those who ACQUIRED. Maybe radio can be run by people who know radio,music by people who have a talent for presenting good music. Nothing against all the stockholders who'd lose money but to see the guys who started this arrogant nonsense as thier bright idea blows up in thier face would be priceless.

Yeah just another who cant but if I could there would be a few more abrupt,infuriating format flips with a non-corporate twist and display of the great american bird for Those Who Botched.

 

[SirRoxalot]

Re: Financial Advice?

First of all, thanks to my career in radio, I'd be hard pressed to come up with $50K...

And there is the root of your problems with radio and your bitterness. You found no rewards at the end of the road, and desire that nobody else have them either.

for you, this whole thread has not been about the business of radio, it has been about being laid off or unrewarded as an ageing jock.

Once again, David, you're making assumptions with no foundation. You have no idea who I am, what my background is, or what position I currently occupy. I could say that you sound like one of those geeky radio kids who wished that they could be on the radio, but sucked on the air, and decided that you'd get into management so you could "show those guys". That wouldn't make me right.

David, not all rewards are monetary. I'm quite comfortable, thank you, and not likely to end up on the dole or on the street. Unlike some, I have a concept of "enough". My motivation really isn't personal. It's based more in my love of radio, which appears to be killing itself slowly, and my concern for a lot of people I know who have put blood, sweat, tears, and toil into an industry that they love, only to be dumped for reasons that have nothing to do with their talent or their performance. Even worse, their loss degrades the industry, reduces its value, and costs more listeners.

Bankruptcy may be the only way that Citadel can get out from under their mountain of debt. Who gets hurt? A few vendors, some employees, and the banks who were stupid enough to finance the ABC "merger". Not the "secured creditors" (i.e. owners of "preferred" and/or "special" shares), people who've already collected a big payoff, and people with the right compensation contracts.

Secured creditors are mortgage and lien holders and, generally, tax authorities for due amounts and employees due back wages in some cases. Shareholders of any kind have no mortgage or lien, and are SOL.

Most shareholders are an annoyance to corporate, not a concern. For some, they're "suckers" to be played. I think that I've already explained why some of the major players may consider the profit that they've already made sufficient, and decide to cut their losses.

 

[DavidEduardo]

Re: Not a Pretty Picture

Disney's stake in Citadel is about 57%. Disney shareholder's original stake in Citadel was worth about $3.8-billion. Disney stock in general is still worth about what it was worth when they acquired Citadel. The market cap for Disney is about $42-billion. So, if all the Disney shares are unsecured (unlikely), Disney would lose about 9% of its value.

Common stock is not secured. Those shareholders are the first to lose in a bankruptcy.

The entire ABC division contributes around 8% of profits and is, coincidentally, worth about 8% of Disney as a whole. The remaining (radio Disney and ESPN) radio stations are not part of ABC, though. And the radio division that went to Citadel only produced a percent or two of revenue, as well... remember, there were only about 44 of them, although in some big markets.

Further, Disney and CDL did a reverse Morris transaction, and the shareholders of Disney, not Disney itself, got 57% of Citadel common in a distribution that relieved DIS of most tax liabilities by passing them on to the shareholders (search on "Citadel" +"Disney" +"merger" and you can see that a failure of CDL (a possibility per several investment advisors starting with Morningstar) will impact the shareholders of CDL, but not Disney.

 

[TheBigA]

Re: Not a Pretty Picture

The amount of impact I can afford to buy is imperceptable. I have greater impact from inside the industry than I'll ever have in the board room.

If you truely believed in your ideas, you'd stand behind them with your money. That way, you'd at least benefit in some way if you were right. You have NO impact at all from radio message boards, if that's your thought. You're just another whiner.

If no one questions the current practices, why would they change? If you're inside "the belly of the beast", you have a far better view of the inner workings, and ideas that are being floated by corporate.

I really fail to see what benefit you gain by being a professional complainer. Sooner or later, your attitude will betray itself and you'll be among the outsiders. Then what have you gained?

By the way, my understanding of the Disney deal gives Disney an opportunity to buy back their radio stations under certain circumstances. They are merely licensing the ABC name to the radio network. This is not to say they'd want either the stations or the network back. But they'd benefit by Citadel's cost-cutting if they did.

 

[adma]

It looks like ALOT of the monster corporations are tripping over thier own garbage and maybe its time for those who DID to be free of those who ACQUIRED. Maybe radio can be run by people who know radio,music by people who have a talent for presenting good music. Nothing against all the stockholders who'd lose money but to see the guys who started this arrogant nonsense as thier bright idea blows up in thier face would be priceless.

Or maybe, just face it--in light of competition, radio's "had it". I mean, decry the corporate slimebags all you want, but when you're left speaking on behalf of the mythic flyover-state farm-report mom'n'pop type outlets to state your case, maybe it really is the end of the line. You're grasping at something which hasn't had, well, cultural currency since well before consolidation--though maybe it seemed otherwise if you were "in the field"; but then, that's where being in the radio biz in recent decades could produce its own Rip Van Winkle amnesia. It's all too easy to escape how motley your realm's become--I mean, who's demanding radio-style "companionship" (ecch, how lonely-hearts-club that word is) anymore? Delilah-loving crazy ladies? Limbaugh-loving backwoods bigots?

I think an issue in threads like this isn't so much raw corporate greed and malfeasance, as a "why didn't anyone warn us?!?" despair. But I wouldn't be surprised if there's been a certain preparation for radio's ultimate, er, liquidation for at least two or three decades now.

Liquidation on behalf of what? Well, they tried in-house solutions like HD, or slightly-sideways solutions like satellite, and it didn't work out as hoped; so then, just quietly accept that new media solutions from the outside won the day (maybe with a bow to it by emphasizing a "providing content" angle), and allow what's left to run its course, with a little judicious laying-off here and there to speed the process, before packing up one's assets and leaving.

And to be really cynical, maybe there's a certain element within corporate culture that sensed long ago what uncritically-accepting lottery-jackpot-winning rubes a lot of "radio people" were, even in their ideas of "programming success"; whether it's payola-fueled pop radio, or conservative/shock talk, or harnessing themselves so completely to the universe of Arbitron and auditorium-testing. So...they used you. Milked you for all you're worth. And, they're spitting you out...

 

[SirRoxalot]

^^^^^^^
Wow. And you guys thought I was cynical...

No, because I offer an alternate view to what corporate spews, I'm a "professional complainer". I guess that make's the guy who yelled "iceberg ahead" on the Titanic a "professional complainer" too, huh?

Some people talk "Big", but they've yet to demonstrate their commitment to the medium, or even understanding of what's going on out there right now.

If you truely believed in your ideas, you'd stand behind them with your money.

I truely believe my ideas, and stand behind them with my choice of career. What more do you want? What do YOU have at risk?

David Eduardo's analysis shows that a Citadel bankruptcy is even less likely to annoy Disney than I calculated. I've already demonstrated that Forstmann-Little already reaped a tidy profit from the IPO. What do they have to lose?

Will shareholders get hurt if Citadel goes under? Absolutely, but they're already under water. When you owe more than you can afford to pay off, what other option do you have? At some point, you cut your losses.

Right now, corporate is cutting the heart out of the company. They've gone from hatchet to axe to chain saw to feller buncher. And, they're not the only ones. Do you guys really think that revenue, audience, or profit will rise based on the moves that are being dictated by the big radio corporations right now?