The Lunacy of Citadel Buying ABC

Why is it that when a company spends $2.7 billion to do a complicated buyout of an old radio company everyone thinks they are good investors?

Am I the only one who looks at Citadel's purchase of ABC as a colossal overpayment for radio stations with an aging audience and a questionable future.

I don't mean this as criticism of the programming people and managers who have made ABC one of the most profitable radio groups. It's just that their time is up. Their stations are not going to win the future generation and yet Citadel gets backing to do the ABC deal based on a lot of good yesterdays.

I'm not naive. I know why Citadel got the funding. I know everybody makes money in this situation except perhaps the shareholders who will be buying a technology, content and an infrastructure that is definitely not the future.

So let me ask this rhetorically -- how is it that radio companies have so many excuses for not funding their online and digital futures? Check out the budgets of any of the large groups and you'll see they are not investing any serious money in the future. Heck, they're not investing serious money in anything. They are cutting budgets.

So let me say it like this.

Traditional media companies are more than willing to pull out the stops to buy yesterday's technology without the hint of a new generation of listeners in sight but they are unwilling to spend squat on their digital future.

I once posed this question to one of the media conglomerates initially interested in ABC. This guy got it. Their company passed. I mean -- who wouldn't want to own ABC Radio -- 20 years ago.

Again, as they say on the Sopranos, "with all due respect" isn't it insane to spend almost $3 billion on yesterday?

And you and I both know what Citadel is going to have to do. Their new ABC employees full well know it.

Citadel is going to have to cut costs -- drastically -- to make its promised numbers.

There you have it again. Radio's epitaph -- "here lies an industry that was once proud and healthy when it invested in itself". That's kind of long for a tombstone, but you get the idea.

Yes, Citadel will have to micromanage its new acquisition.

Micromanaging has really worked, hasn't it?

Citadel will have to pull back from investing in content as it watches its expenses.

Another winner from the greatest hits of consolidation!

Citadel will have to invest next to nothing in its real future -- the Internet, streaming and mobile content.

No radio company has made major investments in their digital future. They just run traditional companies on a tighter budget every three months.

Some $2.7 billion on old radio stations (albeit still very profitable) but arguably with no future absent the next generation -- and the next generation is absent.

They don't listen to Paul Harvey or Sean Hannity.

Would you invest in black and white TV?

Vinyl records?

I'd like to think no.

Yet there is plenty of investment money for Citadel to buy ABC Radio and for any record labels that may still want to merge.

I don't think Wall Street money people are fools.

I think the traditional media business is.

Former Disney CEO Michael Eisner took a lot of brick bats over the years -- after all he's a very contentious guy.

I said this then (in Inside Radio) and I'll say it again now, Eisner was the smartest of all.

Eisner was never tempted to buy overpriced radio stations during the heat of consolidation. Instead he spent a few million here and a few million there for modest AM stations upon which to build his Radio Disney kids franchise.

This begs the question did Eisner miss the land rush or was he smart enough to sit on his high profit radio group and let everyone else drive the value up. Eisner's successor made the decision to unload the proud and old radio group and the radio network.

Notably he kept the modest Radio Disney AM stations.

ABC gets out of a declining business at the top of the market without ever participating in the consolidation frenzy.

Citadel gets to makes its ambitious numbers now without the foresight of how to grow the group without young listeners.

All the Wall Street money people got paid -- for their hard work, their introductions to various parties and for the dough itself.

The shareholders?

Oh well, they should have bought Apple two years ago. Now we're talking about the future.

Unless or until a leader with power and money comes along and builds a new age digital radio business (including video and text and mobile!) I'll keep my money under the mattress. It's safer there.