Radio Sold Its Soul

In the age of consolidation radio stations can lose listeners, advertisers and the next generation -- and it still remains a healthy free cash flow business.

True, expenses have to be cut and programming has to be scaled back and made less ambitious -- but the consolidators can still post a profit.

One thing radio companies can't survive is the loss of Wall Street.

Main Street yes. Wall Street no.

The radio industry got into bed with the Wall Street greedy people and now there is mounting evidence that they are getting kicked out -- posing a threat to its future that is so major all the smart programming in the world can't fix it.

Radio was attracted to the action on Wall Street as soon as the 1996 Telecommunications Act was passed. That relationship appears to be winding down leaving the future of radio is gravely in doubt.

Look at the evidence:

1. Wall Street has soured on radio. How many investment banks still actually have a full-time analyst watching this segment? Look to the falling price of properties. To the few radio deals that get gone these days. To the pessimism on Wall Street that has put the damper on the future of radio.

2. Bain Capital -- if it gets the Clear Channel sale done -- has accomplished what? They wind up with properties that will likely be worth less money as the years go on. I call that a bad investment. I wonder what they are thinking. The spinoffs that are related to the privatization sale aren't even getting done for the original agreed upon prices. Lawsuits are flying. Radio stations are worth less. How does this constitute a future?

3. Stock prices are way down -- take a look. If you own shares in any of the public radio groups you have likely taken a haircut. And there is no upside as long as Wall Street is walking away from the sector. In fact, they'll be running away even if the Clear Channel deal gets done because radio stations are not going to be worth more. Don't believe it? Go back and look at the share prices -- down drastically with no upside.

4. The real geniuses (although we may not have known it then) were the owners who got out when the major consolidators spent Wall Street's money to acquire today's radio groups. Hope they invested it in a sure thing like tax-free munis or Apple stock. Many of the sellers don't have a position in radio and very few want to buy back in.

5. If station prices continue to tumble, how will consolidators get out? The simple answer is -- they can't. They're going down with this ship or calling for lifeboats. No one wants to buy radio stations at the prices consolidators need to get out.

6. Red flag -- if Lincoln Financial can't even get a buyer for its outstanding company then the poorly run groups are really in trouble. Lincoln is not a radio company. The stations they now own came along with their recent acquisition and they are damn good ones. Even Cox -- the rightful inheritor of the Lincoln stations didn't make a bid. More evidence that the value of radio is dying.

7. There's no money out there for acquisitions at old multiples. And only fools will get into this game now. When the prices go down -- and they're going down now -- how will these sales get done without capital? And investment firms are going to have to get a lot of upside to risk the downside. In radio terms that upside translates into debt service -- the kind you can't afford in an industry that isn't growing and has lost its future to the Internet, iPods and mobile phones.

There is a saying that money talks and b.s. walks. Today, in radio, it's the opposite -- money walks and b.s. talks.

And that's what the CEOs of radio are doing.

They blab too much.

Over promise.


And it's mission accomplished -- the destruction of an entire industry for the benefit of a few.

Owners. CEOs. Stock options. Obscene fees for investment banks and bogus introduction payouts to people who on the whole did absolutely nothing.

Radio companies that lost their future by making deals with the devil these past ten years are now fast becoming persona non grata with their Wall Street investors.

It's radio's worst case scenario -- and it happened because radio sold its soul to Wall Street.

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