Not just any business – family-owned and operated companies.
Buffett is on his world tour (via NetJets, which his Berkshire Hathaway owns) to look for new investment opportunities. Buffett is in his late 70's and he often says that he plans to retire five years after he dies!
What’s notable about Warren Buffett’s acquisition and management strategy is the emphasis on buying well-managed German family-owned and operated companies – presumably the growth companies that are worth the investment.
The radio business used to be a conglomeration of mom and pop stores run by some of the most colorful people you could wish to work for.
Some of them were incapable of making a profit – no doubt some of my readers would like to comment on these characters who loved radio nonetheless. To many, just owning radio stations was worth – well, losing money.
Contrast that with Citadel and Radio One shareholders who are losing money today without the love.
Buffett also attacked the investment world in his comments last week – especially derivatives trading saying, “It’s not right that hundreds of thousands of jobs are being eliminated, that entire industrial sectors in the real economy are being wiped out by financial bets even though the sectors are actually in good health.”
Buffet knows there are not adequate controls on the investment banks and that it is not possible to re-regulate them anymore – as he says, “you can’t get the genie back in the bottle”.
The radio industry is not so big, so powerful or so profitable to dismiss this oracle from Omaha.
Here’s how I interpret Buffett’s remarks vis-à-vis radio and records:
1. Mom and pop radio operators were good enough to build the radio sector into the kind of assets that eventually sold for hundreds of millions of dollars a piece – in many cases. The problem was – and is – investors and those beholden to investment banks – have not been capable of operating the assets. In other words, the mom and pop operators had the skills and did a better job than those “better educated” Wall Street types. The investment banks had the money. Looks like the mom and pop operators got away with the best of that deal. They sold high. Now the consolidators are owning -- low.
2. It appears Buffett is telling radio that re-regulating Wall Street – or if I may expand his comments to mean, ownership – will not fix the problem. There is no going back. It’s too late to make Clear Channel hundreds of small companies. But it is probably not too late to run Clear Channel as if it were many different companies. Clear Channel Contemporary – a business that would run the contemporary music stations and build growth for its corporate owner. You get the idea.
3. A company’s ability to maintain the employment of all its people is a predictor of profit and loss. That is, if you keep them on the payroll and manage them capably with the proper leadership, you will make money. By contrast, radio has been reducing its ranks – along with its partner in crime, the record business – since the late 1990s and look where it got them?
After all, follow the lead of the world’s richest man.
He buys NetJets but more importantly buys its outstanding management with the airplanes – lets them run the business and requires only one face-to-face meeting in Omaha each year. No micromanager, this Buffett fellow.
Buys Mars candies and Dairy Queen and eats the profits – so to speak – by enjoying the products personally but letting the management he scoped out and acquired do the work.
Geico – do I really need to say more?
Buffett didn’t come up with Geico’s effective advertising campaigns. He just bought the damn company and its management.
Buffett reads all day – so he says. When he learns enough about a company he wants to own, he buys it.
Then, he lets the “well-managed” company run without him.
That’s right – without him.
No restructuring divisions at the hands of corporate. Geez, how many times has Clear Channel restructured since 1996? Ridiculous.
Are we too blind to see that Citadel’s Farid Suleman and his ilk are not successful because they are the anti-Warren Buffett.
Suleman, known for meddling in local station decisions to channel his inner wish to be a program director, runs a hands on business.
Buffett runs many hands-off businesses.
Hands on.
Hands off.
Which approach works better?
Citadel shares closed at $1.74 yesterday.
Berkshire Hathaway "A" at $132,200.
In the end the most painful lesson that radio and record label CEOs refuse to learn is that the companies they buy are not the most important assets – it’s the management and its employees.
And that people make the asset grow profits.
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