Wall Street's Meltdown & Radio

The Wall Street meltdown continues and it's getting scary out there.

The rest of the world is now reacting to our situation and even with a near trillion dollar bailout of troubled American financial companies very little relief is expected soon.

It's not hard to look at our own little meltdown in a microcosm called the radio industry. True, Citadel closed at 55 cents yesterday after the market went on another one of its magic carpet rides. (I think the market is on more hallucinogens than Steppenwolf was when they recorded their hit).

Think about it.

Yesterday Lehman Brothers CEO Richard Fuld, Jr. was heckled by protesters and hounded by reporters as he was on his way to testifying before the House Oversight and Government Reform Committee about his failed company.

Remarkably, Fuld told Congress a compensation system that he said paid him about $350 million between 2000 and 2007 even as the company headed for disaster was appropriate.

Sound familiar?

Once a mighty company -- down on its luck -- it collapses and must be rescued, but the CEO still thinks his pay grade was on the money.

Sounds like radio to me.

The radio industry is in a lot of trouble.

No -- not just that. Not the things we usually talk about here. It's the economy and the economy's influence on local communities, advertisers and the stock market.

This recession or whatever it is could be the final blow for an industry that caused its own recession even when times were good.

You may remember for example, Citadel's stock price was under $1 a share well before the mortgage and banking crisis. There is no shortage of other radio companies whose stock is in the toilet. In fact, no radio company is offering a decent return on investment for its shareholders currently. I'll say this about the Mays boys, they sure knew when to get out.

I can promise you that Farid Suleman who earns $11 million from Citadel for producing that 55 cent stock will not be hurting that much when his compensation is updated and made public again. In fact, not to pick on poor Farid, the other radio CEOs are sitting pretty while their radio groups are going to hell in the proverbial handbasket.

Think Farid will make only $8 million next year because of these unfortunate circumstances? You're dreaming. What will Mel Karmazin make? Sirius XM has yet to turn a profit and 2009 isn't going to be a banner year for advertisers.

This brings me to my point.

Yes, radio messed up with consolidation. It plain didn't work. We know that now.

And, radio let the next generation get away to iPod-land but the industry never followed them -- where they now live -- the Internet and mobile devices. That's pure dereliction of duty by radio CEOs. How can you be a growth business when you pissed away your chances of engaging the next generation?

You can criticize radio for squandering its assets -- the people that made local radio so valuable in the first place. After all, they -- the local GMs, PDs and GSMs -- built the stations that inspired companies to buy them at inflated multiples. And, yes -- Wall Street came up with the investment capital that made purchasing all those stations possible.

Oh, and you shouldn't forget that even when the consolidated clusters were being assembled, the euphoria was so great that few people bothered to question whether the buyers could pay their debt service in good times let alone in the inevitable bad ones that also come in a business cycle.

You could mention lack of creativity in content. Inability to take radio sales to the next level and on and on.

But on Wall Street the real reason so many banks and mortgage companies failed is because the person in control -- at the top -- got paid handsomely to make bad decisions.

Same is true in radio.

Isn't it interesting that even after years of employee cutbacks and budget reductions, radio CEOs still can't produce a shareholder value.

Where were the boards of directors?

Good question and you deserve a good answer, but you're not likely to get one.

Mismanagement is at the core of what is wrong on Wall Street and also in our little world of radio broadcasting.

In fact, it's an outrage.

Wall Street banks and mortgage companies were left alone without appropriate regulation and they had to be rescued. There will likely be more interventions on the way. Same is true in radio. When it celebrated deregulation, the radio industry actually guaranteed its own demise. Now it may be getting more regulation than it wants or needs. Payback is a bitch.

The troubled banks and mortgage companies are being rescued.

Radio will not be.

And until the real problem is addressed in both examples, the outlook is bleak.

Too much executive compensation -- too much power at the top -- not enough independent oversight.

The declining economy will make it even harder for radio to weather the storm. It's too late to fix the problem.

For radio, it's over.

I'm often asked, what's next? What do you think will happen if radio cannot rebound? My answer is that the assets will be sold at increasing lower prices. Shareholders have already taken their haircut so there is not much else that can happen to them.

Best case scenario is that the real assets -- the radio people who have watched the ship sink even as CEOs were cutting back on lifeboats -- will emerge the eventual and unlikely winners.

New media is calling -- and in the year ahead we may actually resolve a few key issues such as music royalty rates, WiFi delivery of the Internet signal and seamless mobile content delivery.

When this happens, the best people to run these new enterprises are radio people who have worked for fools long enough and soon they will no longer have to suffer fools gladly.

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