Radio's Next Round of Firings

Clear Channel is getting ready for phase two of its employee firing scheme.

Rumor is -- Friday.

If the first one had been code-named Hiroshima, the next one will be Nagasaki -- a detonation that will continue to obliterate radio's talented population.

But don't let the way Clear Channel works distract you from what is going on with the rest of the consolidators.

Cumulus wiped out 12 people in one cluster alone just recently. Since Cumulus is not of the magnitude of Clear Channel, those firings were under the radar and didn't get the same attention -- unless you were one of the fired.

Citadel is hanging its employees by their finger nails waiting for the axe to fall. Fagreed Suleman works consistently and methodically cutting here and snipping there.

How do you let Tom Cuddy get cut away when all he has ever done is keep the Citadel FM music stations competitive? Makes you wonder if radio CEOs already know the prognosis for their industry. Something may be up with Scott Shannon at WPLJ. He reportedly has a sit down with Fagreed soon.

See what I mean? Nothing is worse than a consolidator with his back against the wall and no power left to borrow from Wall Street banks.

That's why they are taking it out on their employees -- because they can.

But, they shouldn't.

Ironically, their employees are the only ones who can do great local radio and great local radio is the only way back -- at least until radio audiences grow too old.

Then there's CBS -- down 18% in revenue as we learned yesterday. Operating income plunged by 56%.

Sumner Redstone weighed on and said he doesn't know how long it will take for things to get better. CBS President Les Moonves doesn't need a cattle prod to know what he has to do -- both on the television side and at CBS Radio.

You can expect more carnage.

Some people in the company wouldn't be surprised to see between 100 and 300 people fired but that number is conjecture. One thing is for sure -- at the rate CBS is losing money, correspondingly it will lose a lot of employees.

They are dumping their KLSX talk format in LA to do a cheaper version of top 40 -- just what America needs, another top 40 station. Talk formats traditionally cost more than music so get out your pencil and do the math.

Not to get lost in the Clear Channel bloodbath that is coming but wait until you see what CBS is going to have to do to save money.

Firing employees appears to be the only way underperforming radio companies are able to cut costs. What's worse, you can see that Clear Channel's Repeater Radio concept is being embraced by consolidators who can't resist the allure of peopleless "local" radio.

What a joke.

It almost seems that some of the consolidators are enjoying this power over their less fortunate employees. There is no doubt in my mind that Lew Dickey and Mark Mays are two powerful people who don't know what it is like to be fired.

Well, I've been fired and perhaps you have as well. You're never the same again and no reason is a good reason.

In fact, when I went to Temple University I remember one of my professors, Lew Klein, the executive producer of American Bandstand, tell a group of parents on orientation day that if you haven't been fired from five stations by the time your career was over, you weren't in broadcasting.

Wow! That really got the attention of parents paying to put their kids through college.

Well, Professor Klein underestimated it -- today it would be ten stations! Maybe that explains why you can roam all over university campuses and not find students passionate about being in traditional radio.

Why would they be?

Do they like unemployment?

I've also stood on the unemployment line in Camden, NJ in between jobs. It is a humbling experience that I will never forget. I have a friend who is one of the most talented programmers in the industry and he's going to have to seek employment in a mundane, out-of-the-industry job just to pay the bills.

I respect him very much for that -- and I am saddened that this industry could let him and a lot of their other talent get away.

I've been having an exchange with Saga CEO Ed Christian, a man I've known for a long time, who is very unhappy that I've characterized him as part of the problem. Ed, it is fair to say, loves this business and thinks the bad guys will eventually fall on their swords and die. I agree.

But in the process the industry will die.

I chide him to speak out against his brethren -- fight for jobs, fight for local radio, fight for excellent programming. Take a stand -- say something in public. Obviously, Eddie doesn't see it that way which is why in my opinion he, and his consolidator buddies, simply swallow their tongues while this holocaust continues.

Don't expect to hear their voices as the outrage of incompetence and selfishness ruins the radio industry.

So, here's what I'm projecting next:

1. Some big groups will file for Chapter 11 bankruptcy to avoid paying the bills they cannot afford. There is no other way. The recession will get deeper and local radio revenues are flirting with 35-40% off in some markets. You can't run a debt-ridden radio group with no cash flow.

2. One of the "benefits" to radio groups in filing for bankruptcy will be not having to fulfill their obligation to pay severance, honor buyout agreements or fulfill employee contracts. This lightens their load as it does for any Chapter 11 beneficiary because in essence they can just walk from their obligations -- even to their loyal employees. (You can take this one to the bank, I'm afraid).

3. Guess what's happening to all those local advertisers who are being faxed dollar rates for spots? Or who is not being called on by their sales rep (because their sales rep has been fired)? A recession is a great time to offer solutions to retailers who could still be radio advertisers. The radio industry is firing their advertisers along with their salespeople. What a bad move at this time. And they won't be back -- at least not at the previous levels.

4. Cumulus, Clear Channel and Citadel are the three radio groups I think could be among the bankrupt by the end of this year.

5. You've probably sensed that radio unfortunately is no longer about attracting listeners. It's about cost cutting to pay debt service. So what is next is selling off assets. But there's one problem. No one wants to buy radio stations. Have you noticed how few are being sold? You can say money isn't readily available -- and to some extent that is true -- but when it becomes available again, stations will be selling for closer to their streaming cash flow value -- not a multiple even as high as 5 times. In other words, a fire sale.

So, with the next wave of employee firings at Clear Channel, CBS and the bottom feeders set to get underway, consolidators are continuing to loot their assets in a race against time that cannot be won.

They're broke and they know it.

Their banks know it, too, but don't really want the stations back now when they can't sell them for a profit.

Consolidators seem to find every way imaginable to rationalize firing the very people who could help them rebuild local radio. All they can see is cost savings -- not local revenue generation.

But this time, they missed something.

Something big.

This time, the consolidators are the ones who are screwed.

Mark my words -- can you say bankruptcy.

And through the magic of bankruptcy, this time radio consolidators have in essence fired themselves.

That's why they are looting the treasury while their stations rot away.

Consolidation is a game of greed and the greedy are now on their way out. It wasn't about diversity or building a stronger radio industry. That's just the bull the NAB, Congress, the FCC and the Department of Justice fed everybody in an age of deregulation.

Now that radio shares have become "penny stocks", it's time to realize that the only reason to gut your own business without the prospect of selling it for a profit is if you don't have future plans to operate it.

Fagreed Suleman must have popped the champagne corks yesterday as Citadel stock was up a whopping 27% -- who said he's incompetent -- from 11 cents to 14 cents in one just day!

The other day I wrote that consolidators didn't have a Plan B in case buying stations and building them up for eventual sale didn't work out.

As it turned out, they didn't even have a Plan A -- they just bought properties, added their free cash flow to the mounting debt and assumed radio would always be a hot market segment.

Clearly, radio -- as well as many of today's troubled U.S. industries -- was only viable before ownership changed hands from seller to buyer.

Without skills to operate you get incessant format changes, no innovation, mass execution of radio's extensive talent pool, hogtying capable managers, top down corporation management and arbitrary budgeting based on what the company needs to service their huge debt.

None of this can or will change.

So may I suggest that the next round for firings should include all the CEOs of radio companies whose public stock has declined by 50% under their management.

And I'm being generous because many of radio's finest have lost more than 50% of their company's value before the current recession.

Radio CEOs may have a hard time accepting that old saw "the buck stops here" but they'd find it hard to argue with the wisdom that the fish stinks from the head.

For those of you who would prefer to get Jerry's daily posts by email for free, please click here. IMPORTANT: First you must check your mail or spam filter to verify your subscription immediately after signing up before daily service can begin.

Thanks for forwarding my pieces to your friends and linking to your websites and boards.