Cumulus Is Radio's AIG

Okay... okay.

AIG took government aid and then paid $165 million to a handful of executives to retain them -- eleven left anyway. Great use of taxpayer money as the government props up the financial sector.

But Cumulus (and other consolidators) took their shareholder's money, delivered sub-par results, ran the stock into the ground ($1.02 as it closed yesterday) and -- continues to pay its top executives for failing.

If that's not a great example of radio's AIG, then I have another one for you.


Or Clear Channel, Regent, Radio One, Entercom -- the list is seemingly endless.

Morningstar, the stock rating service, issued a bankruptcy warning for Cumulus for their mismanagement. Seems like their appetite exceeded what they could eat when Cumulus bought the outstanding Susquehanna chain for $1.2 billion in 2005.

I get it.

Cumulus was a small time operator and wanted into the big time. And 2005 was light years ago when debt was real easy to accumulate.

Seems like shareholders keep propping this company up and there is much danger to beware of. According to Morningstar analyst Tom Corbett, a radio man who crossed over to the financial side, Cumulus isn't in immediate danger but profits will have to stay within a certain range of its debt or it won't be able to spend money to compete and rebuild.

So, let's get to the heart of the problem -- The Dickeys.

Look, it's not personal. Lew Dickey has always been nice to me. It's about Lew and brother John's stewardship over Cumulus.

For example:

Both of the Dickeys together own just 18 percent of Cumulus' common stock, but having dominant power when it comes to shareholder votes.

And as a recent article in the Toledo Blade pointed out:

Lewis Dickey, Jr., owns all 1.1 million shares of a special Class C stock, which for shareholder voting purposes counts as 10 votes for each share. Together with his brother John, who has 6.9 percent of the voting stock, and their father, Lewis Dickey, Sr., who has 13.2 percent of the voting stock, the Dickey family controls 51.1 percent of the company's voting stock.

Lots of luck getting a management change.

But radio is just a microcosm of what is wrong with American business.

The Cumulus debt is $700 million. Revenues are declining. Cumulus' fourth quarter revenues were down 11% and Cumulus was lucky to get away with a 5% decline for the entire year.

Lew Dickey came up with the idea to fire 260 of its 3,700 employees but never looked to his own salary as being exorbitant.

Think AIG -- bonuses to retain employees that totaled $165 million of taxpayer money while they are begging for money.

Radio's version of AIG -- Cumulus "imagineered" an $8.5 million contract signing bonus last fall, in the form of deferred shares, that was retroactive to the firms money-losing 2007.

Then recently the shameless and tricky Lew Dickey was "awarded" a $500,000 cash bonus and 320,000 shares of common stock for his 2008 performance as CEO. We're still waiting to see what his other compensation was for the money losing year of 2008.

Bet Lew Dickey didn't lose money.

So let's look to Morningstar's Tom Corbett to crunch the numbers just in case anyone is feeling sorry for the poor consolidators: "His base salary went up by 9 percent in 2007. With stock awards, his compensation went up by 102 percent".

Obviously, Tricky Dickey's compensation managed to go up -- if you will agree that a 102% increase is up -- while his company's performance under his control went down. He received a base salary of $901,250 in 2007, and an $11,500 automobile allowance and $1,476 for a life insurance policy.

His brother, COO John Dickey earned $570,000 and a deferred stock bonus worth $590,400 in 2007. Last year, John Dickey received a $165,000 cash bonus and 70,000 shares of common stock. And yes, we're still waiting for his other compensation to be disclosed.

The only dumber people are the Cumulus investors who are making all of this possible.

For some reason or another radio people like to think they live in their own world.

The Internet isn't killing them. Who needs those Gen Y kids anyway. It's the recession that's killing radio -- not the several years of decline that occurred when the economy was still healthy.

Radio is simply a reflection of what is wrong with American business and finance.

• Lived high off the hog for a long time.

• No oversight.

• Powerless boards of directors.

• Running their debt up to afford the riches of the day -- in Cumulus' case, the billions for Susquehanna's 33 stations.

• Cutting back and blaming it on the recession.

• Failure to fund the very innovation that can lead them out of the hard times.

So, while RAB CEO Jeff Haley tells the sales executives at their annual meeting, "We're still here", it's no thanks to the shenanigans of what has come to be accepted as the American way of doing business.

AIG is just CumeYouLess -- less money for your investment dollar with shareholders getting screwed instead of taxpayers.

Shitty Bank is just Clearance Channel -- less is more like what the company will be worth next year.

Morgan Stanley is Citrucel (aka Citadel) -- it helps you become more regular and makes your investment "go".

Look, we've been having a little fun at the expense of the aristocracy of radio.

There is no denying that the radio industry is mimicking the greater economy in all the wrong ways. I've been kicking around some ways the radio industry could actually come back and would be happy to share them with you in the coming days.

It's not by putting up more Internet streams of terrestrial programming and paying through the nose for music royalty fees.

Not by firing local staff and moving towards nationally-run Repeater Radio.

Not by cutting the sales force when they badly need more revenue.

Not by refinancing an already burdensome debt by paying even higher interest rates on the borrowed money.


Radio can come back by innovating -- the one word you never ever hear mentioned and without which there can be no future.

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