Radio Bankruptcy Fireworks


How do you get rich in radio?


Be born into Cumulus' Dickey family.

Or be the children of Clear Channel founder Lowry Mays.

Or the adopted "son" of Citadel's Teddy Forstmann as it appears Farid "Fagreed" Suleman is.

Or the biological son of a New York cab driver like Mel Karmazin.

Okay, that was wrong. Mel earned his wealth. He wasn't born into it. But the others ...

I mention all of this for two reasons.

One, it was just the Fourth of July and hot dogs were on the menu this past weekend.

And, two -- don't choke on one when you see what's going to happen to the radio industry in the second half of this year.

For context, keep in mind that the same suspects are still running consolidated radio groups. That's right, most everyone who was in place for the original pillaging of the radio industry is still at the helm -- although now they are crying poor mouth.

So as if being born to the Dickey or Mays families was not enough -- or being the son of, say, Radio One and Done founder Cathy Hughes -- not to worry.

The fix is in.

You can't kick these guys out of office even if they happened to be in a sex scandal with an Argentine television reporter. In fact, their boards would probably give them a raise for broadening the company's image in South America. Plus, the right to buy stock at today's price -- two cents.

Radio CEOs have what everyone else in radio does not have -- job security.

And it doesn't matter how bad a job they are doing or how much money they've lost their shareholders, they take a licking and keep on ticking.

You may not hear a lot about it, but the hand-picked boards of directors that oversee the major radio groups are puppets. Can you name one time when a radio board ever stood up to even one of these CEOs -- all of whom have driven their companies and the sector into the ground?

You could overthrow Hugo Chavez sooner than you could oust Cumulus CEO Lew Tricky Dickey.

Citadel has about as much board oversight as the election in Iran.

Clear Channel is one screwed up company -- private, but publicly looking for an exit -- and the workout firm of Lee & Bain rule with the iron fist of a junta in Honduras.

Radio has become a banana republic -- and I'm not referring to the retailer by the same name at America's shopping malls.

Put down your burger, dogs and corn on the cob, I don't want you to choke -- but over the next six months you're going to see radio groups like these get taken down -- not by their boards, not by their shareholders, not by the recession.

There's no bloodless coup.

No, they're about to topple because they've pissed off their lenders.

Take Lee & Bain and their tinker toy, Clear Channel.

A San Antonio newspaper had the audacity to criticize their hometown monolith recently when they wrote a piece that in essence said lenders are ready to call the loan and want to force Clear Channel into bankruptcy to get what they can from this once mighty radio group.

I interrupt this news bulletin to assure you that Lowry Mays, Mark Mays, Randall Mays and everyone with Mays after their first name is doing just fine after profiting from several previous sales of the company.

The demise of Clear Channel has become more apparent lately even though some of us saw it earlier.

You don't piss off your lenders.

Obviously not paying back loans in a recession pisses off lenders.

And, bankruptcy is something lenders like to avoid because it forces them to put their fate into the hands of a bankruptcy judge and they usually wind up with pennies on the dollar.

Imagine that -- lenders would rather take chump change instead of giving Clear Channel another stay of execution.

The reason for this -- as incredible as it may seem for the rest of us is -- lenders don't want to be in the radio business and don't want to take back the stations they funded. They're not worth today what they were when they were purchased.

That's how bad consolidators have screwed things up.

And the firings, cutbacks and move away from local radio isn't a strategy that will work -- as we are witnessing now.

These guys are in a bunker in San Antonio -- waiting for the roof to fall in (so to speak).

Over at Cumulus last week, CFO Marty Gausvik jumped ship and if you think the water was chilly you should have read CEO Lew Dickey's one line statement: “We appreciate Marty’s contribution to (the) Company and wish him well in his future endeavors.”


When you kiss butt for all those years you think you could get a sincere sounding farewell. Gausvik got the terse Wall Street bye-bye.

Gausvik was replaced by an employee from Cintas Uniform company.

Okay, that's a lie, but you believed it, didn't you? Because it seems every new manager Cumulus is hiring comes from outside of radio and specifically, Cintas.

Actually former Lincoln Financial CFO and Regent board member J.P. Hannan was hired to replace Gausvik.

This is a mess.

I thought Citadel would be the first radio group to breach its loan covenants and go into bankruptcy, but it could be that Clear Channel will be first. And that would be a disaster. The sector's number one group in Chapter 11.

Not good.

Stations that would be sold off would go for face value or 2 or 3 times cash flow at best. And that's if buyers could fund the acquisitions.

A time of great turmoil is ahead for the radio industry.

And while we all get caught up in the repricing and reselling of radio, no one is watching that new media is exploding and radio's future is really limited without a significant commitment to a digital business.

So, it was the Fourth of July -- you expect fireworks -- so here it is:

1. Clear Channel and Citadel could snap at any time -- probably by year's end or the first quarter of 2010 and it's going to be ugly.

2. Cumulus just escaped execution by renegotiating its debt in unfavorable terms that will give it perhaps another year or two but will be virtually impossible to service without an influx of cash or the radio industry suddenly turning into the cell phone business.

3. Lesser radio groups -- bottom feeders -- are also subject to bankruptcy. Once the big banana goes limp expect the smaller groups to follow.

4. The new world order for radio will be good groups like Bonneville, Lincoln Financial, Cox, Greater Media -- among other smaller companies -- as the new leaders. Life will not be easy for them after their sector is ravaged by widespread bankruptcy. No assurances of a future can be made even for these well run groups.

5. A relatively debt-free company such as Saga will survive but, again, must compete in a landscape that will be scorched by bankruptcies. Their future precariously rests on their ability to remain live and local and to embrace a digital future where real revenue can be generated. Most radio groups are clueless about the digital beyond.

Just as fireworks peter out after their brilliance dims, there are also a handful of consolidated radio groups that are going to fizzle the same way -- not because they are incapable of being brilliant, but because they couldn't pay the debt on what they purchased.

Years ago when I was teaching the Dale Carnegie Course back in Cherry Hill, NJ, a man walked into the classroom at the Sheraton Hotel on Route 70 -- he was late. I didn't recognize him as a class member and it turned out that he was visiting my class to make up a session that he had missed.

I stopped what I was saying to the class in mid-sentence. Welcomed the gentleman to Cherry Hill. Walked down the aisle and extended a handshake to make him feel at home.

To my surprise, he had two fingers on his extended right hand -- the rest were casualties of a fireworks accident. He worked for a pyrotechnics company as it turned out.

I recall that image now as I think of our industry.

Consolidated radio's legacy beyond the destruction of local radio as we know it will be that it played with fireworks and it blew up in their hands.

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