Radio Acquisitions: Cash for Clunkers

Now that there is a little bright light at the end of the economic rainbow, we will likely enter an era where consolidated radio groups -- hopelessly burdened with debt -- will be able to sell some of their stations.

It's happening already -- as witnessed by Larry Wilson's deal to steal the four-station Portland cluster from CBS Radio for $40 million to add to the two he acquired from Paul Allen for $11 million there.

Wilson, you may remember, founded Citadel and sold it to Forstmann Little, the people who then brought you Fagreed Suleman and the billion dollar acquisition of ABC which he then proceeded to run into the ground.

So, Wilson outsmarted the big boys once and it looks like he's off to the races again.

The bigger story -- to borrow a popular auto industry term right now -- is that investors who have been waiting on the sidelines for this moment will be spending cash for clunkers -- stations that consolidators ran aground or neglected through budget cuts.

I don't mean any disrespect to the Portland stations that are transferring to Wilson -- God knows, they've done a great job considering headquarters wanted to sell them. And by clunkers I don't mean that radio stations are any more diminished in their brands than, say, Cadillac is for General Motors.

Still, if these stations were doing well, they would be selling for a premium -- or not at all. For that matter, if radio had a bright future, the Mays family wouldn't have exited stage left in a hurry.

What's really going on is that radio is being repriced.

I am surprised that no one ever tried to sue the consolidators and their enablers -- investment banks -- for knowingly running up the price of radio stations during the initial phase of consolidation.

Think back.

Did it ever occur to anyone that consolidated buyers were only too happy to overpay for radio stations back then? Some markets once saw stations selling for in excess of $100 million.

Look, I think radio is great and was particularly good back then, but $100 million for a radio station?

Are they on crack?

The multiples used to value the acquisitions were trumped up. Pure fantasy.

They wanted to pay inflated multiples and risk taking on impossible debt service, because they fantasized about cutting costs, tucking in a few concert venues and outdoor companies (you get the idea) and reselling the entire thing for an even ungodlier profit.

Too bad they were so incestuous.

Radio was never that big a business -- a good local one to be sure, but never consolidation material. Can I say that radio consolidation could have never worked no matter who consolidated it because radio is a local medium and its strengths do not coincide with national management platforms?

We know that even if Dickey Do, Fagreed Suleman and John Slogan Hogan do not.

Look no further than the latest Best & Worst Groups in Radio for evidence. Click here to see the latest Inside Music Media poll results in real time -- scroll down the right hand column to see who's the first Worst.

Our elected representatives came up with the popular Cash for Clunkers funding to help consumers retire their old inefficient cars for credits to purchase greener ones. The program was so popular, Congress had to re-fund it with billions more. And apparently it worked because auto manufacturers are selling their way out of a long sales slump.

Unfortunately in radio, Cash for Clunkers can only work if private operators can pony up the money -- a risky deal in light of radio's fading future and dim prospects to attract a next generation of listeners.

The real clunkers are the Wall Street investment banks who raped the industry and artificially ran up the values saddling ignorant front men with the debt they are choking on today.

When I read about Congress' talk about bailing out minority radio companies, I have to smile. All radio groups are minority companies in a sense because the major principal is some non-caring, uninformed figurehead transmitting pap over the airwaves to save money.

So, let's take a realistic look at the future.

1. CBS President Les Moonves is salivating over the potential of unloading some more CBS radio stations. He'll get his wish. He's the only real seller so far and the prices he's getting look like they are from a desperate man.

2. No major groups will change hands.

3. Bankruptcy is still on for Clear Channel and maybe even Citadel because neither is poised to offer the content or sales blitz needed to maximize an economic recovery. And remember, they still are at risk of violating their loan covenants. The lower fruit is already beginning to fall to the group -- Mega filed for Chapter 11 yesterday.

4. In fact, the feeling of a recovery might make the banks more willing to foreclose because they may get more money for selling stations to anxious buyers who want a crack at succeeding where consolidators have failed.

5. Individuals and small groups could buy back in but as I have said many times, this is a fool's game. Radio is over as we know it. It certainly is never going to be a growth industry again. The geniuses running the major groups sat out the Internet revolution and are now ignoring the mobile phone explosion leaving themselves or the suckers they attract as buyers -- old fashioned terrestrial radio stations aimed at a disappearing audience.

6. Buyers with Cash for Clunkers are not stupid, they just love radio. They think, "this is my chance to buy in to the business I have always loved at a reasonable price". That part is right. Number 5 (above) they will ignore, I promise you. If they paid attention to it, they would be slower to invest in a horse and buggy business in the age of space exploration.

7. Nothing I have said here will stop the Second Screwing -- the next stage of destruction is about to happen. Radio execs with some funny money have more need to squander that money on radio than today's audience needs to listen to it.

8. And if you're thinking that these rescuers of abused radio stations are going to return to the good old days of 100% live and local programming, no voice tracking or Repeater Radio, sales initiatives that solve problems for advertisers not just run spots and blow up those self-destructive long commercial clusters and put personalities back on-the-air (whew -- I'm out of breath!), you would be wrong. The genie is out of the bottle. Radio will remain by and large the product (or victim) of consolidation. There is no wholesale going back.

The future of communications will likely center around the mobile phone and mobile devices. I'll tell you more about the Apple tablet which is due on the market soon that I think is going to be even bigger than the iPhone.

All this said, the best road for anyone who absolutely insists on buying a "distressed" radio property today is to buy it at the right price with little or no debt.

Buy them to run them -- live and local.

Radio produces tons of cash flow but as we are seeing does not produce enough to satisfy consolidators drunk with debt service because they were hoping for a killing.

And, perhaps the most important caution is: get working on new media.

Radio talent transfers easily to new media even if radio formats do not.

Blowing up, say, KFWB's news format as another excuse for a mostly syndicated talk station is today's poster child for how pathetic radio has become.

Like there's no live talent in LA -- no local personalities, no news.

The only future for radio is its people who will leave the rubble of terrestrial transmitters and towers behind and take their skills to the digital beyond.

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