The first cut isn’t the deepest – at least not in the radio industry. What we are about to witness is going to be.
This is not idle speculation.
Wells Fargo’s Marci Ryvicker, one of the few major bank analysts still covering traditional media this week predicted another round of major cost reductions based on the poor results and warnings that have been made anticipating third quarter declines.
Traditional media companies in Q2 were off 15-20%, but the average radio company was down in the 20-25% range. Some analysts think these same radio companies would have a hard time doing much better as the third quarter results are revealed.
Ryvicker is warning that the cost cuts are likely to be substantial but she expects radio CEOs to put on their happy faces as they speak of deleveraging their debt, cutting costs and asserting that some important advertising categories are coming back like auto spending.
She is more optimistic on CBS’ prospects this quarter but that is tempered.
Marci is good, but she’s a bank’s analyst. Good with numbers and relying too heavily on sketchy information fed to her and her compatriots by the very CEOs who are pulling the wool over on everyone else.
Here’s the real deal:
Cumulus, Clear Channel and Citadel – the big three and most powerful radio companies will cut personnel and expenses in the months ahead.
Sooner rather than later and yes, using their customary Merry Christmas holiday timing.
Clear Channel will likely offer the best severance for some (not all) of their victims. Citadel and Cumulus will live down to their reputations of being two of the worst radio companies to work for. See a full list here.
But there’s more.
Did you know that Cumulus has been firing market managers, salespeople and other local station executives the way a serial shooter fires at their victims?
Repeatedly and without let up.
What Cumulus has been doing – hoping to stay out of the headlines – is to move slowly but continuously from market to market and relieve itself of staff. That’s why Cumulus employees like to see John Dickey or Gary Pizzati arrive in their markets as much as they like to see the Grim Reaper. Actually, they’ve got more of a chance with the Grim Reaper.
But once the Cumulus death squads arrive, someone often loses their long battle with employment.
Clear Channel fired so many people in their mass assault on staff a year ago that they couldn’t possibly equal such career destruction again – or could they?
Citadel, in my opinion, has an almost fatalistic approach to cost cutting – that is, sacrifice anyone but CEO Farid “Fagreed” Suleman, the architect of their failed media plan.
You may remember the reverse Morris Trust deal that Disney insisted on when it got Citadel to pay $2.7 billion for the ABC stations and radio networks. Disney walked away with $1.6 billion in cash at closing. Disney put the company into a “shell” corporation for tax purposes one step before Citadel Broadcast Group became Citadel Media.
Some 52% of the ownership went to Disney shareholders but Disney will not get the stations back should Citadel default on their loans. What is likely is that the Disney shareholders will get the same screwing Citadel Broadcast Group investors got – 4 cents a share or less.
You can see why Round Three of radio cuts will be the most devastating for the industry. Let’s not forget that any firing (especially at holiday time) has tremendous personal implications – considerations Wall Street makes short shrift of.
So, what will happen?
1. Cumulus will continue its methodical execution of broadcast careers and work around-the-clock if necessary to get the company to become a simple series of towers and transmitters that can be virtually programmed by Atlanta, marketed through Harvard-style new age cockamamie radio sales logic and run on the cheap by the few, the shamed, the Dickeys.
2. Citadel will cutback not only in personnel but in assets to run the existing radio stations. Keep in mind Citadel owes $150 million in its next debt payment due January, 2010. And as I have said previously, I think Fagreed is working on a deal to trade the company’s debt back to the lenders for equity -- in effect turning over control to the banks. Banks are even better at ending careers. Citadel will not be a pretty place to work in the next six weeks.
3. Bonneville, in my opinion, is not stupid enough to buy Citadel’s ABC stations. They, Emmis and Entercom were among the original interested buyers but Emmis and Entercom came to their senses. I don’t think Bonneville’s Bruce Reese is going to buy even a single ABC station right now. The fix is on to turn Citadel debt to equity and as Cumulus CEO Lew Dickey once said to me about his competitor, it will operate business as usual. And you know what usual is – firings, cutbacks and more repeater radio.
4. If I’m a salesperson right now, I’d take a long vacation and not answer my phone. I think salespeople are a soon-to-be extinct breed in a misguided industry that thinks less is more. Of course, every station should be hiring account execs and training them. My sense is there is a sentiment epitomized by Lew Dickey to create a virtual, new age sales approach to radio. This is tantamount to another recession for companies that think this way, but it’s Dickey’s company and others are following.
5. Clear Channel didn’t cut CFO Randall Mays’ job to save money. Hell, they are paying him for several more years to do virtually nothing. That salary is around a half million dollars – enough to keep more good Clear Channel people working. What I think you’ll see from Clear Channel is no “blood bath” this time – they never lived down the last one in the press. But a blood letting – combining jobs (yes, they can still find ways to do this – how, I don’t know). It will be continuous and will have more of an impact in future quarters than now – which brings me to this conclusion ….
The real reason Clear Channel, Cumulus and Citadel are going for a third round of deep cuts is not to escape their poor performance but to set the table for a rebound when the economy rebounds.
Think about it.
None of these groups can cut anywhere near enough expenses to be even a pimple-sized dent in another quarter of 20-25% losses.
But, as they say on Wall Street, their balance sheets will look awfully nice when the billing returns and their overhead is already cut way to the bone.
See? And you were thinking they wanted to be broadcasters.
Oh, one more thing.
Don’t tell John Hogan (Clear Channel Radio President), Dickey and Suleman that the media world has changed since radio first ran into the recession.
New media is now taking increasing amounts of ad dollars from radio – and even posting increases in quarter by quarter statistics during the recession.
Radio is not in new media – in fact, radio skipped the Internet, mobile and social networking revolutions.
So, now you know the proverbial rest of the story.
More deep cutbacks to sharpen the balance sheet for what they anticipate will be a turnaround.
Escaping by the hair on their chinny chin chins from too much debt by giving up operating control of their companies to bankers that hold their debt.
And no concept of what new media is.
If it’s going to be a bad holiday at your house because three Grinches stole Christmas, wait until Dickey, Suleman and Hogan find out what’s in their stockings.
Nothing.
Absolutely nothing to build a future on as they once again trade immediate gratification for growth by adding to the thousands of people they have been firing for the past few years – the very people who can rebuild their business.
Apple is not firing anyone and you see how they are doing.
My rule of thumb is – companies that hire are on fire.
Companies that fire are dire.
For those of you who would prefer to get Jerry's daily posts by email for FREE, please click here. Then look for a verifying email from FeedBurner to start service.
Thanks for forwarding my pieces to your friends and linking to your websites and boards.
