At the end of each playoff round, after tough competition in which sticks come up high and bodies take a beating, the players line up and shake hands – one of the marvels of sports.
Not so in radio.
Last Friday, Citadel CEO Farid “Fagreed” Suleman showed the industry why he lives up to his nickname “fa-greed” by unilaterally cutting off many non-Citadel affiliates from their 24-hour ABC format specific programming without consideration to what these paying clients were going to be left with.
The personalities that they built their local stations around were gone in another bad decision – just like that!
One of my readers hit the nail right on the head when he said,
“Farid's brilliant move of firing network people who were long-term talent on the satellite formats has caused a firestorm across the country. Most of the stations affected were medium and small markets and a lot....a whole lot... of owners are really pissed. What a stupid thing to do. It just shows that he has absolutely no understanding of the business he's running. This is the opportunity of a lifetime for Dial Global to pick up more affiliates and some excellent talent. I hear they've been on the phone with about-to-be former ABC affiliates all day”.
It’s hard to imagine the old ABC Radio Networks pulling a stunt like this in their Cap Cities days. In fact, didn’t networks and program suppliers used to solicit the business of affiliates? Now, this guy seems not the least bit concerned that he’s burning his former clients on the way to Citadel's bankruptcy.
FCC Commissioner Michael Copps is sounding like he wants to return to the days of yesteryear and get tougher with license holders and of course, the big x factor, bankruptcy, is coming to a consolidator near you within months.
This begs the question, what is Fagreed going to do next?
Here is my view of Citadel’s options and to borrow a phrase from the Drake programming book, let’s present Fagreed Greatest Hits counted down in order (is there any other way for a Drake PD to count something down?).
1. Fagreed will do more housecleaning before the end of the year. After all, he’s currently negotiating a pre-packaged bankruptcy with his lenders. They not only want controlling ownership in the new company but they want a new company that looks like, acts like and smells like a venture capitalists dream. That is, few employees, lots of cash flow and assets for them to sell off when the market gets better.
2. More dumpster programming – the kind only a bean counter like Fagreed could embrace. I hear he doesn’t like to call the paid programming in PM drive on KABC paid programming. Well, get ready for more of it. This really offends the survivors at Citadel because it is, frankly, embarrassing to them. They know how to run radio stations, but running stations are not what the next few months will be about. You may fatten up cattle before you slaughter them but in radio, Citadel slaughters its talent before they turn their company over to lenders.
3. I fear for ABC. Fagreed overpaid for these great stations and some of them actually still sound excellent in spite of the CEOs interference. But I think the jig is up. Investment banks don’t know squat about our proud heritage of ABC stations and don’t care. I think it could get ugly at these last holdouts from Fagreed’s knife. It is not impossible that you won’t know the difference from an ABC station and a run-of-the-mill Citadel repeater station.
4. Once Fagreed has whipped his Citadel and ABC properties into proper form for investors turned operators, you’ll hear an announcement that Citadel is headed to bankruptcy court with a pre-packaged deal to be blessed by a judge. At the end of one single day, power transfers to the lenders but Fagreed is doing their business right now. After all, he’s available to remain CEO of the company he ruined. This is tantamount to the inmates running the prison.
5. Once power changes hands, Citadel stations will be run like windmills generating electricity. There’s not much to them, but their new owners will expect the free cash flow to keep coming. After all, the massive debt will have been erased – eaten by the lenders – and there will be no excuse for not making their numbers.
2010 will be the toughest and ugliest year for radio -- sorry to say.
Citadel will go bankrupt first. Then Regent is likely.
Clear Channel has more trouble than you know – or they are admitting. It appears some of the companies biggest lenders are trying to take control of the Evil Empire’s outdoor division – putting a squeeze on their cash flow that could make them say “uncle” – at least that’s what those nice folks on Wall Street trying to do.
The New York Post reports:
“According to sources familiar with the matter, Leon Black's Apollo Management and Blackstone Group's GSO Capital are quietly buying up shares in Clear Channel Outdoor, the financially struggling company's publicly traded outdoor unit, in order to crimp the parent company's ability to keep using the outdoor unit as its personal ATM”.
Clear Channel is entering its fourth restructuring of debt – unsuccessful in their first three.
The Post reports that Apollo and Blackstone may be buying up Clear Channel Outdoor shares to gain a leg up on negotiations over Clear Channel’s debt.
Clear Channel Outdoor owes Clear Channel $2.5 billion in a loan that matures
next August so if creditors can seize control of CC Outdoor that may influence the parent company.
The Post reports:
“Just this week, the company in a filing said it may make a fourth attempt to pare down its debt, either by buying it back or swapping some of its loans. In the filing, the company suggested those deals could be "material" in size. Time is not on the company's side: Clear Channel this week reported that the debt-to-cash flow ratio on its senior loans rose in the third quarter to 8.8 from 8.1. A ratio of 9.5 violates the terms of those loans, and given the state of the radio sector, some speculate the company could default”.
Finally, Cumulus, also has considerable debt obligations and a slightly longer window in which to turn their company into a pre-packaged bankruptcy kind of player.
Clear Channel, Cumulus, Citadel and the other nearly broke radio companies are sadly playing good and talented radio people for fools as they protect their own necks.
But the ones who are in for the biggest surprise are the top management folks at these major companies.
Let me put it bluntly.
Turning radio stations into real estate not local radio is actually hastening the demise of their own businesses.
While you won’t read this elsewhere I’m going to give it to you straight -- the stations that are now being run down for the last time are going to eventually be sold by lenders – I mean operators or whatever they are – and they are not going to like the multiples.
Write this down – 2 to three times streaming cash flow.
As we used to say in Philly, you heard it first on WFIL.
Thank God for fees because without the many fees these snakes in the grass will continue to earn, they would be stuck with empty buildings, lost sales franchises and vanishing listeners.
That may not sound like good business to you and me but it’s standard operating procedure for investors who often make their money not by succeeding but by failing.
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