The Cumulus Path to Peak Strategy

It’s hard to figure Lew Dickey out.

He’s a very bright guy who, in my opinion, over the years has gotten hard headed when it comes to adapting to new ideas and trusting radio professionals who are qualified, working and on the ground.

Take Lew’s Path to Peak strategy (as he calls it).

Employees will tell you that this is the thing he and his minions are trying to beat into the heads of his managers. It’s Lew's brainchild but Gary Lewis and Gary Pizzati, his loyal partners, are on board.

You create a path back to a station’s peak years looking to return to the revenue that existed previously.

That’s a good thought except that we have had a recession, hundreds of managers and sales execs have been fired and new media has taken off not just with youth (who companies like Cumulus have by and large ignored) but with older demographics as well.

Here’s how a person familiar with Path to Peak describes the game plan:

“Send out to all the markets the amount of 'capture and hold' new revenue they must acquire every month to get them back to peak billing within 24 months. That's on top of your current budget. It's really quite marvelous math work, that makes it look so easy. If you would just capture and hold (the hold being the most important) an extra $5,000 a month, you would be back to your peak in 24 months”.

Simple enough except there is no new investment in on-air product or for that matter retention of personalities popular with local advertisers.

Nor is revenue from new digital media a potential contributor because Cumulus, like other major radio groups, does not budget even 3% of its total operating budget to new media.

Path to Peak appears to be built on the simplicity of getting salespeople on the streets and talking to their advertisers. As incredible as this may seem to other groups that would never talk to advertisers in such a demeaning way, Cumulus allegedly wants a face-to-face conversation to take place where the salesperson explains to the struggling local business that Cumulus has been carrying THEM for the last two years.

Here's how an insider explains the directive:

“We've made price concessions and lowered our rates to be accommodating to their needs in the tough economy, so they should appreciate that fact and gladly pay more going forward. But John (Dickey), my ratings are down less than half of what they were back then. Doesn't matter, it's about rates and more "coverage" (people) in the market”.

So you can’t argue with the sentiment, let’s get back to our peak earning years before the recession, but what is apparently not going down well with some Cumulus people is that the company has created the very impediments to increasing the billing over the new few years.

I am told:

“All Cumulus employees are required to sign an "exclusive employer" agreement. Meaning while you're working for the Cumulus empire you will not work for anyone else”.

Asking employees who feel they are working for a mean-spirited company to sign a non-compete is a tough task even when these very employees presumably need a job. Even that is changing. Saga is hiring excellent Cumulus people away as Cox has done. Many disgruntled Cumulus employees tell me that getting out is on their “A” list this year.

Bonneville, the antithesis of Cumulus in employee relations wins enthusiastic cooperation on all corporate edicts. Plainly put, Bonneville employees trust their employers.

In addition to the human relations tough stuff at Cumulus, the seemingly unfair compensation standards that the Dickeys apply to themselves that their employees do not enjoy sticks in their craws.

For example, on the top of page 16 of the Cumulus 10-Q this little -- discussed gem:

" In March 2010, the Compensation Committee of the Board of Directors reviewed the three-year performance criteria established in March 2007 for the 160,000 performance-based shares of restricted stock awarded to Mr. L. Dickey on March 1, 2007. The vesting conditions for those restricted shares required that the Company achieve specified financial performance targets for the three-year period ending December 31, 2009.

"The specified threshold was not achieved, however, the Compensation Committee determined that in light of the unprecedented adverse developments in the economy in general, and the radio industry in particular, it would be appropriate to modify the performance requirements and extend the vesting period so that Mr. L. Dickey would retain the ability to achieve vesting on those shares of restricted stock if the revised performance criteria is achieved.

"Effective as of March 1, 2010, the terms of Mr. L. Dickey’s 2007 performance-based restricted stock award of 160,000 shares were amended to provide that those shares would vest in full on March 31, 2013 if the Company achieves specified financial performance targets for the three year period ending December 31, 2012”.

It goes on and on but you get the idea.

Some Cumulus employees feel that “Market Mangers, sales managers, and local staff's are terminated for not hitting their numbers. But when Lew misses his goal, the compensation committee determines that in light of the unprecedented adverse developments in the economy, it wasn't Lew's fault and he should be given the bonus anyway.”

Family fiefdoms are not new to radio, but when a few relatives get investment bank financing anything is possible.

Except winning the cooperation of your management and sales staff when you so badly need it.

The lesson:

No matter how smart you are or think you are, without the enthusiastic support of your people you eventually will be at their mercy.

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