The Upside to the Clear Channel Crash

Let's see. Newspapers? Check. Local TV news? Check. Gargantuan radio conglomerates? Ditto, check.

Even civilians have caught wind of the looming collapse of the $19 billion deal that would have placed Clear Channel Communications, the Jabba the Hut (or Darth Vader, take your pick) of twenty-first century electronic media in the hands of a couple private equity firms (one of them being Bain Capital, ex-candidate Mitt Romney's personal profit engine). The basics of the sale were worked out in 2006, back when the smartest kids on Wall St. were making fresh fortunes every other day by swapping low-collateral debt with each other. With taxpayers now picking up the tab for this latest exercise in "free market" dynamics, the giant banks that once agreed to finance the deal now have feet so cold they could re-freeze the ice caps.

Threats of lawsuits are flying as banks are trying to back out without looking like they're backing out, and Clear Channel's royal family, the Mayses (chairman, CEO, and CFO), who has watched its stock drop from $90 a share in 2000 to something like $25 as you read this, is talking about wreaking "immeasurable harm"—via a blizzard of lawsuits—on the bankers who were its closest, coziest bosom buddies up until a couple months ago. (The current deal called for a price of $39.20 a share, which some other very smart dudes on Wall St. thought much too low.)

Having followed (and worked for) Clear Channel for a long (very short) time, I'm tempted to say it couldn't be happening to a nicer bunch of guys. If ever a group of sharks deserved to have their dorsals ripped off, it's this crowd. The Clear Channel ethos, which requires bland-to-monotonous content and constant cutting to profit to deliver the kind of baronial ching the Mayses and other investors feel is their genetic due, is very much a model for other competitors in the big media game. (Can you say, Avista Capital Partners?) Although small investors have taken a bath in Clear Channel's dreary performance, this public-to-private deal would mean yet another monster payday for the Mayses, who took it public only a few years ago.

Here's a good backgrounder.

Any who, looking for some deep insider insight of how this clash of the titans (Clear Channel v. Citigroup, Credit Suisse, etc.) might effect us here in the Twin Cities, I dialed up someone with, um, "familiarity" with the characters and strategies in play. Someone with vast experience in the Twin Cities media game. For perfectly understandable reasons, this gentleman, whom I'll call "Bentley," asked that his identity not be revealed.

"This is just like every other industry out there," Bentley says. "It's just like newspapers. The time has come to take a major haircut, and the people with money in the game are getting a pretty serious cut."

"Personally, I don't see how Bain recoups their money on this thing. I mean, what do they do? Do you force the banks to lose money? Radio is not strong right now. It may come back. But I think Clear Channel's outdoor group is the part of the company with a future."

Bentley likes the cash potential in those crisp and eye-catching electronic billboards. "Seven times the revenue off a single board!" he practically shouted, terrifically excited by that kind of resource exploitation. (Clear Channel has nearly 1 million outdoor signs worldwide.)

"Outdoor is appreciating. Radio is depreciating."

But what about Clear Channel's Twin Cities properties? KFAN, Cities 97, K102, KTLK, KOOL108, The Score 690 and KDWB? Does Jabba sell off any of those?

Prior to the banks turning tail and running, Clear Channel had begun selling off stations in smaller markets with the idea of concentrating all their, uh, "resources" (i.e. profit squeezing) on major markets, such as Minneapolis-St.Paul. Will a desperate Clear Channel sell off any of the "Twin Cities 7"?

"Don't know. Can't say," Bentley says. "What I think is that radio is a local business" as opposed to a local business run by computers and consultants in Texas. "I don't think they'll sell large market stations anytime soon. I'd think they'd try to ride this out in the courts as long as they can, another year maybe."

There are rumors around town that he, Bentley, might be positioning himself to bottom feed at a Clear Channel fire sale. Maybe Jabba doesn't sell K102 or Cities 97. But weak sisters KOOL108? KTLK?

"Well, there's no way they're going to sell 'em alone. There won't be any cherry picking. If they get to the point they think they have to sell, they'll get more by selling the whole group or in a package."

So horse[bleep] as revenues are now and with no simple answer to Internet and iPods, Bentley would get back in the game? (He loves the sound of this. It's like asking a politician if he's considering running for president. The mere question is an act of supreme flattery.)

"It's what I know."

One last thought, though, on a sale of local radio signals. Assume the Pohlads are ready to shop for a permanent home for the Twins.

Comments

[Biotech Nerd Girl]

Brian, I am sorry, but I don't have time to read your blog...I am busy listening to my favorite local Clear Channel station play Avril Lavigne for the 86th time today. I never get sick of her songs....she is great (like a hole in the head).

LAMBERT: Well, if someday she rips Bush or Cheney Clear Channel will have her off the air in mid-(heavy rotation) song.

[Mr. Monster]

"The Clear Channel ethos, which requires bland-to-monotonous content and constant cutting to profit to deliver the kind of baronial ching the Mayses and other investors feel is their genetic due..." After reading that it comes to mind that one Red McCombs was a major shareholder in Clear Channel. Sounds like the formula for "Purple Pride" was not all that different from Clear Channel's.

From the White House on down (or up) it is easy to see that you can take the boy(s) out of Texas, but not Texas out of the boy(s).

LAMBERT: You are entirely correct, Mr. Monster. The Mayses and Red go back over 30 years. It wasn't just used cars and boosterish spin to credulous sports columnists that boy was selling, it was also big doses of knucklehead radio. He is still a board member.

[Jim Leinfelder]

When did you start channeling Jim Cramer?

LAMBERT: Me? I think Cramer, who I find compelling in a Chris Matthews train wreck sort of way, is dead right about Clear Channel and all terrestrial radio. The entire industry is taking "a haircut" and needs a major re-think.

[steve behm]

Lambert...I worked in radio, and loved it, for 30-years. Due to the Clear Channels and other media pigs, I can't get a job anymore. I want too much money and they don't pay. Radio sounds like crap anyway, so I don't know why I bother...Steve Behm, Los Angeles

LAMBERT: By "too much money" I assume you mean more than $40k a year, with nights and weekends off. What are you, some kind of French socialist?

[Elitism Fighter]

Which Clear Channel station, Communist hairy-armpitted lesbian libtard Biotech Nerd Girl? And do you have documented proof that they played an Avril Lavigne song 86 times in one day? Of course, you don't, libtard liar.

Every day, Clear Channel's research department talks to thousands of people in scientific surveys and finds out what they want. Guess what, libtards--they don't want to hear the Rotting Scabs and the Festering Boils. They want to hear Today's Lite Rock with Less Talk. They want to hear Today's Hot New Country. They want to hear Good Times, Great Oldies. They want to hear Classic Rock That Really Rocks. They want to hear Today's Hit Music. And they want hear talk that supports America--including Rush Limbaugh, America's Anchorman. AMERICA TRUSTS RUSH!

Why do you drive-by media libtards want to cram your weirdo minority crap down the throats of the majority? What kind of ratings do the stations that play the Rotting Scabs and the Festering Boils get? What kind of ratings does Libtard Franken's station get? Rush is Number One. The New York Post is America's fastest-growing newspaper. Fox News Channel is THE MOST POWERFUL NAME IN NEWS. Don't you MSM drive-by media libtards get it?

Oh, how I look forward to John McCain and the Christian Patriot party's victories--so we can give you libtards what you have coming to you as you're tried and executed for TREASON--LIVE, ON FOX NEWS CHANNEL!

LAMBERT: As I say, "an object lesson" in what's out there.

[Tuned In on Washington]

Oh, jeez, the EFer's back...

LAMBERT: And clearly having a worse-than-usual day. This is the first time he's called for "execution" of the "libtards".

[Mr. Monster]

Elitism Fighter sounds like Bertram Jr. on steroids. Quick, call George Mitchell.

LAMBERT: There is eery similarity in tone and level of genetic damage, isn't there?

[Jim Leinfelder]

Ha, I love it. Bertram Jr., not content to cower behind his usual nom de spittle, posts this capillary-popping eructation under the supercilious alias, "Elitism Fighter," in which he gives vent to his darkly fascistic fantasy of sorting out the real Americans from the ones he finds lacking who he'll have put to death. Such egalitarianism.

Like I always say, self-parody is the best parody.

LAMBERT: bertram is tough to top. But 'EF" manages it.

[108]

To be fair, I'm not sure you could ever make good money as a dj unless your really had 'it'. I had dual emphases in broadcast and journalism, our profs just about begged us not to go into dj-ing. They were $6 hr jobs when I got out of college in the early 90's. I mean really, how much should a dj get paid?

Sales, administration, engineering? Those pay adult money.

I listen to KTLK. Maybe you can explain Brian. What I don't get is the quality of the advertising. Maybe 60% is local ads, but the other stuff is debt management, Ross Jardine, and PSA's. Its complete garbage. I have zero insider knowledge, but I don't know how they could generate excess revenue (profit) locally.

LAMBERT: Under the Clear Channel strategy very little "bench talent" is ever developed. Few jocks get to assert anything distinctive enough to have a remote chance at becoming "it", which is fine with management, other than that personal endorsement thing. As for the ad mix, I've said before I find laughable the constant assertions, reassurances -- from Clear Channel sales types -- that the listening audience for all-Avril, or Sean Hannity, or even "hot country" skews heavily to the upper 10% of family incomes.

Please.

"Debt management" makes a lot of sense to those who are really listening.

[Rick Ellis]

Personally, hearing Avril Lavigne once a day is as bad as hearing it 86 times a day, but that's just me.

I won't bother arguing with your facts, Elitism Fighter, because it's pretty obvious that you're also fighting the urge to learn anything new.

But the truth is that this isn't a liberal vs. conservative issue. It's an issue about a style of management that wasn't based on what people wanted to hear or what was best for the long-term viability of the radio business. Clear Channel made tons of money by cutting costs to the bone, and assuming that since there was a finite number of radio signals, the advertisers and listeners would have no where else to go.

Thanks to technology, that turned out not to be the case, and now the company is getting beat like a pinata.

LAMBERT: The "Clear Channel strategy" can be boiled down to "maximizing yesterday's radio".

[Charles]

What bothers me the most is their talk stations. They are the same as what Radio Moscow sounded like
except today's propaganda is right wing nuts. Bring back equal time if you want to drive Clear Channel nuts.

LAMBERT: They all sound the same, everywhere and every day, because ... there is only One American Truth. Just ask their fans.

[A Son of Mississippi]

Executions on Fox News Channel? Finally a reason to watch that fair and balanced stuff of theirs. I just hope they bring in Laura Ingraham (or one of their other fungible blondes) wearing leather for the job. Maybe they could off that dipshit Steve Doocy too. Where else could a weatherman divine which way the political wind is blowing?

LAMBERT: Executions, blondes and falafels. Now that's balance.

[108]

Again, just to be clear. Monster payday for the Mayses? The equity groups are not going to pay much of a premium for the company. The Mayses are just exchanging their shares for cash, for whatever reason. It could be strategic, they could just be getting old. I wouldn't call it a monster payday, all things being relative. They've been wealthy based on the value of the company for some decades.

LAMBERT: This from the Wall St. Journal ...

Clear Channel's Founders Stand to Get Windfall
By Sarah McBride and Dennis K. Berman
Word Count: 861 | Companies Featured in This Article: Clear Channel Communications

"Clear Channel Communications Inc.'s founding Mays clan stands to reap more than $1.1 billion, plus an estimated $80 million or more in severance compensation, if the winning bidder in an auction for the radio titan asks the family to leave the company. But the family members could make out better if new owners ask them to stick around and reward them with a bigger equity stake."

Maybe you have a different definition of "Monster", but that's good enough for me.

[Jim Leinfelder]

Cramer's the manic guy who told everyone tuned into his ADD cable show to absolutely hang onto their Bear Stearns stock a week before it dropped to $2/share, right.

Luckily, Bernanke stepped in before the over-leveraged gonzamachers all felt the mercilous sting of the back of the invisible hand to which they're all usually so reverently prostrate, or as the president would say, "prostate," right?

I know it's wrong of me, but I cannot bring myself to care in the least what becomes of Clear Channel. It's all lame. And it seems entirely reasonable to believe it's because they DO program for Elitism Fighter and his many peers. Elitism Fighter and his like are the fundamental problem. They are why we have Monster Truck rallies and srip malls and Outback Steak Houses and bad architecture and why Larry The Cable Guy is a multi-millionaire.

One thing ol' EF/Bertam Jr's right about, I think, is that his tastes prevail in America.

LAMBERT: In Cramer's defense he was talking about money deposited in Bear, Stearns banking properties, not their stock. But regardless of its appeal to you, Clear Channel is a major player with profound influence in American media culture.

[Tuned In on Washington]

Author Douglas Adams foreshadowed this discussion in Hitchhikers Guide To The Galaxy, which defined the Marketing Division of the Sirius Cybernetics Corporation (whose products' "fundamental design flaws are completely hidden by their superficial design flaws") as "A bunch of mindless jerks who will be the first up against the wall when the revolution comes." Sirius must have been the parent company that bought up Clear Channel in 2008. Mark my words.

Executions, blondes and falafels on Fox? The only appropriate beverage for viewing is arak.

LAMBERT: When do we talk about serious louching?

[Bleuler]

It is fascinating to watch people jump at conclusions. Most of the answers to CCU's problem are based on personal prejudices regarding the business model and the management thereof. These assumptions may be true, but that is not the problem in putting this deal through.

On the face of it, having a profit margin of 14%, a P/E from 15-17 and having size dominance would augur for a quick and profitable deal.

The problem is really cold, calculated cash considerations. The debt to equity ratio is at least .75. What you are mostly buying is debt and in these days where rolling over debt or collaterizing debt it becomes hard to justify the agreed upon price.

That price, I recall, was about 39 with the stock now selling 29. As far as the courts go, the people involved are canny types. I doubt anyone can make a deal go simply because some Texas judge says it is so. Bet that there will be a negotiation down in price to the point everyone makes some money--not as much as originally determined, but money none the less. Eventually, a working business deal requires all parties make out. Failure to do so results in nasty, expensive legal proceedings and big losses for all concerned.

LAMBERT: My admittedly naive and loaded question is always -- what did they "create" with all that debt. Did they develop a better radio group, with better stations, more of the news and community service they are required to according to the terms of their license, or is all they created -- fundamentally -- a short term vehicle for "shareholder value". As always with me, I say if you want to sell gilded dog shit and can find enough chumps to buy it -- knock yourself out. But if you are operating off public airwaves I think you have to keep a little sharper eye on quality control than Clear Channel. But hey, its their haircut.

I agree though, the only sane choice of action here is a renegotiated share price. But who wants to bet what the value of this thing will be a year from now? $29 a share? Not me.

[Dave]

It is really something special when one of the private equity firms sues that banks for taking away their monopoly money. Bain/Thomas Lee must really be convinced that there is enough cash flow in the outdoor advertising to cover the shrinking revenues from radio.

Interestingly, the attorney generals of 11 states have asked the FCC to not approve the XM/Sirius merger. I can't help but wonder who Clear Channel is leaning on to stop that merger.

Hate to say it, but I think talk radio is all that will ultimately matter for radio. Music is available from numerous sources and Clear Channel music radio is dull and over automated. At least talk radio still allows for local personalities.

If the rumor is true and Apple starts to sell iPods with unlimited music licenses on them, that will stick the final fork in profitable music radio.

LAMBERT: Yeah, you caught that the other day? $100 more for "unlimited iTunes". Ouch. And that is commercial free.

[Captain Video]

Brian,
Look at what has happened to Citadel, the company that took over the ABC owned stations. Staff has been reduced, costs have been cut, the stock price is in the toilet and there is speculation that ABC may be stuck with taking the stations back.
When radio was easy all these managers were smart. Where are the smart ones now?

LAMBERT: I suppose I should back off a little on this beef with the content these debt-addled media companies are staking their hopes to. There is a kind of traumatic evolutionary change taking place. But what I can't shake is the reality -- as I see it -- that their indebtedness, and investor demand for profit in spite of it, locked them into formats and ad loads out of a long ago generation. Who among them seriously attempted anything innovative, different or dare I say risky? I repeat: "Maximum exploitation of yesterday's radio".

[Biotech Nerd Girl]

Wow, how friggin' cool--for the first time in a VERY LONG TIME, I was stereotyped by a conservative punkarse. All of a sudden just because you don't like hearing the same songs over and over and you don't like feeling like you are being brainwashed (you might want to get that checked out)---well now you are a hairy communist lesbian. Man, you sure need to step away from the monitor you call bestfriend, head out the front door and breath some fresh air. Here's some news that might be interesting to know--smart chicks aren't always hairy and lesbian--yes, the hot heterosexual nerd that is married does exist--that probably seems odd to you after reading all those Anne Coulter books.

Dude, not everything is a liberal/conservative issue. And if I was one(a liberal), who gives a *bleep*, that is not the point. The point is that CC isn't reaping the successes it used to all because of technology(and greed). Everyone just has to stick their earbuds in and throw on the youtube, myspace, facebook and they are content. Hell, no one is even watching the local news anymore (BL, I read all your posts). Lighten up.

LAMBERT: You should be even more flattered. Apparently "Elitism Fighter" is a scourge coast-to-coast.

[essar1]

I feel really sheepish in admitting this, but I really thought (at first) that Elitism Fighter was a gag - a straight-on parody of a some conservative flame-thrower you'd see on numerous blogs. Seriously, "libtard"? Hysterical! I really thought his schtick was a gag - like a Colbert report or something.

I'm still cracking up...either way, that rant is funny!

LAMBERT: I had him pegged for "bertram's" alter ego. The, uh, really seriously whacked alter ego. But I got a note with links to his posts in Chicago and DC and Salt Lake City. Do you think somebody needs something to do?

[Jed Leyland]

Brian,

When it comes tothe current state of radio...take Avril's advice,"Chill out whatcha yelling for?
Lay back, it's all been done before
And if you could only let it be
You will see

Somebody else round everyone else
You're watching your back, like you can't relax
You're trying to be cool, you look like a fool to me..Tell me

Why do you have to go and make things so complicated?

LAMBERT: In the words the great philosopher Mr. T, "Who you callin' foo, foo?"