The NY Times is reporting that Cumulus is in serious negotiations to take over Citadel (the combination of Citadel and ABC Radio).
While I’m not thrilled that Cumulus might take over Citadel, this is generally a good thing. The Citadel bankruptcy was a farce on the entire Chapter 11 bankruptcy process.
Bankruptcy is there when a company has exhausted their ability to continue to operate as a going concern. The idea is that the people who are owed money by the corporation meet and develop a plan to convert the business into something viable. The “debtors in possession” of the company can break existing contracts, terminate pension plans, renegotiate the terms of the existing debt, fire employees, terminate leases, close unprofitable operations until the resulting company has some chance of survival. If the DIP can’t convince the judge that the new version of the company might survive, the bankruptcy moves to chapter 7 and the assets are sold and the debtors split up what’s left based on who has secured debt. Normally, there is nothing left for the stockholders in chapter 7.
This is not what happened with Citadel – Citadel got into debt borrowing the money to take over ABC. The management of the company was not fired, some of the “talent” contracts were renegotiated, and the companies that held debt were pretty much told to screw themselves. Upon exiting quickly from a prepackaged bankruptcy, no changes were made to the managment other than they gave themselves huge bonuses and stock grants for doing such a great job stripping the lenders of their money. The lenders have been filing lawsuits pulling back the stock grants and putting pressure for Citadel to accept a $2.5 billion offer from rival Cumulus Media.
Cumulus is a small market operator – they also have operated Cumulus Media Partners, the former Susquehannah Radio which does own a number of major market stations – Cumulus and CMP recently agreed to a merger. A combined Cumulus/Citadel would still be smaller than Clear Channel, but would become a more significant force in national radio.
Methinks competition is good for the country. When capitalism is subverted, as it sounds like Citadel did, the investors suffer foremost and the listeners suffer implicitly.
My question: did listeners vote with their ears?
Over 20 million people now pay to subscribe to Sirius/XM… an average of 400,000 people are listening to pandora at any moment in time
The “Ratings” stats for radio that you can see for free measure “share”, which is close to a useless stat to answer your question. All it does is state what % of the people in a market who are currently listening to a radio are listening to a specific station – it doesn’t tell you a thing about how many people in total are listening from hour to hour. It also makes an assumption that if a person has a radio turned on in their vicinity that they are listening to it.
Citadel and ABC were very different corporate cultures… Citadel was put together by an old-timer named Larry Wilson out in the Pacific Northwest – after the 1996 act lifted the ownership caps, he went on a tear buying up every failing small market station he could get his hands on. Eventually the Private Equity folks funding his spending spree paid him to retire, and turned the company over to a bean counter who thinks people outside of New York are stupid hicks and didn’t know what they were doing, and fired many of them and gutted the local programming.
When Disney decided it didn’t want to be in the radio business (other than their own music and ESPN), they sold off ABC Radio and Citadel came up with the best offer. ABC consisted mostly of a large group of major market heritage AM radio stations (WABC,KABC,WLS,WJR,KGO,KSFO,WBAP) and a few large FM stations (WPLJ in New York, KLOS in L.A., WLS-FM in Chicago). Citadel borrowed about $2 billion to buy those stations just as the value of radio station licenses was plummeting.
Keep in mind, the business of radio is not solely ratings – it’s revenue. Just because a station has a lot of listeners doesn’t mean they are the type of people advertisers want to reach.
The thing that appears to actually turning around radio is that last year the Supreme Court threw out the McCain Feingold law blocking groups from spending money on political campaigns. Last quarter of 2010 saw a lot of money spent on radio and TV for political ads.
Art,
Thank you very much. A wealth of information. I have a friend in the radio business who also emphasized that your “share” is supposed to drive advertising revenue, but that streaming and other technical trends have broken that close coupling in today’s markets.
Radio-info reports that Citadel had also been talking with Entercom. From a corporate merger standpoint, a merger with Entercom or Greater Media would be a better match. The ABC stations are the crown jewels – Lew Dickey is not a major market operator and has no experience with syndication. Major markets means big talents who bring in big revenue. Cumulus is a small market operator surviving by squeezing out expenses. The local Cumulus station dumped their very popular morning show host when he started having health issues – he had deep roots in the community and widely respected. He was replaced with an outsider with no personality and no entertainment value. They have since dropped even more local staff and mostly play Clark Howard reruns. I can’t see Mark Levin working for that management style.