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Ownership

Ownership

By the Project for Excellence in Journalism

Changes in the ownership structure of radio’s major players appear to be redefining the industry.

The industry behemoth Clear Channel kick-started the trend in 2006 with its makeover into a private company. Its closest competitor, Cumulus Media, moved toward privatization in 2007, and rumors circulated that Emmis Communications and Westwood One would follow.

It could be that 2008 will see other large publicly held radio companies trade the unprofitable model of concentrated ownership for the longer-term growth promised outside Wall Street.

Clear Channel has led the way since the deregulation of radio in the 1990s, when the industry experienced a flurry of station consolidation. In 2006, beset by declining revenues, Clear Channel decided to forgo the pressures of Wall Street’s demands for increasing profit margins. It also agreed to sell off 448 of its smaller-market radio stations, a reduction of nearly 40% of its inventory.

The second big story in ownership in 2007 – and into 2008 – is the continuing legal debate over the merger of the two satellite radio service providers, Sirius and XM. In many ways, the outcome of this debate may define the shape and scope of radio for the future, by answering the question: Is radio just the AM/FM dial or is it all of the incarnations of new listening options?

The Privatization of Radio?

Clear Channel was not the only company to move toward private ownership in 2007.

On July 23, 2007, Cumulus Media, the second largest radio station owner with 342 stations, announced its intent to go private, expected in early 2008. The buyer, an investment group that includes its current chairman, president and CEO, Lewis W. Dickey Jr., some family members and an affiliate of Merrill Lynch Global Private Equity, is spending $1.3 billion for the media company. Shareholders were bought out for $11.75 per share of Cumulus stock, a premium of 40% over its closing price before Dickey announced the buyout.

The deal comes amid industry-wide declines in revenue. Despite that, Dickey, who will retain his titles after the deal is completed, said, “We strongly believe in this industry and in the long-term opportunities to grow the business.” 1 So strongly, that he has said in interviews that a privately held Cumulus will pursue more stations. “We feel … that [we] can continue to be aggressive in consolidation, provided the deals make sense,” he said.2

Rumors swirled in 2007 about two other possible buyouts: Emmis Communications and Westwood One.

In October, an Emmis shareholder, Arnhold & S. Bleichroeder Advisers, urged Jeff Smulyan, the CEO, to reconsider his plan to take the Indianapolis-based radio company private, announced in May 2006. Smulyan’s attempt to buy out the company for $15.25 per share was refused by a special committee of shareholders. The stock price plummeted. Shares of Emmis have fallen almost 65% since August 2006, closing at $5.13 at the end of October 2007.3

Shareholders immediately weighed in. “Aggressive action must be taken by the Emmis board of directors for the benefit of all minority shareholders to realize the value inherent in the company’s portfolio of underperforming radio assets,” read a statement issued by Arnhold & Bleichroeder Advisers.4 Two other shareholder groups also have urged Smulyan to sell the company. Despite the pressure, Smulyan refused. This led many industry observers to conclude that it was just a matter of time before Smulyan offered another bid.

Talk of a buyout at the radio network, Westwood One, was quieter, but still loud enough to give its stock prices a mild boost in late September 2007. That occurred when Deutsche Bank declared the company a likely takeover target by private equity groups. So far, though, a buyer has yet to emerge.

Clear Channel’s transition from public to private was not quick or easy. It was not until September 23, 2007, nearly a full year after the broadcast giant announced its intentions to evaluate “strategic alternatives,” that its sale was finally approved by shareholders. And in January 2008, the FCC gave its approval to the merger, almost assuring the transition.

Things moved slowly after November 2006, when Clear Channel announced its complicated agreement with Thomas H. Lee Partners and Bain Capital Partners to be bought out for $18.7 billion, or $37.60 a share. Shareholders delayed several meetings, demanding higher stock prices. Clear Channel finally mustered the two-thirds majority vote required to seal the buyout in late September 2007. The new owners agreed to $39.20 a share, raising the total cost of the transaction to $19.5 billion (not including Clear Channel’s $8.1 billion in debt).

To sweeten the deal for reluctant shareholders, the private equity groups also offered them up to a 30% stake in the company, an unusual move in a world where total control is the norm.

The last regulatory hurdle was overcome in February 2008, when the Justice Department ordered the company to sell stations in four cities – Cincinnati, Houston, Las Vegas and San Francisco – within 90 days of the deal closing.

Clear Channel now waits to see if its two private equity buyers – and the consortium of banks bearing the debt financing – will remain committed to the expensive deal.

ABC Radio and Citadel

The $2.5 billion acquisition of Disney-owned ABC Radio by Citadel Broadcasting announced in February 2006 finally became official on June 12, 2007. In the deal, the Walt Disney Company agreed to sell ABC Radio and its 22 radio stations, making Citadel the third-largest radio station owner by revenue, with 245 stations at the time of the merger. ABC, however, continues to hold onto to its news network and ESPN sports radio stations.

De-consolidation, a Surprising Result of Deregulation?

In late 2006, not only did Clear Channel find a private buyer, but it also declared its intent to sharply trim the size of its radio holdings. The leader of consolidation in the post-Telecommunications Act of 1996 may now be leading yet another trend, this time de-consolidation.

In 2007, Clear Channel had begun to shed 448 of the stations it proposed to sell, all of them outside the top 100 U.S. media markets. According to Clear Channel’s CEO, Mark Mays, “Our decision to divest these broadcast properties was reached as a result of the ongoing optimization of our diverse portfolio of media assets.” He added that the sale of the stations would allow Clear Channel to better position itself to serve its listeners.

It may be that Clear Channel’s radio empire was just too big to manage effectively.

Mel Karmazin, now CEO of Sirius Satellite Radio, and former president of both Infinity Broadcasting and CBS, both competitors of Clear Channel, points a finger at the Telecommunications Act of 1996 for creating problems for radio. The deregulation policies were good for business, he told the Chicago Tribune, “but no one asked me if it was good for consumers.” 5

Looking ahead to 2008, we’ll see if Clear Channel’s divestitures will have an impact on radio’s business model.

Sirius-XM Merger

After the two satellite radio providers – Sirius and XM – announced plans to merge in February 2006, Karmazin, the proposed CEO of the merged company, spent the better part of 2007 trying to convince the Federal Communications Commission and the Justice Department that the merger was, as he put it, a “no-brainer.” ( See 2007 State of the News Media report.)

Karmazin told the Chicago Tribune editorial board on November 7 that the merger’s resulting $3 billion to $9 billion in cost savings would allow the companies to lower subscription prices and attract more subscribers. Currently, the monthly subscription rates for both companies start at $12.95 and decrease with a longer commitment. Karmazin has not indicated a post-merger monthly rate, but he has proposed grouping channels into packages that would bring down the price.

“By giving them [consumers] lower prices and more choice, including à la carte offerings, we think that serves the public interest,” Karmazin said. “From our point of view, the merger should be a no-brainer.” 6

At the heart of the FCC’s decision is how to define satellite radio. Proponents of the merger argue that it is only one of several competing platforms – including traditional radio, HD radio, iPods and MP3s, Internet radio and even cell phone radio – in the audio entertainment landscape. Critics see the merger simply as a monopoly waiting to happen.

The merger’s chances seemed to improve in August 2007, when the Federal Trade Commission dismissed a separate, but somewhat similar, antitrust case. In the case, the FTC ruled in favor of defining the two merging companies, Whole Foods Markets and Wild Oats Markets, in the larger context of the supermarket and grocery business rather than the limited scope of a premium and natural organic food market. Proponents of the XM-Sirius merger say they believe that the FCC will take a similarly broad view of the audio market.

There have been other encouraging signs for XM and Sirius. In November 2007, the FCC asked for more information from the two companies about their business operations. According to a Bear Stearns analyst, Robert Peck, that request indicates the likelihood that the Department of Justice is close to allowing the deal, “which would necessitate the FCC to expeditiously complete the documentation process.” 7

Also in November, both Sirius and XM shareholders voted overwhelmingly for the merger. Of shareholder votes, 96% at Sirius were in favor, as were more than 99% at XM.

Further encouragement came from a consummate insider. When the FCC issued licenses to the two satellite companies in 1997, it also issued a warning: No merger. But the FCC chairman at the time, Reed E. Hundt, appears to have had a change of heart. In a November 13, 2007, interview, Hundt said, “I think that if XM and Sirius combined, it will be pro-competitive in all likelihood.… It seems to me that what has happened over time is that these two firms have proved when kept apart to be incapable of mounting the really serious competition against … terrestrial radio that I had always hoped for.” 8

The Top Companies

Where does all this leave the lineup of companies in radio?

Clear Channel, the dominant radio group owner of the decade, continues to be the leader. Even after it completes the proposed sale of 448 stations in addition to about a hundred more that had to be divested according to FCC regulations and Justice Department rulings, Clear Channel will still be more than double the size of its nearest competitor, Cumulus. Cumulus, in turn, owns about 100 stations more than Citadel.

When Clear Channel made its announcement to go private in November 2006, it also announced the sale of a little less than half of its radio stations, as well as all of its local television holdings (51 stations). There already were several additional sales pending at the close of 2006. By the end of 2007, the company completed sales of 498 stations, with 52 more still in process.

The planned sales will continue into 2008. But for now, Clear Channel remains the largest radio station owner.9

Number of Stations Owned by Top Broadcasting Companies
2006 vs. 2007

Owner
Number of Stations Owned,
Year End 2006
Number of Stations Owned,
December 2007
Clear Channel
1134
636
Cumulus*
305
286
Citadel Communications
212
204
CBS Radio
140
140
Entercom
120
114
Salem Communications Corporation
98
97
Saga Communications Inc.
89
91
Cox Radio Inc.
79
79
Univision
74
74
Radio One Inc.
69
53
Regent Communications Inc.
68
68
ABC/ Disney
47
47
Entravision
47
47
Cumulus Media Partners LLC
37
37
Journal Broadcast Group Inc.
36
35
Citadel / ABC
24
24
Emmis Communications
23
23

Source: BIAfn Media Access Pro, PEJ Research, December 2007
Note: Clear Channel numbers include pending sales. Year-end numbers not offered for Cumulus for 2006; year-end 2005 numbers offered instead.

The top companies, in terms of the number of stations owned, differ from the top stations by revenue. The top three revenue-generating companies are Clear Channel, CBS Radio and Entercom. ( See Economics section.)

The top station owners also reached the greatest number of markets in 2007. Clear Channel led in the number of markets reached (120), more than double that of its next competitors, Cumulus (57) and Citadel Communications (48). Except for Clear Channel, these numbers remained about the same as the previous year. ABC/Disney, which owned only 47 radio stations, had them distributed in 42 markets.

Number of Markets Reached by Top Companies
2007
pie chart sample
Design Your Own Chart
Source: BIA Financial Network, PEJ Research

And which radio group owners led the way in the number of news and talk stations? Again, Clear Channel takes the lead. As of year-end 2007, it owned 103 stations – 71 news and 32 talk. Cumulus came in a distant second with 29 news stations, followed by Salem with 23. Wisconsin Public Radio and CBS Radio followed Clear Channel in the number of talk stations, with 13 and 10, respectively.

Number of News & Talk Stations Owned by Top Companies
2007

Owner
News Stations Talk Stations
Clear Channel
71
32
Cumulus
29
9
Salem Communications Corporation
23
8
CBS Radio
17
10
Minnesota Public Radio
17
0
Citadel Communications
16
5
Entercom
15
6
Saga Communications
12
2
Cox Radio
9
1
Wisconsin Public Radio
7
13
Regent Communications
5
2
Citadel / ABC
5
2
Radio One
5
3
Cumulus Media Partners LLC
1
5

Source: BIAfn Media Access Pro, PEJ Research, December 2007

Despite the fact that Clear Channel programs the most news and talk, Salem Communications programs the greatest proportion of news and talk on its stations. Of its total inventory of 98 stations, it programs 31% with news and talk programming. Citadel/ABC is next with 29%, followed by CBS Radio with 19% and Entercom with 17%. Clear Channel falls to 11th on of the list of top station owners, with only 9% of its radio holdings programmed with news or talk content.

Footnotes

1. Erik Sass, “Radio Buys: Cumulus Acquired by Private Equity,” Media Post, July 24, 2007.

2. Michele Gershberg, “Cumulus Media Agrees to $1.3 Billion Buyout,” Reuters, July 23, 2007.

3. John Ketzenberger, “Drumbeat Sounds Anew for Emmis Buyout Deal,” the Indianapolis Star, October 30, 2007.

4. Erika D. Smith, “Emmis Again Urged to Go Private,” The Indianapolis Star, October 25, 2007.

5. Phil Rosenthal, “Homogenized Radio Stations Bottle Up Growth,” Chicago Tribune, November 11, 2007.

6. Ibid.

7. Evelyn M. Rusli, “Sirius About A Merger,” Forbes.com. November 13, 2007,

8. “Former FCC Chairman Hundt Comments on Sirius-XM Merger in Interview,” Sirius and XM press releases, November 13, 2007.

9. The number of stations owned, sold or pending sale can differ in press reports and databases, for two reasons: First, BIA databases only include on-air stations owned by Clear Channel, whereas Clear Channel press releases often report stations it is licensed to operate for other broadcasters. Second, BIA numbers always include pending sales, while Clear Channel’s may not.