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Ownership

Ownership

Introduction

Two events stand out in the ownership of radio in 2008. One was the approval of the merger of the two satellite radio companies. The other was what didn’t happen, the predicted shift toward a new kind of ownership in most of the rest of the radio industry.

In the emerging medium of satellite radio, the two pioneers and fierce rivals succeeded finally in combining forces. Sirius and XM became Sirius XM Radio.

Meanwhile, the predicted surge of private equity of radio ownership failed to materialize in 2008.

It was true that the biggest player in the industry, Clear Channel Communications, was sold to private equity investors. That deal was approved by shareholders in 2007 and closed in July 2008.

But no tide of similar transactions ensued. A tentative deal for an investment group to buy the nation’s second-largest owner of broadcast radio stations, Cumulus Media, collapsed.  And, despite reports that Emmis Communications and Westwood One were looking for private equity investors, no deal was consummated.

The result was that most of the broadcast radio landscape in 2008 remained dominated by a handful of companies, primarily publicly traded, that own the bulk of the broadcast radio stations in the U.S.

But in satellite radio, the concentration of ownership has gotten even greater.

And then there was one

The big player in satellite is now the only one: Sirius XM.

The company was formed out of the merger of Sirius and XM Radio, the two pioneers in satellite radio. The merger was completed in the summer of 2008 when it won the approval of the Justice Department’s Antitrust Division and the Federal Communications Commission.

Originally proposed in February of 2006, the merger attracted controversy with strong voices all on sides.

Proponents of the merger maintained that satellite radio is not a separate market, but rather a part of the radio market and was in fact competing against traditional, or terrestrial, radio, Internet radio and HD radio, among others. In such a context, the two companies said listeners would suffer without a merger and that, if approved, subscribers would get improved service.

“The combined company will be better positioned to compete effectively with the continually expanding array of entertainment alternatives that consumers have embraced,” the two companies said in a joint statement when the merger was proposed.1

Opponents argued that satellite radio was really a separate medium of its own and that the merger would give a single company monopoly control over it. They opposed the merger on the ground that only with competition would other content providers have access to satellite radio technology.

The interim CEO of National Public Radio, Dennis Haarsager, argued in July 2008 that the new monopoly would hurt the public interest because it would put control of the satellite radio spectrum in the hands of one company: “The public interest is not being served in this decision,” He said. It should be noted that NPR might have benefited from the competition between the companies because it sold programming to both.

The FCC ultimately concluded, with all three Republican commissions voting in favor and the two Democrats dissenting, that permitting the merger was in the best interest of the emerging medium.

Commissioner Robert M. McDowell, a Republican, wrote the decision, saying: “Competition in the audio market has grown substantially in the past few years… When discussing this merger, it is important to keep in mind that satellite radio – both XM and Sirius combined – comprises only 5 percent of that audio marketplace.2

How much news is on satellite radio? As of October 2008, Sirius offered nine stations that were identified as news and two as political talk.3 XM offered nine news channels and five talk channels, as well as its own public radio channel called XM Public Radio.4

It was not clear, heading into 2009, whether the news offerings of the new merged company would change.

Number of Stations Owned by Top Broadcasting Companies
2007 vs. 2008

Owner Number of Stations Owned, December 2007 Number of Stations Owned, December 2008
Clearn Channel 636 833
Cumulus 286 346
Citadel Communications 204 230
CBS RADIO 140 140
Entercom 114 111
Salem Communications Corporation 97 92
Saga Communications Inc. 91 92
Cox Radio Inc. 79 85
Univision 74 69
Radio One Inc. 53 52
Regent Communications 68 62
ABC/Disney 47 47
Entravision 47 48
Cumulus Media Partners LLC 37 36
Journal Broadcasting Group Inc. 35 35
Citadel/ABC 24 24
Emmis Communications 23 23

Source: BIAfn Media Access Pro, PEJ Research, December 2008

The Top Players in Broadcast Radio

Clear Channel

Another transaction, Clear Channel’s sale to the private equity firm CC Media Holdings, also closed in 2008, on July 24.

CC Media, formed by an investment group co-led by Bain Capital Partners and Thomas H. Lee Partners, paid $24 billion to become the largest owner of broadcast radio stations in the United States.

Despite speculation that Clear Channel would sell stations after its move to private equity, the number of stations owned by Clear Channel actually increased to 833 stations in 2008 from 636 in 2007. It is still well below the 1,200 stations it owned in 2006, but its total is still twice as many stations as the next biggest player.

The company amassed its empire of stations in the years since 1996, when Congress lifted limits on how many stations one company could own. It took advantage of its scale by producing programs in one location and transmitting them to a number of stations at once. Its size also made it a symbol of the consolidation of media among opponents of the trend. (See PEJ’s 2004 State of the Media for some history on Clear Channel)

But Clear Channel’s size and strategy eventually began to create problems, which led the company to begin to downsize and then go private.

How the privatization of Clear Channel will affect its programming or lineup of stations was unclear at the end of 2008.

Clear Channel’s CEO, Mark Mays, said listeners would benefit from the company’s private status.

“Not worrying about quarterly results will enable us to continue to focus on radio listeners like we have in the past.  That was becoming more difficult being a public company,” Mays said.5

News has not been the dominant format for the company’s stations. Of its 833 stations, 145 were identified as either news, talk or some combination of both at the end of 2008. The rest were music, sports and some other formats such as inspirational and Christian contemporary.6

Beyond radio broadcasts, the company also generates a good portion of its revenue from outdoor advertising, such as billboards.  Radio broadcasting remains the largest source of revenue, with $844 million in the third quarter of 2008. But nearly as much, $813.3 million, was brought in from outdoor advertising.

The company also has an international division that is an extension of its domestic outdoor advertising business to overseas.  This division brought in $54 million in revenue, far smaller than the other two divisions that make up most of Clear Channel’s business.7

In winter 2008, Clear Channel and CBS RADIO traded some radio stations.  In return for five CBS stations in mid-sized markets Clear Channel gave CBS two radio stations in large markets.

Cumulus Media

The No. 2 terrestrial, or traditional, radio company in the country, Cumulus Media, abandoned its attempt to transition to a privately held company.

Cumulus cited an inability to agree on terms with its buyout partner, Merrill Lynch Global Private Equity, as the reason. And in May 2008 it pulled out of the $1.3 billion, $11.75-per-share deal.8 The company described the parting of ways as “amicable.” 9 One factor may have been a drop in the company’s stock value, which had fallen to $4.51 a share – more than $6 below the offering price — by the time the deal was canceled.

The stock faced subsequent trouble. Shares fell below $1 in November after having been as high as $9.42 in the preceding year.

The company blamed a fall-off in advertising related to the recession.

Cumulus’ chief executive, Lew Dickey, predicted that hard times would force further mergers in the industry, although he did not say if his company would be affected.
“There’s never going to be the amount of change — reordering of the landscape — as is going to happen over the next 36, 48 months,” said Dickey.10

Cumulus remains the second-largest owner of radio stations in the United States, with 346 radio stations in 66 mid-size markets.  It owns 43 stations that identify themselves as news or talk, or some combination of both formats.11 The rest of the stations are identified as music or sports.

Citadel Communications

Citadel was the third-largest radio company in the U.S., in terms of stations owned. It owns the ABC Radio Network, which it acquired from the Disney Company in 2006.

In all, the company owned 230 stations in 57 markets across the U.S. as of fall 2008. Of those stations, 37 identify themselves as news, talk or some combination of formats that include news or talk.

There also were signs of financial distress for Citadel in 2008. In September, the company announced that its stock price had fallen below the minimum required for listing by the New York Stock Exchange. But the firm said it was in compliance with other listing standards and would continue to be listed while it attempted to boost its share price.

In January 2009 the stock exchange lowered the minimum value of a listed company’s market capitalization – a benchmark that Citadel met.  However, the company’s share price was still below the exchange’s minimum and was at risk of being delisted.

Number of Markets Reached by Top Companies, 2008
Design Your Own Chart
Source: BIA Financial Network, PEJ Research

CBS RADIO

CBS RADIO, the nation’s fourth-largest owner of radio stations, renewed its distribution agreement with Westwood One.

The company owns 140 stations in 31 markets and, according to BIA, 31 of the stations identified themselves as news or talk.

That gives CBS, which was among the pioneers of all-news stations in the 1960s, the distinction of still having the greatest focus on news and talk as a percentage of its stations.

In March 2008, Westwood One and CBS RADIO concluded the agreement extending their content-sharing relationship until 2017.

Westwood One has national syndication rights for all CBS news programming and broadcasts CBS news on many of its affiliate stations. CBS RADIO broadcasts Westwood One content in exchange for the use of some of the programming, Westwood One also pays CBS to broadcast some of its content.12

In July 2008 CBS announced that it would begin auctioning off 50 of its radio stations and in winter 2008 it agreed to trade 5 stations to Clear Channel.13 Bids for the auction were due in September 2008; deals will continue into 2009.(link to paragraph on clear channel agreement above)

Air America Radio

In 2008 Air America Radio was trying to build audience with a new owner. It filed for reorganization under Chapter 11 of the bankruptcy code in 2006, only two years after going on the air as a liberal alternative to the many conservative-leaning talk radio shows in the country.

It was bought in 2007 for $4.25 million and restructured by a New York real estate investor, Stephen Green. Green is a brother of Mark Green, a longtime fixture in Democratic politics in New York City and a frequent guest on the network.

In 2008, Air America had 63 affiliate stations across the country.14

Footnotes

1. Sirius and XM press release, February 19, 2007

2. Statement of Commissioner Robert M. McDowell Re: Applications for Consent to the Transfer of Control of Licenses, XM Satellite Radio Holdings Inc., Transferor, to Sirius Satellite Radio Inc., Transferee, MB Docket No. 07-57.  The 13% that PEJ cited above refers to the portion of the population over the age of 12 that subscribes to satellite radio, according to Arbitron.  The 5% cited by the commissioner here refers to a measurement of market share.

3. www.sirius.com/whastonsirius

4. www.xmradio.com/news/index.xmc

5. David Lieberman, “Clear Channel CEO says going private will allow firm to focus on listeners,” USA Today, November 16, 2006

6. In the BIA database formats are self-reported by each radio station and many stations identify themselves as more than one format such as news/talk/sports.  The number of news/talk stations here includes all stations that identified themselves as news or talk; it includes stations that may have identified themselves as having an additional third or fourth format.

7. CC Media Holdings Press release, November 10, 2008

8. Reuters, “Cumulus Agrees to $1.3 billion buyout,”  New York Times, July 24, 2007

9. SEC Filing May 12, 2008.

10. “Heavy Debt, Fewer Ads Put Radio Firms in a Squeeze,” Sarah McBride, Wall Street Journal, November 10, 2008

11. Arbitron, Radar 98 report, September 2008

12. Westwood Press release March 2008

13. “Clear Channel to trade Houston stations to CBS,” San Antonio Business Journal, December 15, 2008. http://www.bizjournals.com/sanantonio/stories/2008/12/15/daily6.html

14. http://airamerica.com/stations