Fragmentation

The opposite of consolidation is fragmentation. Rumors abound that Clear Channel Communication is on the verge of bankruptcy, Cumulus stock is trading at $0.61 per share, Citadel Broadcasting Corporation is a $0.038 per share and so on.

What does this mean?  The great consolidation experiment of the 90′s and 00′s has been an abject failure.  Remember when deregulation was going to save the day?   Instead, it merely prolonged the day when many small non-revenue generating radio stations should sign off and turn in their licenses.

A quick review:

1. Major corporations formed with the express purpose of buying radio stations and consolidating operations.  This was supposed to save money and make stations run more efficiently with smaller staffs.
2. These corporations swooped into large, medium and small markets, often paying multiples of 14 to 18 times cash flow.  Books were cooked to make non-revenue generating radio stations look good, thus soaking the buyers.
3. The new owner’s discovered their stations were not doing all that great, even with the “market synergy” of group ownership.
4. Most of the station’s staff were replaced by computers, programming was handled by wizards located hundreds or thousands of miles away with no awareness of any particular location’s uniqueness.
5. Radio formats become homogenized, bland, and boring.  People begin looking around for other entertainment
6. Radio becomes irrelevant.

Which leads us to our current situation.  When the economy tanked in late 2008, advertising revenues dried up over night.  Since all these radio groups were operating at the top of the business cycle, with no (zero, zilch, nada) room for error, many owners began to have troubles making loan payments.

The semi good news is that all of the radio corporations are in the same sinking boat.  Even if the banks could force the sale of radio properties, the values are so low now that they will never re-coop their losses.  So the waiting game begins.

Clear Channel,  however, may be liquidated anyway.  The Bain financial group is not known for being nice.  They likely have anticipated a bankruptcy even before they financed Clear Channel’s move from public to private and did it for the fees they could charge.  In short, they don’t give a shit if Clear Channel lives or dies, they have already made their money.

If Clear Channel begins selling stations, will the other groups start snapping them up?  There are two key considerations, financing and FCC regulations.

The lending institutions that are holding the paper on these stations now will likely have a long memory.  It may not be so easy to get loans in the future, especially for those companies that leverage themselves to the hilt and refinance every few years.

The Congress has been considering tightning ownership regulations, this may force the FCC to adopt rules that do not allow current radio station owners to buy up the Clear Channel scraps and add them to their own collections.

What we may see is many stations fail.  These are the stations that should have failed in the 90′s but were “saved” by consolidation.  Those stations that are still economically viable, may be bought up by the dedicated radio professionals and run semi-profitably.  Those stations that can be locally important can reclaim some of their lost audence.

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