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Monday, July 14, 2008

Grading the Radio Groups

Posted: 14 Jul 2008 02:02 AM CDT

By Jerry Del Colliano

There is a military term for a situation caused by too many inept officers -- clustering -- referring to the insignia worn by majors and LT. Colonels, oak leaf clusters.

In Clint Eastwood's 1983 movie about the invasion of Grenada (Heartbreak Ridge), Eastwood, who played Gunnery Sergeant Highway had this dialogue with a colonel during a readiness exercise.

Col. Meyers: What's your assessment of this situation, Gunny?

Highway: It's a cluster f@#K, sir.

Col. Meyers: Say again?

Highway: Marines are fighting men. They shouldn't be sitting around on their sorry asses filling out request forms for equipment they should already have, sir.

Talented radio people shouldn't be sitting around trying to find ways to shave more expenses off their programming. They should already have that ammunition ready to fight competitors, new media and mobile.

The problem is not the Internet -- it's a challenge (albeit a big one).

The problem is not the next generation -- after all, radio virtually ignored Gen Y while owners were stuffing more stations in their clusters and the next generation simply moved on.

It's not mobile media -- although mobile media could have had a radio in it, but not without a strong affinity to what was on the radio. So, this is not simply a technology issue that escaped us.

It could be that there are some inept officers running some very influential radio companies.

These COOs and CEOs make cutbacks in order to live from quarter to quarter. Yet they are paid millions in compensation and benefits -- the fruits of power that has been bestowed upon some, frankly, inept "leaders" for the better part of a decade.

They do it all in the name of shareholder value.

Don't get me wrong, there is some good talent atop some radio groups, but you be the judge as to who is earning their keep and who is hurting their shareholders, employees -- and the entire industry.

I'm just saying, compare the standard they set for themselves -- the Holy Grail, shareholder value -- and see how they've done:

CLEAR CHANNEL

$35.42 and only because their buyout price guarantees $36 or else, who knows what it would be worth today. Maybe $9-15? CCU was $91.75 on February 4th, 2000 and after that date the share price was never higher. This is the bellwether stock for radio -- the largest owner with 1,100 stations. No wonder the founding Mays family can't beat it to the door fast enough for one more paycheck. Their legacy may very well be that they single-handedly helped lead the radio industry into the doldrums through inept management and lack of vision.

CBS

$17.17 at closing on Friday. CBS was as high as $88.70 in winter, 2004 although it has paid dividends recently and has been reconfigured away from parent Viacom -- all factors that make it difficult to judge apples with apples. It also includes television -- another dying business with the next generation. CBS Radio President Joel Hollander didn't know what he was doing and when his successor, Dan Mason, showed up, he was smart enough to understand that CBS needed to program to the available radio audience and has tried to rebuild stations while corporate pressures forced him to make cutbacks -- not good.

COX RADIO

$9.95 and beginning to worry Wall Street. Cox stock had been in the $30 range in 1998 and never got higher. Cox President Bob Neil, like CBS' Mason is smart. But Neil is increasingly distracted with the holy jihad he is conducting against Arbitron's People Meter instead of keeping his eyes on his fries. Neil is also wise enough to cut spot loads -- a battle worth fighting publicly. Neil knows radio must tighten inventory and charge more. He should be leading on these issues and not conducting food fights with Arbitron over PPM.

SAGA

$5.62 at the bell Friday. Saga shareholders were no doubt happier in 2002 when its stock priced at $23. Since then it has never been higher. Downhill all the way. Saga chief Ed Christian never strayed from his plan to run a consolidated small market radio company and he deserves credit for that as analysts agree radio is somewhat healthier in smaller markets. Christian surprised at least one of his employees when he joined Cox's fight against Arbitron's People Meter -- some perceiving it as a personal crusade. Misguided to say the least -- as long as more important issues are on the table.

ENTERCOM

$5.18 Friday -- a far cry from $65.88 in Feb 4, 2000 then down you go. Shareholders must have had great faith in Entercom to value it with the big boys but it languishes today through lack of vision and ordinary operating strategies -- a big fall from grace by radio's preferred judgment standard -- shareholder value.

CUMULUS

$2.73 -- a $50 stock in 2002 and then steadily down. Another small market strategy that went awry. Even with the benefit of small market economics Cumulus is getting too close to becoming a $1 stock. This in spite of the fact that the Dickey's knew they needed to get out, but were not able to make a buyout happen in the current financial atmosphere.

EMMIS

$1.56 at the end of last week -- $56.56 in January, 2000 and then never above that high. CEO Jeff Smulyan runs an honest company with excellent assets (I'm speaking about the employees here). But he has a problem -- too much dependence on New York and LA which has been a roller coaster ride -- particularly down lately. Smulyan has tried several times to take the company private and has run into opposition. In my opinion, he was willing to overpay to go private. Guess shareholders aren't that smart. Selling at $19 sounds better to me than closing at $1.56. Nonetheless, even good people with a good leader can't muster more value than a buck and a half.

RADIO ONE

What a great name for this stock since it is worth around one dollar -- $1.05 on Friday. Radio One had worked its way up to $23.30 in May, 2002. The Liggins family has not been able to show vision that has been any better than their peers as this company flirts with being delisted.

CITADEL

83 cents -- you read that right -- 83 cents. Citadel was $22 ten years ago when the ABC merger wasn't even a glimmer in anyone's eye and Citadel has been declining ever since. Citadel is a particular disgrace as a public company because its shareholders see fit to compensate their CEO, Farid Suleman, at the $11 million a year level -- and they pay the taxes as part of his deal. This spits in the face of the Citadel employees who are working at a great disadvantage -- minus a leader who knows the way out of all this trouble. Suleman's accounting background leads him to default to cutting expenses and dismissing talented people rather than investing in a company that could have a digital future.

So, there you have just a few of the reasons the radio industry is in the toilet. There are more. Believe me, I didn't leave out any success stories -- at least from the stock price perspective, their own barometer for success.

Which brings me back to my original premise.

Radio is being run by a few inept people in very influential places.

But even if they are forcing talented managers, programmers, on-air people and sales executives to carry out their budgetary orders, well -- let me quote Eastwood's Gunny Highway here -- "Just because we're holding hands doesn't mean we'll be taking warm showers together until the wee hours of the morning".

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