The Failure Of Consolidation
June 11, 2013
The theory behind radio consolidation was that creating a vast national network of stations made up of dominant local clusters would drive local rates up and increase radio's share of the advertising pie.
It is a total failure.
That latter number is not growing. Rates are not rising. In fact, in most markets, it is the largest consolidated companies that are driving rates down because they are so desperate for revenue.
And while you and I can go out today and borrow several hundred thousand dollars at about 2.5% interest, with just our signatures, Clear Channel is on the hook for more than 20 billion dollars at more than 10% interest.
In fact, CC is so desperate to kick that debt can down the road, they are willing to pay 12% in annual cash and an additional 2% in PIK (payment in kind) notes to move the due date from 2016 to 2021.
Healthy companies aren't borrowing money at 14% ... and by paying those kinds of interest rates, aren't you admitting you're not going to be repaying principal?
How does consolidated radio compare to other media 20+ years in?
TV, which has issues of its own, has 42% of media consumption and 43% of ad dollars.
What's black and white and read all over? Not newspapers, at least not today. Print consumption is falling like a rock, down to 6%, but print still pulls in 24% of all ad dollars spent in the U.S.
You don't have to be psychic to know that the future is mobile platforms, whether smartphones, small tablet computers, or "radio."
Yes, radio has the ability to go everywhere with everyone if we produce content consumers want as badly as they want to see their favorite video, concert, and sports event.
But consolidated radio is not going to create that content and it is not going to figure out how to increase the medium's share of the advertising pie -- not when its sole imperative is slashing expense quarter after quarter.
When the amount you owe on your loan increases month by month, despite your payments, it's called negative amortization. I had an NA loan on my very first house, because when I bought it (1980), interest rates on mortgages were 18% and it was the only way I could make it work.
But the longer-term trend in interest rates was that they were more likely to drop then than rise, and my income at that point in my life was more likely to rise than fall. Both happened, I refinanced a few years later, and paid off that mortgage early.
Does anyone think the current long-term trend in interest rates means they will more likely fall than rise?
Have the largest consolidated radio groups tried anything -- anything -- that offers hope that their share of local and national advertising revenue will grow consistently, exponentially, in coming years? Grow enough to pay all that debt?
Ipso facto ... radio's hope lies in the dismantling of the largest consolidated companies, whether through bankruptcy or government action due to their woeful performance as local community resources.
That will allow smaller local and regional owners to buy back in, as Larry Wilson has done with Alpha.
It will encourage new ownership that is committed to true local involvement in every daypart to raise the rate bar and actually expand radio's share of the local advertising pie.
It's time to admit this experiment -- consolidation -- has failed for everyone -- listeners, employees, local communities -- except an elite few at the very top of these companies.
It's the only way radio can grow.